Millions of baby boomers are working in retirement, or what should be their retirement years. This has a potential to drag down the economy for years to come. First, if boomers remain in top paying senior positions, it stops promotions for Millennials/Gen Xers. This directly affects their ability to contribute more to their retirement accounts. Second, boomers working in retirement enable employers to pay less as more people compete for jobs. All generations earn and save less when boomers can’t retire.
This is the second in a series of three blogs beginning with The Retirement Crisis (An Economic Catastrophe?)
Why Are Boomers Working in Retirement?
Four generations of employees now share the workplace. Generation Z is flooding in before boomers exit. A Gallup Poll found that 74% of adults plan to work past retirement age — 63% part time and 11% full time. In 1995, only 14% worked after age 65.
Personal retirement finances are the #1 reason boomers give for working longer. The Great Recession took an enormous bite out of every American’s savings. But boomers close to retirement took the hardest hit in the long term. At least two-thirds of older Americans say they haven’t completely recovered from the recession. Just as important, more than 50% say they haven’t been able to save as much as they did before the meltdown. A mere 17% have been able to put away a bigger chunk of their paycheck.
As office desks move to home offices, where does that leave baby boomers? Boomers working in retirement don’t have the same level of technical skills as the youngsters. However, remote work does offer boomers unique opportunities to continue working. Because seniors aren’t writing complex code, simple remote tools like Zoom and Slack are very intuitive to learn by those with some technical office skills.
Baby Boomers Stopped Planning for Retirement
Because many boomers don’t have ample savings, Social Security is a critically important source of retirement income. After all, they did pay in all of their working years. Here’s what Social Security means to their retirement:
- At age 62 you can begin collecting Social Security retirement. But at less than the full benefit. Result: boomers working in retirement to collect full benefits.
- Beginning in 2020, baby boomers born in 1955 won’t reach full retirement age until 66 years plus two months. Boomers born in 1956 will wait until 66 years plus four months. And so on until 2027 when baby boomers born in 1960 or after reach full retirement age at 67 in. Result: boomers working in retirement to collect full benefits.
- This means is a person retiring at 62 (71.7% of full benefit) who would have reached full retirement age of 66 years plus eight months collects $7,100 less by age 80 based on a $1,000-per-month benefit.
- You also need to consider how it will impact your surviving spouse’s income if he or she is likely to outlive you and will depend on the survivor’s benefit. Result: bay boomers working in retirement to collect full benefits.
Baby boomers have lost confidence in the stock markets. They are facing an older age before retiring. Some also can’t compete with technically with younger generations. But maybe there’s a better option. An option involving both working at something you enjoy and building your retirement account quicker.
Do What’s Good for You in Your Retirement Years
Many baby boomers have wanted to start their own business. Doing it near your retirement age could be the best option for you. There are special benefits to consider.
For one, you may have startup funding available that your aren’t aware of.
Second, a Solo 401k account might just be the low risk retirement investment vehicle you’ve been looking for.
There are many businesses you can start with little to no time or capital cost. Once you have the business up and running, you can invest in any number of assets. Read a case study here of a retirement age couple who invested in low risk real estate with secure and tangible assets.
If you already own a small business, your Solo 401k contributions are tax deductible. You also gain many other tax benefits by being self-employed. Opportunities to work smarter rather than harder.
More Reasons Baby Boomers are Working in Retirement
The Great Recession beating by Wall Street caused many boomers to lose all confidence in the stock markets. Today, these seniors are playing it safe with their savings. This keeps baby boomers working in retirement. It also means their money is locked away in low interest CDs, saving accounts, and money markets.
This means their meager savings aren’t growing at all. Inflation is eating away at the little that remains. Add to that with many major corporations preferring forced retirement when thinning the work force. According to this ProPublica and the Urban Institute study, 56% of older workers are laid off or forced out by making the job financially unacceptable. Only about 10% ever regain their full financial health.
And the news doesn’t get any better. Statistics show that baby boomers hold the second highest debt load among the generations. Only the Gen Xers carry more. Most boomers had plans to enter retirement debt free. Reality is baby boomers are now carrying more debt than before the Great Recession. The sliver lining of good news is that many are close to paying off mortgages, which is the primary cause of debt. But again, it means working until those mortgages are paid.
And there are health care cost worries. The average 65 year old man can expect to spend about $190,000 on medical expenses. Because women tend to live longer, the number for them is estimated at $215,000. This does not include long term care that 70% of seniors are expected to need at some time.
Finally, there is the love and loneliness factor keeping baby boomers working longer. The older spouse doesn’t want to retire until the younger one reaches an age he or she can retire. Or in some cases, it’s the opposite. One spouse keeps working because he or she isn’t ready to spend 24/7/365 with the other. Regardless, it keeps baby boomers working in retirement.
Is Down Sizing the Answer to Having It All?
It’s little wonder that baby boomers just don’t know how to retire. It might not even be a good idea to go from full engagement to watching daytime TV – if you don’t have the dollars to golf.
Starting your own business is one option. With more baby boomers working in retirement, small business ownership can grow as well. If you do start or have your own small business, even part-time or on the side, the Solo 401k account may be the right answer for many baby boomers. It can keep you active at the level you prefer. You determine the amount of financial security and risk you want. Solo 401k earnings continue to be tax deferred and growing your ultimate nest egg at the same time.
A Solo 401k retirement account isn’t only for baby boomers. Millennials and Gen Xers need to take charge of their own retirement future. That’s exactly what we cover in the third part of this series.
Have questions about your Solo 401k and retirement? Solo 401K experts at Nabers Group will help you get your retirement funds into your control, where they belong. Contact us here.