Although the Great Recession impacted the savings of American workers across generations, it delivered a major hit to the retirement savings of the youngest Baby Boomers, according to a study by the Center for Retirement Research (CRR) at Boston College.
Boomers born in the early 1960s at the end of that generational wave had saved an average of about $280,000 for retirement when they reached their 50s. That’s nearly $50,000 less than their older counterparts born in the late 1950s had saved by that age. And experts point to the Great Recession as the main culprit.
"The single biggest reason for the shortfall in savings was the 10 percent spike in unemployment during the Great Recession that followed the stock market crash," the CRR said.
In fact, late Boomers’ retirement savings seemed to be on track prior to the recession. By age 41, late boomers had saved an average of $15,329 in their 401(k) plans and individual retirement accounts (IRA) – "Substantially more than the middle boomers born in the late 1950s had saved by that age," according to the CRR.
But by age 51, late boomers had saved about $28,000 in retirement savings or half of what the mid-boomers had at 50, the CRR said. The Great Recession diminished late Boomers’ capacity to maximize savings. The stock market crash took an impact on their retirement accounts and massive unemployment reduced the amount many could save, with some stopping contributions altogether.
In fact, the late Boomers’ employment rate stood at 98% before the recession and then dropped to below 80% by the next decade, according to the CRR. And it didn't move for many years after. Additionally, the ripples of the Great Recession didn’t spare boomers who remained in the workforce.
"Income tends to level out or decline around age 50, but the late Boomers’ incomes fell sharply in their 40s, which are usually the peak earning years," the CRR said in its report.
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Social Security cost of living adjustment could be smaller in 2024
The Social Security cost of living adjustment (COLA) for 2024 could rise to 3.2%, according to the latest analysis by The Senior Citizens League (TSCL). That would increase the average monthly benefit by $57.30 to a total average of $1,847.30. However, the boost would be dwarfed by the historic 8.7% increase of 2023 – which marked a 40-year high.
But even then, Social Security wasn’t enough to help many retirees make ends meet.
"The reality is that the dollar amount of the COLA increase received is meager at best," TSCL said.
And as the nation grapples with stubborn inflation and recession woes, many Americans say they can't rely on Social Security any longer. More than half (88%) said they'd need another source of guaranteed income to be able to retire comfortably, according to a survey by Allianz Life. Still, Social Security remains the sole income for about 42% of retirees, according to research by the National Institute on Retirement Security (NIRS).
"Social Security benefits are often the backbone of a retirement strategy, but it cannot be your entire strategy," Kelly LaVigne, Allianz Life vice president of consumer insights, said in a statement. "A strong retirement strategy will ensure you have enough guaranteed income to cover your essential expenses. That guaranteed income can come from Social Security benefits along with other investments and protection products such as annuities."
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SECURE 2.0 designed to improve retirement system
The Secure Act 2.0 was designed to make vast improvements to the nation’s retirement savings system by implementing changes over the course of the next few years. It was enacted into law in January 2023. Here are some of its highlights.
- Required minimum distribution (RMD) age will rise to 73
- Part-time workers would have easier access to their company 401(k) plans
- Employers can offer 401(k) matching contributions based on student loan payments
- Companies can create emergency savings plans for workers
"SECURE 2.0 will give millions of Americans a better chance for retirement success, and can help employers attract and retain talented employees," said Janet Luxton, senior ERISA consultant at Vanguard, said in a post. "Employees will be able to save more through increased catch-up contributions, receive matches on student loan repayments, and maximize retirement savings.
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