CHICAGO, July 12, 2016 – A majority (53 percent) of America’s non-retirees think that they will pay off their debts before retirement, however only 23 percent of retirees actually report being debt free, and 38 percent of retired Boomers have had to adjust their spending to compensate for a financial shortfall in retirement, according to a new study commissioned by Bankers Life Center for a Secure Retirement® (CSR). As Baby Boomers struggle to reduce their debt before retiring, 60 percent of non-retirees still spent as much or more than their household incomes in 2015.
The study—Paying for the New Retirement: Responsibilities and Challenges for Middle-Income Boomers—reveals that more than eight in ten middle-income Boomers (81 percent) currently have some debt, and among those who are retired, 77 percent still carry debt. Six in ten (60 percent) non-retired middle-income Boomers report they are spending as much or more than their household income, making it difficult to build their retirement nest egg. Of those who are spending more than their income, more than half (55 percent) say it is because of bills, debt, loans or other expenses. One in six (15 percent) say health or medical issues are to blame.
Between their debt burdens and continued spending, 69 percent of Boomers don’t believe or don’t know if they have enough money to live comfortably to age 85, which, according to the Social Security Administration, is their average life expectancy.
For many, poor retirement planning, lack of savings, and limited knowledge of financial tools and investment vehicles have compounded the problem.
“Americans tend to prepare for what they can anticipate,” said Scott Goldberg, president of Bankers Life. “Most do not anticipate the amount of debt they will carry into retirement, in addition to other unplanned expenses such as long-term care and various health related costs. Our studies show us that few Boomers are taking the steps to plan for and overcome these hurdles.”
According to the latest CSR report, many middle-income Boomers are expecting to rely on retirement income streams—such as employer pensions or Social Security—that are becoming less common or may be insufficient to sustain a lifestyle they are comfortable with. In addition, only about half (47 percent) feel they have a strong understanding of financial matters.
“The average Boomer has struggled to stay current on what financial planning options are available to them, which magnifies the weight of any financial distress they experience,” Goldberg explains. “Retirement in 2016 looks a lot different than it did just 20 years ago, and there’s been a lag in planning as those preparing for retirement try to solve a financial challenge that continues to evolve.”
Paying for the New Retirement surveyed 1,001 Americans age 52 to 75 that have an annual household income between $25,000 and $100,000 and less than $1 million in investable assets. The study shed light on the following gaps in retirement planning:
- Only three in ten retired middle-income Boomers (28 percent) say they were financially prepared when they retired.
- Although three-quarters (78 percent) of non-retired middle-income Boomers say that they will wait to age 65 to start collecting Social Security benefits, in reality, only about four in ten (38 percent) do. This is despite the fact that delaying one’s benefits can lead to increased monthly benefit amounts—approximately an 8% increase for every year one waits up to age 70.
- Only half are confident in their understanding of annuities (51 percent) and Roth IRAs (48 percent).
The survey also revealed that most middle-income Boomers are concerned about what they largely cannot control, including decisions made by the federal government regarding budgets and spending. Meanwhile, few are taking proactive steps to address the things they can control. Only 9 percent of those surveyed say they were very prepared for retirement, but 39 percent have not taken any active retirement planning steps.
“It is never too late to improve the outlook for your retirement financial security,” Goldberg says. “Beginning to pay down debt and developing an action plan are critical first steps toward a secure retirement. A financial professional can help you understand the range of tools available and create an informed plan toward your retirement goals.”