Much has been written about the various generations and their retirement readiness. But within at least one of them there are different circumstances and challenges, as a recent blog entry observes, and a mix of approaches they can take to improve their retirement readiness.
The “Baby Boom” is generally defined as having taken place in the first 19 years after World War II, 1946-1964. There are likely to be significant differences between those born at the start of such an expansive span of time and those born later in it, and Michael Webb argues in “The Retirement Problems — and Solutions — for Younger Boomers,” an entry in Cammack Retirement’s “Top of Mind” blog, that one of the things that distinguishes the younger of the Boomers—those age 56-65—is their retirement readiness.
Webb cites John Hancock’s State of the Participant 2020 Report, in which researchers found that plan participants younger than age 50 are more likely to be on the road to being financially prepared for retirement. This, they say, is because they are young enough for changes made by the enactment of the Pension Protection Act of 2006, such as auto-enrollment and auto-escalation. They also report that 34.2% of those age 50-59 are ready for retirement. And the results were even worse for those age 60 and older. Webb called the gap between those age groups and younger generations “striking,” noting that at least 53% of plan participants from younger groups were ready for retirement.
Webb cites a variety of explanations for younger boomers’ poorer preparation:
- Unlike the older Baby Boomers—those born between 1946 and 1955—as well as the generation before the Baby Boom, younger Baby Boomers generally are not pension plan participants.
- The advent of auto-enrollment benefits younger generations to a greater extent than those in the Baby Boom generation. “While many younger Boomers are saving for retirement now, they were not doing so when it was most beneficial,” writes Webb.
- The younger Baby Boomers are members of the “sandwich” generation that simultaneously cares for their children as well as elderly parents. This, Webb writes, “carries a tremendous financial burden.”
But all is not lost, Webb indicates, offering suggestions regarding what younger members of the Baby Boom can do to increase their financial readiness for retirement:
- Increase the amount set aside in elective deferrals though 401(k), 403(b) and 457(b) plans.
- Consider converting some retirement plan assets to a Roth, with the result that retirement plan assets will be taxed at different times. Webb calls it “a solid strategy” to diversify the tax treatment of retirement plan assets in such a manner.
- Cut expenses, increase income or both. This, Webb suggests, can have a sizable impact. “Individuals don’t need to reduce expenses and/or increase income by much for it to have a tremendous impact; a little more than $27 a day adds up to $10,000 per year!” he writes.
“It is never too late to turn things around,” Webb reminds younger Baby Boomers who are encountering difficulty in saving for retirement.
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