It’s true, the Boomer generation (Americans born between 1946 and 1964) is the wealthiest generation in U.S. history. They have a greater percentage of wealth heading into retirement than the two generations before them, and they were wealthier in their younger years than millennials are now. In fact, they held 21% of U.S. wealth when they were the age millennials are now, while millennials hold just 6% of U.S. wealth. They’ve been better savers and yet, many baby boomers are still facing financial crises in retirement.
A confluence of factors that include early forced retirement, inflation, medical crises, increased debt, recent market fluctuations and a fewer percentage of workers with pensions has created a wealth gap between what baby boomers will need in retirement and what they have.
According to 2019 data from the Employment Benefit Research Institute (EBRI), the median nest egg for a family headed by a 60-65 year old whose annual income was between $71,000 and $126,000, was about $150,000. For people making above $126,000, the average jumped to $535,000. Medicaid and social security are available to supplement retirement savings, and 40% of retired individuals depend on these programs to pay for day-to-day expenses. But even with their support, the EBRI estimates 40% of Americans aged 35-64 are still at risk of experiencing a shortfall in retirement savings during their lifetimes.
That’s because people have underestimated how much it will cost to retire. Expenses include the everyday costs of mortgage, rent, food and utilities, but these pail in comparison to the $315,000 the average couple who retires today can expect to pay in medical expenses in retirement. Additionally, there’s the cost of long-term care which can reach $180,000 a year.
People just aren’t saving enough to keep up with the rising cost of living and the fact that we’re all living longer. But it’s not their fault.
How We Got Here
The baby boomer generation is a kind of transition generation. Before them, the Greatest generation and the Silent generation mostly enjoyed pensions that guaranteed a steady stream of income in retirement. Their life expectancy was also a lot lower so there were fewer non-working years they had to save for. Now, only 15% of workers have pensions so the burden of saving for retirement falls squarely on their shoulders and they’re living longer– sometimes 40 years past retirement. But the retirement savings vehicles haven’t caught up to this new reality.
For the most part, large companies replaced the pension with a 401k in the 1970’s and because of this, workers, who were for the most part, not financial experts, became responsible for investing their retirement savings. Their options were limited to the investments their employers chose to include in their 401k plans and these accounts often charged (and still charge) high fees that ate into baby boomers’ savings. In addition, these portfolios weren’t always managed in the best interests of the plan participants. The investments offered were often those that made fund managers money as opposed to those that contributed to a well-diversified, low-cost portfolio. In fact, a recent study found that baby boomers’ 401ks were heavily invested in stocks, making them vulnerable to recession.
In addition to longer life expectancy and a less secure source of retirement income, many baby boomers have experienced early forced retirement. Whether the cause was a medical issue (theirs or their partner’s) or economic fluctuations that left them unemployed late in their career, many baby boomers have been prematurely cut off from contributing to their 401k, making it more difficult to grow their nest egg.
Recent spikes in inflation and the fact that more than half the families headed by a 75 year old carry debt (versus in 1992 when just ⅓ of families headed by a 75 year old carried debt) mean that their savings won’t go as far as they’d originally planned.
But there is a way to fix this for Boomers and the following generations.
How Icon can Help
One of the worst things that can happen to a worker of any age is being cut off from the ability to save for retirement. This happens because 401ks aren’t portable. They’re tied to the employers through which they’re offered and once a worker is no longer employed with the company, they can’t contribute to that account. They must roll it over to a new employer’s 401k (which can be costly and complicated) or they can leave the money where it is and start a new account with a new employer (which is inefficient), or, worst-case-scenario, they’re working for themselves or for another company that doesn’t offer a 401k so they’re left without any retirement savings vehicle altogether.
That’s where Icon can help. An Icon Retirement Savings account is portable and accepts 401k rollovers so workers who have found themselves prematurely locked out of saving for retirement can ensure they meet their savings goals without managing more than one account. This also applies to workers who change companies frequently and those who work for themselves. Icon is a retirement savings plan that covers every type of worker so that everyone can save for their future.
In addition, Icon isn’t structured to make money off of the investments in our portfolios. We don’t receive kickbacks like many investment management firms so our portfolios are designed to be low-cost and offer a diverse selection of assets.
You can also contribute to a 401k and an Icon plan in the same year so for those nearing retirement that want to max-out their retirement savings opportunities, Icon is an additional investment tool. However, if you’re covered by a 401k at your employer and you’d like to contribute additional money to an IRA (like Icon), your ability to deduct your contributions from your gross taxable income will be limited based on your annual income and how you file your taxes.
Icon Retirement Savings plans are designed to help workers of every stage of life reach their retirement goals. They’re flexible, portable, cost effective and structured so that plan participants get to keep, and keep investing, more of their money. It’s one of the most promising solutions to the retirement crisis we’re seeing today.