The Retirement Challenge Facing the Baby Boomers

The Retirement Challenge Facing the Baby Boomers

You must save for retirement

Social Security benefits will drop

How much money you might need when you retire

Required savings levels for various ages

You must save for retirement

Old system predicated on three-legged retirement stool

• Social Security
• Company pension
• Personal savings

Social Security benefits will drop

Probable drop in cost of living adjustment (COLA)

Social Security benefits are already scheduled to drop

Retirement age for full Social Security benefits will increase gradually from age 65 to age 67

Reduced benefits still available at age 62

Birth year	Start age for full benefits (yr / mon)	Age 62 benefit as percent of full
1937	65	80.0%
1938	65 / 2	79.2
1939	65 / 4	78.3
1940	65 / 6	77.5
1941	65 / 8	76.5
1942	65 / 10	75.8
1943 - 1954	66 / 0	75.0
1955	66 / 2	74.2
1956	66 / 4	73.3
1957	66 / 6	72.5
1958	66 / 8	71.7
1959	66 / 10	70.8
1960+	67 / 0	70.0

How much money you might need when you retire

Varies greatly depending on your company pension, age, family situation

Generally need to replace 70 to 80 percent of your current income in retirement

Income requirements are generally lower during retirement

• Reduced need for transportation, clothing
• But potentially higher medical expenses

Those near retirement can expect Social Security to replace about 40 percent of their current income

Those aged 40 or younger can expect Social Security to replace perhaps 25 percent of their current income

Those near retirement can expect help from Social Security

If you have a good company pension you may need $100,000 to $200,000 in savings in today's dollars

If you have no company-provided pension you may need $200,000 to $300,000 in savings in today's dollars

You can tap your home's equity to get some of the money

Those aged 40 or younger shouldn't count on much help from Social Security

If you have no company pension (most likely) you may need to have accumulated $500,000 to $750,000 in today's dollars

Required savings levels for various ages

Because of compounding, the earlier you start saving, the easier it is

Assuming you start saving and continue saving at the indicated age and level, here's an idea of the savings rate required to save for retirement

Age 25 -> Need to save at least 5 percent of salary

Age 35 -> Need to save at least 10 percent of salary

Age 45 -> Need to save at least 20 percent of salary