Credit Unions Need to Help Boomers Prepare for Retirement

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A Guest Blog from the Financial Health Network

The resounding narrative with Baby Boomers—those born between 1946 and 1964—and other pre-retirees often starts and stops with the impending retirement savings crisis. Indeed, it is dire: with minimal savings and assets to fund their retirement, most pre-retirees are ill-prepared to enter into their golden years. On average, Boomers have just over $100,000 in retirement balances, far less than what is necessary to sustain their lifestyle in retirement—yet in the face of this about 10,000 Boomers are retiring each day.

Sources: Seeing Our Way to Financial Security in the Age of Advanced Longevity, Stanford Center on Longevity, 2018; ThinkAdvisor 2018

The financial health challenges facing Boomers goes well beyond (lack of) money in the bank, and credit unions are best positioned to offer solutions that meet their needs. This generation is the first to face a peculiar situation as they reach retirement, and its members need to consider factors that others in previous generations did not have to confront. 

For instance:

  • Boomers, unlike retirees from the Silent Generation, are the first major generation that cannot rely on a defined benefit plan (a pension) to fund their retirement. Many Boomers have adopted 401(k)s, but these plans are accessible to only 53% of Boomers. Sure, those without employer-offered retirement plans still have options, including buying Traditional, Roth, or SEP IRAs. But consider that for years—and against the backdrop of stagnant wages—the rapid rise of basic living expenses has prevented people across generations from prioritizing retirement contributions.
  • Many Boomers will retire with debt: often a mortgage, but also credit cards with revolving balances, student loans, and auto loans are likely. The average Boomer household carries over $7,000 in credit card balances into retirement.
  • Boomers are increasingly reliant on social security income, and not just to maintain their lifestyle in retirement but to survive. A recent analysis from SCEPA revealed that 40% of middle-class Boomers are expected to fall into poverty in retirement.

To make matters worse, the retirement funding formula has shifted dramatically over the last few decades as employers discontinued pensions in favor of 401(k)’s and other forms of defined contribution accounts.

It’s also no secret that the long-term viability of Social Security benefits is in question. Unless Congress acts, Social Security could be insolvent by 2034, and millions would be without this anticipated retirement income stream

Retirement is the purchase of a lifetime.  

As many Boomers are less prepared to fully fund retirement themselves, millions are more reliant on social safety nets to live, pushing more Boomers to take social security payouts sooner than is optimal. This amount often does not meet their household needs. On average, Americans 65 and older spend nearly $50,000 a year, while the average Social Security recipient only collects a modest monthly Social Security check of $1,461.

With fewer retirement funding sources, more debt, and limited assets and savings, this generation is facing significant financial health challenges leading up to retirement. Credit unions are in a unique position to help Boomers navigate life at this critical moment because they can quickly introduce solutions that help generate income, reduce debt, and budget in retirement, but they need to consider a holistic approach to improving Boomers’ financial health and cashflow in retirement.

MDC and the Financial Health Network recently collaborated on a project to identify feasible interventions that address Boomers’ financial health needs, and MDC owners are now armed with information and solutions to help Boomers lead financially healthy lives in retirement. 

The time to act is now.

The Financial Health Network is a trusted resource for business leaders, policymakers, and innovators united in a mission to improve the financial health of their customers, employees, and communities. They envision a future where all people, especially the most vulnerable, have the financial systems they need to be resilient and thrive.

MDC collaborates with both the Financial Health Network and the National Credit Union Foundation on projects focused on the financial health of the members of credit unions.