Spotting the great divide between early and late boomers’ retirement preparedness
By Cathy Weatherford
Insured Retirement Institute (IRI)
Advisors must recognize the unique challenges faced by boomers from opposing ends of the boomer spectrum and adjust their retirement income strategies accordingly to meet their varying needs. By doing so, advisors can bridge the gap between early and late boomers and help all boomers attain peace of mind in retirement.
What a difference a decade can make. Look no further than pop culture, where a decade can be the difference between capris and bell bottoms, Beatle-mania and former Beatles gone solo, and “My Fair Lady” and “The Godfather.”
Unfortunately, this divide is not confined to fashion, music and movies, but can also exist in terms of financial security. For the baby boomer generation, it can be the difference between enjoying a financially secure retirement and finding yourself underprepared for your post-working years. That’s the conclusion of a recent Insured Retirement Institute (IRI) report, The Great Divide: Financial Comparison of Early and Late Boomers’ Retirement Preparedness, which explores the difference a few years can make for boomers in terms of financial security, outlook on retirement and confidence in retirement planning.
The 79 million individuals who comprise the boomer generation are a diverse bunch, who lived during times of great change. For the study, IRI split boomers into two bookend cohorts: early boomers, those aged 61-66 (born 1946-1952), and late boomers, aged 50-55 (born 1958-1963). The results reveal “a great divide” between early and late boomers — one that requires the retirement planning industry’s attention to ensure that unique retirement needs and challenges are appropriately addressed. The source of the rift primarily stems from differing workplace experiences and employee benefit histories.
Early boomers more confident and better prepared
Early boomers are considerably more confident in their retirement prospects, with 42 percent believing they will have enough money to live comfortably throughout retirement, compared to only 25 percent of late boomers. A similar divide is apparent with regards to savings for retirement. Almost half of late boomers, 47 percent, report having less than $100,000 saved for retirement, compared to 32 percent of early boomers. Late boomers are also more likely to be saddled with competing financial constraints, such as supporting an adult child. Currently, 34 percent of late boomers are providing financial assistance to their children, compared to 21 percent of early boomers. DB versus DC
A key difference between late and early boomers is their career and compensation histories. Again, what a difference a decade can make. Unlike the early boomers, who worked a substantial portion of their working careers when traditional defined benefit (DB) pension plans were prevalent, the late boomers worked most their careers during the defined contribution (DC) plan era. As a result, IRI data shows that 43 percent of late boomers expect a DC plan, such as a 401(k), to be a major source of income in retirement, compared with only 36 percent of early boomers.
As a result, late boomers will be more self-responsible for their retirement income security, given the risks and challenges inherent to DC systems. These responsibilities include saving for retirement, investing assets held within retirement plans and managing withdrawals during retirement. With fewer savings, those on the tail end of the boomer cohort will be less prepared to manage these added challenges. In this context, we can better understand the divide that exists regarding early and late boomers divergent retirement confidence levels.
Addressing the divide
While IRI’s findings indicate that late boomers will have more difficulty achieving a financially secure retirement, hope is not lost. Both boomer sects can improve their confidence in their ability to achieve their retirement goals through working with an advisor. In past research reports, Boomer Expectations for Retirement, 2013, and Baby Boomers and Generation Xers: Are They on Track to Reach Their Retirement Goals?, IRI’s analysis shows the positive impact working with a financial advisor has on confidence in achieving retirement goals.
Advisors also must recognize the unique challenges faced by boomers from opposing ends of the boomer spectrum and adjust their retirement income strategies accordingly to meet their varying needs. By doing so, advisors can bridge the gap between early and late boomers and help all boomers attain peace of mind in retirement.