The Evolving Reality of Retirement in the U.S.
Every Monday, over 20 million Baby Boomers across America will begin their work day. Yet not long ago, many of those workers were retired. Today, 1 in 5 American workers aged 65 or older is employed, nearly double what it was in the last 35 years.
Nearly 40% of retirees are now ‘unretiring’ and returning to work. So why are so many Baby Boomers (born between 1946 and 1964) trading in their well-earned retirement for another stint in the workplace?
This shift is driven by several factors, each adding to a larger narrative. Let’s dive into what’s driving this surprising trend.
Adjusting to the End of Company Pensions
Social Security can be a big help for retirees, but it only covers 40% of the average pre-retirement income for most Boomers. Delaying Social Security benefits can increase payouts by around 8% per year until age 70. The 8% increase is based on your original benefit amount, not compounded, meaning each year’s increase is calculated from the same starting point. However, only 10% of Boomers wait that long, often claiming it earlier to cover urgent costs. This is a factor that contributes to many Boomers delaying or returning to retirement.
The days of retiring with a gold watch and a guaranteed pension are all but gone for non-government workers. Today, just 4% of private-sector workers have a traditional pension (which guarantees a fixed monthly payment for life) as their only retirement account, compared to 60% in the 1980s.
The shift from traditional pension plans to 401(k)s has gradually moved much of the responsibility for retirement savings from employers to employees. This has left many Boomers, who may have started their careers expecting employer-managed pensions, facing retirement with the added responsibility of managing their own savings through 401(k)s and IRAs. As a result, some found themselves unprepared to handle the complexities of retirement planning.
Money Isn’t Going as Far as It Used To
For many Baby Boomers, the retirement lifestyle they once imagined has become harder to afford. Despite decades of saving and investing, the high cost of modern retirement has thrown off their plans.
- Housing costs now soak up a third of the average retirement income
- Projected healthcare costs for a retired couple are $683,000, driven by longer life expectancy and common procedures. The average Boomer has retirement savings of just $194,000 - way off from the $1.2 million experts recommend
During the 2008 recession, many Baby Boomers panic-sold during the market crash and were slow to reinvest, missing out on the market recovery. Now, combined with high inflation driving up the cost of living in recent years, many Boomers are finding their retirement savings fall short of expectations.
Longer but Not Necessarily Healthier Lives
When Baby Boomers were born, life expectancy in the US was around 63 years. Today, the average Baby Boomer can expect to live until age 79. This drastic increase in lifespan has had a huge impact on retirement. What was originally designed as a brief 5-10 year period of leisure has become a 30+ year journey - almost a second life post-working career.
While Boomers are living longer, they’re not always living healthier. Studies show they’re 1.5 times more likely than previous generations to be diagnosed with cancer, diabetes and heart disease by their 60s. Not only does this increase their healthcare costs, it also limits their ability to earn money working the type of jobs or schedule they’d like. Although Medicare offers some help, out-of-pocket healthcare costs still average around $6,500 annually per person - double what many Boomers budget for. In addition to health challenges, many Baby Boomers take on caregiving roles, often for a spouse or partner, which can be a significant time commitment. Between 2015 and 2017, 17.3% of Baby Boomers in the U.S. were caregivers to their spouse or partner.
Given these pressures, it’s no surprise that 59% of Baby Boomers say they plan to delay retirement due to financial stress.
