Elizabeth Boatwright planned to be retired by now. After all, she and her husband Frank saved diligently for decades, and seemed on track to hit their financial goals. But the couple’s plan didn’t include Frank, a former social worker, developing dementia two years ago, or budget for his caregiving bills of $5,000 to $6,000 a month. So 72-year-old Elizabeth is still working two 12-hour shifts a week as a chaplain at a local hospital and filling in at the local children’s hospital whenever she can.
Once the couple’s nest egg shrinks to less than a year’s worth of caregiving costs, Boatwright says she plans to give up her paid work and care for Frank herself. “It’s hard. The savings are dwindling,” says Boatwright, who has a side business helping others with life transitions and financial planning. Her current situation juggling work and Frank’s needs “is definitely exhausting,” she says. Yet the prospect of giving up her paycheck and watching their savings shrink is even more daunting.
Boatwright is among the countless baby boomers who, despite representing the wealthiest U.S. generation in history, are facing down the prospect of running out of money in retirement. That includes even some of those who’ve long considered themselves comfortably middle class, and who have dutifully socked away savings throughout their careers. Their retirement-savings spoilers range from medical issues, to forced retirement, to spiraling debt, and beyond.
The median nest egg for a family headed by someone age 60 to 65, with household income of $71,000 to $126,000, was about $150,000, according to 2019 data from the Employee Benefit Research Institute, or EBRI. For those with incomes in the top quartile—making more than about $126,000—the median retirement-savings balance grows to $535,000. An improvement, but certainly not a guarantee for funding a retirement that could span 20 years or more.
Those savings are up against potential costs that can make quick work of retirees’ balances: Healthcare expenses for an average retired couple could hit $315,000, before factoring in long-term care, according to Fidelity. A private room in a nursing home averages $108,000 a year. Overall, more than 40% of those age 60 to 64 are at risk of experiencing a shortfall in retirement savings, according to EBRI, which includes factors such as home equity and long-term-care costs in its simulations.
“Most people don’t understand how much it takes to retire,” says Frederick Rappina, a retired police officer turned financial planner who founded Opta Financial, who calls long-term care “a middle-class killer.” What’s more, he says, “Retirement plans were oversold as the way you would be able to retire.”
Of course, a savings shortfall isn’t a guarantee that retirees will end up destitute. Medicaid and Social Security offer important safety nets. Indeed, 40% of older Americans rely on Social Security benefits to cover more than half of expenses. Family and friends often help out, and retirees tend to course-correct as their savings are depleted. But avoiding disaster still leaves many boomers with a retirement that doesn’t resemble the one in those soft-focus commercials for financial-services firms—and with a host of potentially difficult choices ahead.
“The majority of individuals aren’t going into retirement with enough assets,” says Stacy Francis, a certified financial planner and head of Francis Financial. “There is no room for error.”
The 401(k) Challenge
The latest generation of retirees and near-retirees face a more difficult funding challenge than many of their predecessors. A larger share of previous generations had pensions, providing them with a stream of lifetime income that, in concert with Social Security, acted as a safety net. In the 1970s, the last time inflation took this type of bite out of savings, virtually all full-time workers had pensions; today, that share is less than 15%.
While increased access to work-based plans, such as 401(k)s and 403(b)s, has improved the retirement prospects for many, the shift toward these do-it-yourself options does have pitfalls. They place a heavy burden on employees to choose the right investments and, as people move into retirement, manage the process of turning those investments into a steady flow of income.
“The distribution of outcomes has gotten better for some folks, but I’m worried that, on the tail end, the bad things that can happen has increased,” says David Blanchett, head of retirement research at PGIM, of the shift toward 401(k)s.
Some of the “bad things” are already popping up, as the end of a long bull market leaves behind losses in once-popular investments, ranging from crypto to technology stocks. “I run across individuals who had been managing their [own] money because in the past couple years, you could do no wrong. The market decline and money running out spurs a conversation,” says Daniele Beasley, a financial planner at Twenty Concierge Wealth management. “It’s the biggest transition in individuals’ lives, from being moneymaking machines to having responsibility for a big pile of money and needing to manage it.”
Dealing With Debt
In the past, most retirees carried very little debt. But that is changing: In 2019, more than half of families headed by someone 75 or older had debt, compared with less than a third in 1992, according to EBRI. While mortgages accounted for about 30% of retiree debt, the incidence of credit-card debt has also risen for this age group. What’s more, the median debt burden is higher for Black and Hispanic families, contributing to the racial wealth gap that exacerbates retirement-security concerns for people of color.
In the case of David Parker, 58, it was credit-card debt that nearly derailed his retirement plans. “We were in dire straits, living paycheck to paycheck and working overtime just to keep going,” says Parker, who has six adult children. Parker, a police officer, attended a retirement session with Opta Financial’s Rappina, an eye-opening experience that led him and his wife to pay off their high-interest credit-card debt using a loan against Parker’s retirement account.
After ridding themselves of the five-figure debt, the couple started maxing out their retirement contributions, and sold their home near the D.C. suburbs to move farther out in Virginia. Relocating slashed their mortgage payment by two-thirds and allowed them to get more space. “This is the house I want to retire to,” says Parker, who achieved that goal when he left the force at the end of last year.
For those living in expensive locations, a strategic move such as the ones the Parkers undertook can be a boon to the household budget. Still, Rappina says it’s important to factor in property taxes and the location of friends and family, who can be an important source of emotional and caregiving support.
Leaving Work Too Soon—Or Too Late
Still, relocation isn’t always possible. Sandi Engh, 69, had planned to bolster her savings by selling her home in the Los Angeles area and retiring to a cheaper coastal city. But after her son fell sick and her elderly uncle needed caregiving help as well, the move was off the table.
That meant Engh would have to continue working—an option she is lucky to have. A 2021 paper by researchers at the Schwartz Center for Economic Policy Analysis at the New School found that nearly a third of middle-class workers 55 or older—those in the middle 40% of the income bracket—were forced to leave the workforce involuntarily between 2010 and 2018. Even among those in the most prosperous 10% of the income bracket, 30% of older workers were forced into early retirement.
“If you retire at 62 instead of 66, it can be devastating,” PGIM’s Blanchett says. “You could have done all the right things, saving for 30 to 40 years and then something beyond your control happens and you can’t get back into the labor force.”
Medical issues are to blame for many of those earlier-than-expected retirements. And for those forced to bow out before they qualify for Medicare at 65, the problems can compound quickly. Someone who retires at age 60 has “five years where they have to get a private healthcare policy that can easily run $1,000 a month,” says financial planner Francis. “Health issues absolutely can be a time bomb in even the most robust retirement plans.”
Coping With the Cost of Care
Perhaps the most difficult retirement expense to plan for and fund is long-term care, which includes nursing homes and in-home caregivers. It’s also one that every retiree should consider: Almost half of Americans receive some type of long-term paid care over their lifetime, according to the Urban Institute. And in the case of those who don’t get paid care, a family member may step in to help, bringing its own set of complications, such as endangering the next generation’s ability to save for their own retirement.
Those with a midsize nest egg can find themselves in a particularly difficult spot if they haven’t budgeted enough for care, says Blanchett. “If you have $5 million, you can go to a nursing home for a few years. If you have no money, Medicaid pays for it,” he says. “If you are in the middle, you risk depleting your assets.”
Neither the financial-services industry nor the government offer an easy answer to protect against this risk. Most advisors now recommend getting long-term-care insurance in your 40s, well before most people are closely stress-testing their retirement portfolios. Some advise purchasing a low-cost annuity to create a guaranteed lifetime income stream. And the best and simplest way to help with these late-in-life costs is wait until 70 to claim social security, locking in 124% of the benefit you would get at the full retirement age of 67.
The baby boomer retirement crisis isn’t something with a simple, overarching solution. But advisors say understanding—and planning for—the reality of the costs and obstacles ahead is a giant step in the right direction. Boatwright notes that even with her background in helping others plan for their futures, she was unprepared for the scope of her husband’s caretaking bills. It’s an all-too-common scenario, she says: “Boomers are caught unaware.”
Write to Reshma Kapadia at email@example.com