For many older Americans, retirement signifies the achievement of a long-term goal. It marks the culmination of decades spent in the workforce, a new chapter for your family, and a time to open yourself up to new opportunities. And in 2024, we’ll see the biggest swell of Americans turning 65 – a year often considered as retirement age.1 This group has been coined “Peak 65” as they are the final and biggest group of baby boomers to turn 65 and will thus launch the largest wave of retirements in American history.2
Retirees may choose to use their newfound time to strengthen connections with loved ones, pick up new hobbies, or embark on new adventures. It’s also a time when they may decide to take stock of their finances and plan for the future. With life expectancies increasing and the nation’s population growing older, it is more essential than ever to prioritize the future and set yourself up for a stable and fulfilling lifestyle throughout your golden years.
Your retirement reality is an individual outlook, however, analyzing data on overall baby boomer finances can help extract trends that are important to be mindful of. The challenges of retirement can pose issues for those with less savings or income, and the disparities between individuals in the same generation can be profound. Thankfully, it is never too late to take control of your finances and make smart money moves to better your position.
Exploring the Financial Gaps
One of the largest challenges baby boomers face as they enter retirement is financial preparedness. According to a 2023 study by Credit Karma, about 27% of people 59 and older do not have any retirement savings, and roughly 1 in 5 do not have a retirement account.3 Unfortunately, this lack of savings can force individuals to move their retirement benchmark back as they age in order to continue to support themselves and plan for the future.
Financial data trends show that retirement savings can vary dramatically depending on a number of different factors. One of these is gender, with the median retirement savings of “peak 65 boomer” men being $268,745, and the median for “peak 65 boomer” women being $185,086.2 Another factor is the highest level of education received. Those with a high school diploma have a median of $75,300 saved for retirement while those who have graduated college have an average of $591,158 saved.2
Of course, there are outliers in the data that represent the exacerbation of wealth inequality in the United States. The difference between the median net worth of a baby boomer, sitting at $206,700, and the average net worth of $1.2 million exemplifies this disparity.4 The expansive difference between the median and the mean (average) net worth shows that the highest-earning households are bringing in significantly more than the typical household.
Looking beyond the numbers
The numbers on retirement savings certainly paint a picture of the financial gaps and realities that exist among baby boomers, but it’s important to remember the other pieces that contribute to your own financial story. Your retirement plans are not simply defined by your bank account. You’ll want to consider other aspects of your life as you move into this new season of life: do you have a place to live that can accommodate for lifestyle changes as you age? Is there a support system in place to help you? Are you working with trusted loved ones or advisors to help you with your accounts and future wishes? You have the power to connect all of these elements together to create a stable base for your retirement plans.
Outside of these foundational components, you should also evaluate the goals you have set for yourself in more personal areas of your life. These can include self-determined milestones, prioritizing healthy habits, and maintaining strong social relationships with friends and family. Taking steps to strengthen your finances and strive towards your other key life objectives is important regardless of the chapter of life you are in.
Navigating the Challenges of Retirement
For many baby boomers, insufficient retirement funds pose significant challenges. As we age, we face a different set of circumstances which typically require additional support. Healthcare expenses in particular can deplete savings quickly, as the need for medical assistance tends to increase as we get older. Though Medicare can help cover some of your medical costs, the program doesn’t always provide complete care for everything you need to look after your overall health.
Moreover, the need for an emergency fund cannot be overstated. Life is often unpredictable and unexpected events have the potentially to disrupt your financial stability and erode your retirement savings. By planning ahead, you can be better equipped to minimize the short- and long-term damage. If you can avoid tapping into your savings accounts before you planned to, you can protect yourself from unnecessary losses.
Another challenge to consider is managing your living arrangements. As your mobility and health statuses change with age, your home may require updates and improvement projects so you may continue to reside in it with greater ease and safety. Making sure you have a comfortable nest to rely upon ensures you put yourself in the best possible position to enjoy your retirement on your own terms!
Using a Reverse Mortgage to Close the Gap
The path your retirement leads you on will be unique and personal to your own situation. However, with a large share of boomers facing financial distress as they plan to leave the workforce, there are certain tools that can be utilized. One of these is a reverse mortgage.
A reverse mortgage is a loan specially designed for senior homeowners and allows you to convert a portion of your home equity into cash without having to sell the home or make monthly mortgage payments. Of course, keeping current with your property taxes, insurance, and maintenance is required. Reverse mortgages offer flexibility in how you receive your funds, and also allow you to choose how to spend your income tax-free funds.5 You can put the money towards the goals or challenges that are most pressing for your life, or you can simply use the funds to supplement your income and boost your financial peace of mind.
One of the key advantages of a reverse mortgage is its ability to help you delay tapping into your Social Security benefits until you reach the maximum benefit age. When you access your home equity through this type of loan, these funds can help cover costs you may have otherwise relied upon Social Security for. By deferring the collection of Social Security, you can maximize your monthly benefit amount for when you do begin to collect the funds, ultimately helping enhance your overall retirement.6
Figuring out how to approach your retirement planning is a personal and important step in building a stable future. Although it may seem overwhelming at times, there are always steps you can take to put yourself on the right path towards a more financially secure retirement. If you would like to learn more about tapping into your home equity, reach out to the Longbridge team today!
