(Click here if you seek different information on retirement savings)
The "baby boomer" generation are those people between 45 and 62 years of age (as of 2008). This generation has saved on the average retirement savings of $38,000, excluding pensions, homes, and social security. However, "baby boomers" with qualified retirement plans has an average retirement savings of $88,000. The $88,000 of average retirement savings will generate an annual retirement income of about $5,000 yearly. Not many people would be satisfied with this level of retirement income. To get an exact amount, based on your age and retirement savings, you can use the retirement income calculator. But there is ample evidence that these retirement plan accounts are mismanaged with approximately half invested in under-earning money market funds rather than long term growth investments. Its clear not many baby boomers will retire rich.
Here is additional data on average retirement savings and attitudes. Allstate has conducted a Retirement Reality Check annually. The survey measures Americans' attitudes toward, and savings for, retirement. In the 2006 version, respondents were asked, "If saving for retirement were like driving on the highway, where would you be?"
By far, the majority of respondents-- 48% -- said they are "in the middle lane, keeping up." More confidence was shown by 20%, who said they are "in the fast lane, passing others." And everyone else was rather timid. "On the on ramp, still getting started" came in at 14%; "in the slow lane, watching others go by," notched 13%; and "lost and looking for a map" held strong at 5%. Obviously, retirement is one area where many of us are perfectly content thinking of ourselves as average and the average retirement savings sounds to be pretty dismal. The dismal facts mean that most baby boomers will need to annuitize their nest egg and will have nothing to leave to their children (use the fixed annuity calculator for estimates).
It's estimated that the average projected post-retirement income replacement needed among employees of large U.S. employers is 126 percent of final pay, a level only about 19 percent of employees are expected to satisfy, according to a Hewitt Associates report released July 1. If we assume that the average person earns $40,000 annually, they would need about $50,000 in retirement income, requiring an average retirement savings of $833,000 (not taking into account any social security income).
In fact, according to the report, Total Retirement Income at Large Companies: the Real Deal 2008, about 67 percent of the more than 1.8 million employees of 72 large U.S. employers tracked in the study are expected to have accumulated less than 80 percent of their projected needs at age 65. Despite the gloomy projections, the report's authors concluded that employees can make a big difference in their retirement readiness by making small changes in their savings rates, investing smarter, paying lower fees, and delaying their retirement – all great actions to increase the average retirement savings in America.
I think in particular the last point is what we are going to see more and more of: individuals working well into their 70's just to pay their bills and survive. Unless savings rates make a big change, average retirement savings by retirement date will be too low.
Economist and humorist Ben Stein set out to answer the question, 'Why won't the baby boomers save?' According to Stein, the average baby boomer needs to save about $400,000 to have sufficient interest income to make up the difference between Social Security and what he or she needs for retirement.
Yet the average retirement savings of baby boomers has saved only $50,000—or $110,000 if you
include equity in their homes. He called this a crisis in the making.
Humorously exploring the question of how we got to this point, Stein suggested a number of possible causes for a low average retirement savings. First, he suggested, baby boomers have 'always had it too good.'
Never having lived through economic hard times, they lack the discipline to save. He also proposed
a Freudian explanation: the false sense that mommy and daddy—or the government—will always
bail them out if they get in trouble. A third possibility drew on the theories of behavioral psychologist
B.F. Skinner: saving offers no immediate gratification, while spending provides immediate positive reinforcement such as a flat-panel plasma TV set or a new car. The final theory suggested that baby boomers felt compelled 'to obey the media consumer spending machine.'
Whatever the cause, Stein concluded, many baby boomers in retirement will have to cut their
standard of living drastically, while others will simply run out of money. The baby boomers may
actually have saved more than the previous generation of Americans, but because fewer of them have DB pension plans, they are worse off. In other words, because baby boomers must save on their own whereas their parents largely had company retirement plans, this generation's average retirement savings rate is lower.
No matter who you listen to and what statistics are used, the average retirement savings of baby boomers is inadequate.