Older Americans expect retirement to be blissful, but they may be way off the mark

  • Many baby boomers are feeling rosy about retirement, with 82% saying they expect the amount they have saved to help them fulfill their retirement plans, according to a survey by Charles Schwab.
  • The average baby boomer surveyed had $920,400 saved for retirement, but the actual savings balance of most retirees is lower — the median 65 year old has just $58,035, according Vanguard data.
  • Additionally, 45% of baby boomers don't have any retirement savings, though about half of those without savings had cash at one point. 
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Many baby boomers think retirement is going to be great, but the data doesn't necessarily line up.

A recent survey by brokerage firm Charles Schwab found that 82% baby boomers expect their retirement to go as planned, and expect their savings to support most or all of their retirement dreams. 

But the survey doesn't account for all savers: Schwab surveyed only American baby boomers aged 55 to 75 with at least $100,000 worth of investable assets, including retirement accounts. The reality is that many baby boomers have less than that saved for retirement, and the outlook might not be the same across the board.

Many boomers have already used their retirement savings

This data leaves out a chunk of baby boomers who have no retirement savings whatsoever. According to data from the Insured Retirement Institute in 2019, about 45% of baby boomers surveyed had no savings.

IRI reports that about half of the baby boomers who don't have retirement savings did have money set aside at one time, but they had to use the cash before retirement.

Savers are allowed to borrow from their 401(k)s, but any funds taken incur a 20% income tax and a 10% penalty, though there are a few exceptions for those who leave work at 55, are permanently disabled, or going through a divorce. Additionally, people facing hardships, such as disasters, paying for funeral expenses, paying for college, or covering medical expenses, can also withdrawal from 401(k)s.

Most recently, the CARES Act allowed anyone affected by the COVID-19 pandemic to take early distributions from their retirement funds. Savers are allowed to take up to $100,000 from their retirement plans without the 10% penalty at any age. 

Some people took advantage of these penalty-free distributions. About 711,000 savers (or 3%) took a withdrawal from Fidelity retirement accounts by the end of June 2020, and investing firm Vanguard reported about 2% of its savers taking distributions.  

While many boomers once had retirement savings, they may have turned to their investments to fund needs before retirement, leaving them with little or nothing to live on later — a big problem.

Americans might not be able to cover their healthcare costs in retirement

According to the Schwab survey, the average saver in this sample had $920,400 in retirement savings. But that's a figure that's much higher than the national average, even for 55 to 75 year olds. 

According to data from Vanguard, the average 401(k) balance in 2019 was $171,623 for people aged 55 to 64, and $192,887 for people aged 65 and up. 

But averages are typically skewed by outliers, factoring in both accounts with $0 and accounts with millions. A more accurate picture of America's savings is offered by the median account balance — a figure that sits much lower. The median 55 to 64 year old's account balance is $61,738, and $58,035 for those 65 and up. Those figures show that savers have already tapped and lowered their savings balances by 65. 

These limited savings are a problem for retirees who need to live 20 or 30 years on these funds.

Data from Fidelity estimates that the average 65-year-old woman retiring in 2019 will spend $150,000 on healthcare alone in retirement, and the average man will spend $135,000. That's an amount just slightly lower than the average 65 year old's whole retirement savings, and more than double the median balances. While Social Security payments can help with living and medical costs, the average payment is about $1,500 per month, which doesn't go far enough without sufficient savings. 

While the outlook seems rosy for some retirees, particularly those with large savings balances, it may not be that way for many American baby boomers. 

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