26/07/2024

18 Reasons Baby Boomers Are Financially Vulnerable

Many Boomers face severe financial obstacles as they approach retirement, which could have a detrimental effect on their later years. Let’s review some of the potential causes and look at some of the reasons why Boomers find themselves in this situation.

Inadequate Savings

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Some Boomers find themselves approaching retirement with not enough savings in the bank. Although they may have a small pension, this is not enough to sustain their lifestyle after retirement, and many find themselves facing expenses that they simply cannot cover.

The Impact of the Great Recession

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The Great Recession harmed the retirement savings of younger Boomers. Many were at prime working age during the recession and lost out on significant investments and earning opportunities, which they weren’t able to recover from.

High Debt Levels

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Many Boomers take on high levels of debt into retirement, including mortgages, credit cards, and even personal loans for things like home improvement. As most Boomers see their incomes drop at retirement, managing their debt can be trickier.

Healthcare Costs

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Many Boomers haven’t prepared for the reality of age-related healthcare costs. Schemes like Medicare don’t cover everything, and age-related illnesses tend to increase with age, as does the cost of treatment, and medical bills can quickly mount up.

Risk of Longevity

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Retirement savings must endure longer because people are living longer. There is a greater chance that boomers may outlive their money because many have not made sufficient plans for the likelihood of living into their 90s or beyond.

Barriers to Employment

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Boomers may find it challenging to obtain and hold onto a job due to age discrimination, skill gaps, health challenges, and the quick speed of technological advancements. Furthermore, many deal with the stigma of being overqualified, which might turn off employers.

Changes to Pension Schemes

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People now have more responsibility for managing their retirement savings as defined-contribution plans, such as 401(k)s, have replaced defined-benefit pension schemes. Numerous Boomers were caught off guard by this change and lacked the funds necessary for a pleasant retirement.

Investment Risks

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Most Boomers come from a time when taking investment risks was encouraged and rewarded. However, the world is a much more economically volatile place now, and many Boomers have taken risks that, unfortunately, haven’t paid off.

Real Estate Market Fluctuations

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Real estate fluctuations particularly affect Boomers because this generation has a lot of its wealth tied up in property. Boomers are unique in that most of them own their own homes, which is a good thing, but due to low-market values in some areas, Boomers are at risk of losing out financially if they decide to downsize and sell up.

Inflation Concerns

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Inflation is a risk to Boomers’ retirement savings, especially as we are in the middle of a cost-of-living crisis. More and more retirees have had to dip into their savings just to afford basic essentials like food and energy bills.

Divorce and Separation

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The rate of divorce amongst Boomers has been steadily increasing, with female Boomers being most likely to instigate separation and/or divorce. The legal process of divorce can be costly, and living as a single person is more expensive overall than living as part of a couple, so this is another reason why Boomers are facing financial challenges.

Lack of Financial Planning

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For many Boomers, retirement has crept up on them, and they lack the necessary amount of financial planning that’s required to ensure a smooth transition into their Golden Years. There are many financial aspects of retiring, such as health care, downsizing, home-care needs, etc, and the inevitable unexpected expenses that come with anything. This lack of planning can lead to significant financial shortfalls for Boomers.

Dependence on Social Security

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A heavy reliance on Social Security can be risky, and many Boomers are accustomed to a much higher standard of living than Social Security benefits can cover. This can leave Boomers facing significant shortfalls in their monthly income, with too much going out and not enough coming in.

Cost of Living

Americans have been facing massive increases in the cost of living, and Boomers are not immune from these extra costs. Just like the rest of us, Boomers have been struggling to cover soaring energy, food, and gas prices, and most have not budgeted for such a sharp increase in basic living standards.

Supporting Adult Children

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Many Boomers are still supporting their adult Millennial children in some way. This puts an extra drain on their finances, especially as Millennials can barely afford to live separately from their Boomer parents. Many have moved back home during the pandemic and the cost-of-living crisis.

Lack of Emergency Savings

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Any emergency savings Boomers did set aside for a rainy day have been used up by the “rainy days” of the COVID-19 pandemic and the subsequent cost-of-living crisis. This means that most Boomers are now entering retirement and cannot cover unexpected costs, resulting in debt accumulation.

A Lack of Estate Planning

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Many Boomers have neglected estate planning, which involves getting your affairs in order in the event of illness and/or death. This leaves Boomers at risk of passing on financial burdens to their offspring, which could be avoided with diligent planning.

Solutions and Strategies

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For most Boomers, it’s not too late to turn some of this around. They could consider strategies like downsizing their homes, debt consolidation, seeking financial advice around estate planning, etc. Other solutions include considering part-time or freelance work, which could boost their retirement income and savings.