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Friday, May 7, 2021

The grim reality of boomer retirement

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It is no secret that boomers — still counting down the years before retirement — are living longer. But the economics of that longevity are new. The average American is now living to age 85, and this baby boomers-as-long-as-we-live generation will depend on Social Security, Medicare and Medicaid far more than it has in the past.

In some respects, their financial burden is manageable. As anyone with children knows, raising a child is more expensive. In some cases, the boomers’ friends and family are willing to help them pay expenses. And, overall, as the nearly retiring baby boomers get closer to the start of their assisted-living years, cost pressures are starting to mount.

Most boomers plan to work until retirement, so they can collect their Social Security benefits, plus Social Security disability benefits if they need them. This puts pressure on retirement savings, which in turn crimps other kinds of retirement income streams.

And keep in mind that life expectancy is up since the boomers were about to enter their senior years.

Here’s the backdrop for a piece by Jonathan Weil in the October/November issue of The New York Times Magazine, which is out now.

The chart below shows that a separate set of people has been considered rich in many ways — primarily the ability to retire at a young age or to inherit from a wealthy parent. These fortunate boomers currently aren’t retiring until their 70s, so it is not surprising that this pool of Americans has been growing. What is interesting, however, is that this class of boomers has been shrinking as the boomers who came of age during the Great Depression or the wars of the 1940s and ’50s have been reaching retirement age.

The amount of Social Security retirement benefits these middle-class boomers received peaked in 1992, with about 75 percent of these middle-class boomers eligible for full benefits, from about 56 percent for people of the earlier baby boomer generation. The share of boomers with full benefits has been declining ever since.

In contrast, the amount of benefits collected by the top one percent has continued to rise for the past quarter century.

How to exit this lopsided system once the boomers retire? The retirement income puzzle will surely get more complicated. The work of economist John J. Tobey and others has shown that the boomers have been shifting some of their retirement assets to tax-sheltered accounts, like individual retirement accounts, 401(k)s and Roth IRAs. Weill would do well to revisit these questions and explore them.

At the moment, we are seeing a positive sign that the boomer predicament may be coming to an end: the Treasury Department is planning to invest in Fidelity’s $67 billion portfolio of Treasury debt for its Part D program for seniors with high prescription drug costs. It is an unusual deal, but it looks like the go-to move for these strange-bedfellows economics in the eye of the storm.

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