The year 2011 was the advent of the retirement crisis in America. As we move forward into 2012 and the next several years, an unprecedented number of Americans will enter into retirement, 79 million to be exact. However, the majority of them are financially ill-prepared for retirement. Baby boomers face numerous retirement income challenges, many of which are unique to their generation.
As this generation enters retirement, we are seeing growing uncertainty among the sources of retirement income that have traditionally been heavily relied upon by retirees, such as Social Security. On top of that healthcare costs continue to increase and will continue increasing in the coming years. The life expectancy of baby boomers exceeds that of previous generations and in turn they will be spending more time in retirement than previous retirees, thus requiring retirement savings to last over a longer period of time.
Given these factors, it's not surprising that recent studies by the Insured Retirement Institute (IRI) found that the top concern of nearly one-third of boomers is having adequate retirement assets, and over half said they plan on working in retirement for income. Yet it is not necessary for boomers to sacrifice their retirement goals. With proper planning and guidance from a financial professional, this generation can crack the retirement code and retire with financial security.
Social Security Instability
Social Security has traditionally been a major source of retirement income for retirees, and Americans have come to rely upon it to cover many essential costs during retirement. However, over the past several years we have seen decreasing solvency of the fund. In 2010 and 2011, for the first time since the program's inception, retirees did not receive a Cost of Living Adjustment (COLA) in their Social Security checks. Yet they still shouldered the burden of inflation and increasing medical costs. In 2012, retirees will receive a COLA, however much of it will be negated by the increase in Medicare Part B premiums.
Still many Americans nearing retirement plan on Social Security providing for a majority of their income throughout retirement. More than four out of 10 baby boomers cited Social Security as a major source of retirement income with 51 percent of older boomers anticipating it to make up a significant portion of their retirement income.
Rising Healthcare Costs
The cost of healthcare climbs higher and higher each year, often outpacing the rate of inflation. Between 2000 and 2009 alone, medical and prescription costs, health insurance premiums and deductibles rose nearly 150 percent. At these rates the high cost of healthcare will become greater and is a significant factor that Americans must account for when considering how much they need for retirement. A study by the Center for Retirement Research at Boston College found that a couple who are both 65 can expect the cost of healthcare for the remainder of their lives to be $260,000.
Sadly, nearly 50 percent of boomers believe they do not have enough money to cover these expenses during retirement. This leaves many of them questioning their ability to ever fully retire.
Increased Life Expectancy
Not only are today's pre-retirees facing the challenges of Social Security instability and mounting healthcare costs they are also living longer making the time spent in retirement longer. Half of today's 65-year-old men are expected to live until age 85 and half of women 65 years old or older are expected to live to age 88, thus baby boomers could spend roughly 20 years or more in retirement. Consequently, this generation will require more savings and to make their retirement savings extend over a longer period of time than previous generations.
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