How baby boomers can close a retirement savings gap

Many baby boomers are not on track to retire with enough money. The researchers said they have some options for adjusting their orbits, but they come with trade-offs.

Only 40 percent of workers ages 61 to 65, the youngest members of the Boomer generation, are financially on track for retirement, according to a recent study. research from asset manager and retirement plan administrator Vanguard. Researchers estimate that this group will have enough income to fund their current lifestyle until retirement.

The rest are expected to be insufficient. According to Vanguard estimates, typical (or average) people ages 61 to 65 will have a $9,000 annual shortfall in retirement, representing a 24% shortfall in funding needs.

His analysis assumes people retire and claim Social Security at age 65.

The findings come during a historic demographic shift in the United States known as “peak 65.” A record number of people (more than 4 million per year, or about 11,000 per day) are expected to reach age 65 each year from 2024 to 2027.

Of course, it’s impossible to know the “right” amount of money needed to retire. No one knows how long they will live or how much money they may need for future retirement expenses such as healthcare or long-term care.

However, the Boomer generation is in a difficult situation compared to younger generations, as they suspect that they will not be able to maintain their current living standards.

For example, Gen Z and Millennials have decades to change course, perhaps by saving more for retirement and earning compound interest on those balances. This is not the case for those close to retirement.

Compared to younger investors, Boomers generally hold fewer stocks to protect their savings from market risk as they prepare to begin withdrawing from retirement (the typical growth engine of a retirement portfolio).

The fact that many Boomers are unprepared for retirement and are forced to cut spending to preserve their nest egg longer could have negative consequences for the U.S. economy.

“Some economists are ringing alarm bells: ‘We have this.’ [retirement] It’s crisis, doom and gloom,” said David Blanchett, a certified financial planner and head of retirement research at Prudential. “The situation is not as bad as it seems.”

Boomers have several options to help close the retirement readiness gap. But the options may not be accessible or palatable to all households, he said.

Here are three of them.

Blanchett said delaying retirement is a “magic solution” when it comes to eliminating or narrowing the retirement funding gap.

“Even pushing retirement back a few years can do wonders for retirement outcomes,” he said.

That’s because working longer results in more career-funded savings, higher lifetime Social Security income due to delayed filings, and fewer retirement years for retirement, according to Vanguard’s report.

For example, Vanguard found that working two years longer (i.e., retiring and collecting Social Security benefits at age 67) would increase the percentage of people ages 61 to 65 who are preparing for retirement from 40% to 47%.

But not everyone They will be able to work longer, even if it is something they plan to do.

In 2025, 40% of retirees said: left the workforce That happened earlier than planned, according to the Employee Benefits Research Institute’s Retirement Confidence Survey. This share has followed a roughly similar pattern over the last two decades, hovering around 40% to 50%.

Some of the reasons for leaving unexpectedly early include health issues and layoffs.

Among the reasons why the Boomer generation’s financial situation is somewhat precarious compared to younger generations: Hahn said the workplace retirement system is shifting from a pension-heavy system to a 401(k)-type system, right in the years when younger Boomers’ earnings are at their highest.

“They haven’t been able to take full advantage of the pensions or the newer 401(k) type savings system that their parents or grandparents might have had,” he said.

But Hahn said most of them are sitting on a large illiquid asset: their homes.

According to Vanguard calculations based on the Federal Reserve’s most recent Survey of Consumer Finances, the vast majority of baby boomers (86%) are homeowners; This rate is much higher than in younger generations.

The average Boomer has $113,000 in home equity, according to Vanguard’s report.

Researchers estimate that tapping into this equity will increase the share of young birds financially preparing for retirement from an initial 40% to 60%.

There are many ways to access these funds, experts said.

“The biggest return for your money, from a qualitative standpoint, is for someone to sell their home outright and become a renter rather than a homeowner,” Hahn said.

Homeowners may also consider selling and downsizing their current home, moving to a lower-cost area, or borrowing against home equity through a reverse mortgage or home equity line of credit.

But achieving housing equity is often a “difficult issue,” Hahn said.

Blanchett said most people are wary of viewing their home as a piggy bank, instead viewing it as an asset of last resort.

“A home is the largest financial asset for most Americans,” he said. “It’s a valid option in theory, but has been relatively unpopular in the past.”

A home often has a strong emotional tie to a person’s identity, which has the potential to make it difficult to sell, Hahn said.

Homeowners with mortgages who secure their loans when interest rates are low Given high interest rates right now, they may feel locked in, he said.

According to Blanchett, the typical retiree experiences a 20% drop in consumption when entering retirement; This could perhaps be because their lack of savings leads to a reduction in their spending. research.

But data shows that nearly 90 percent of respondents are moderately or very satisfied with their retirement.

“These responses strongly suggest that retirees are relatively satisfied despite their perception of retirement crisis,” he wrote.

Correction: David Blanchett is head of retirement research at Prudential. An earlier version of this story misstated the company name.