How Will 78 Million Baby Boomers Pay for Their Retirement Years?

Most of our 78 million baby boomers have not saved enough to last the rest of their lives. Many will have to rely on Social Security and Medicaid to sustain themselves. You’ve heard these dire predictions before. In this article, we put some numbers to the dilemma. What is the emerging shortfall? How will America pay for its elderly?

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Cost of Living During Retirement

We start with an estimate of what it costs for just the basics in America. 9 Retirement Expenses Every Senior Should Plan For reports that average expenses in retirement are currently about $42,000 per year, excluding one big unknowable – long term care.

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The average baby boomer has saved $152,000 for retirement according to the 19th Annual Retirement Survey of Workers conducted by the TransAmerica Center for Retirement Studies. The average Social Security benefit is $1,503 per month in 2020, substantially less than the average wage, which is approximately $3,668, according to the Bureau of Labor Statistics. Subtracting $18,000 in annual Social Security payments ($1503 X 12)  from the $42,000 average expense leaves $24,000 per year that will need to be paid from savings.

For simplification purposes, we’ll omit earnings on savings, and calculate how many years savings of $152,000 will last if you spend $24,000 per year for basic needs:

$152,000 savings / $24,000 spending per year  =  6.3 years

Savings will last just 6 years for the average boomer living an average life span.

What boomers need

But averages don’t tell us that much. Let’s take a closer look at baby boomer wealth. Some actually live in poverty, while others live in mansions. All want to be psychologically healthy, as summarized in the following Maslow’s Hierarchy of needs:


Baby Boomers Retirement 2


Money goes a long way toward fulfilling these needs, but that does not mean they cannot be met by baby boomers who are relatively poor. The needs are just more challenging for the poor. In the following text, we discuss how people in three baby boomer wealth groups will be dealing with retirement.

We define the “Poor” as the 70% of boomers with less than $300,000 in savings,  according to DQYDJ.  There are 55 million Poor baby boomers by this definition with a  collective net wealth of $5.5 trillion.

We define “Middle” as the 25% of boomers with a net worth between $300,000 and $2 million in retirement savings. There are 20 million Middle class baby boomers with a collective net worth of  $20 trillion.

We define “Rich” as the top 5% of baby boomers with more than $2 million in savings. There are 3 million rich baby boomers with a collective net worth of $30 trillion.

The Poor Baby Boomers

Our 55 million Poor baby boomers will need to find a way to live very frugally and to get the most out of our country’s social welfare programs, Social Security and Medicare / Medicaid. These folks are living almost entirely off of their Social Security checks, relying on Medicare Advantage plans for their routine health care, and they will need Medicaid if they become seriously ill. It’s not pretty, but it is real, and Poor people can achieve Maslow’s hierarchy for happiness. Fortunately, happiness is more than money, but future financial security has a big impact on the psyche of the Poor baby boomers.

Housing is the most expensive need, averaging $16,000 per year for the average baby boomer, or $1300 month, which is just $200 less than the average $1500 Social Security check. A Poor baby boomer should try to spend about half that average, or $650/month, leaving  $850 for other living expenses, which is about one-third of the $2100/month that the average retiree spends on non-housing. Keep in mind that the $850 residual also has to pay for utilities like gas and electric.

Keeping housing costs below $650/month means the poor baby boomers are limited to just a few cities and/or states and they may need to find a roommate or two. Or, perhaps they end up living with their children. They could also try to find subsidized low-income housing,  but these properties are in great demand, so there is a good chance they will end-up on wait lists and need to figure out what they should do in the interim. Here are some examples of cities with low rentals

  • Wichita, Kansas: $470
  • Cleveland, Ohio: $525
  • Detroit, Michigan: $550
  • Tucson, Arizona: $559.50
  • El Paso, Texas: $599.50
  • Oklahoma City, Oklahoma: $650

These are not terrible places by any means, but they could require the baby boomers to live away from family and friends.

Healthcare could easily become the biggest expense that the Poor baby boomers need to deal with. Medicare Advantage plans cover most of the routine medical expenses a boomer might incur, but the subscriber has substantial co-pays.  If the boomer requires long term care Medicare only pays for skilled and rehabilitative care after a three-day hospital stay; this excludes custodial care, the assistance someone needs for daily living. The Poor baby boomers can claim Medicaid benefits if their assets are less than $126,420, excluding homes, and they earn less than $56,000 per year. Coverage and eligibility requirements vary by state. Medicaid recipients assign most of their Social Security check to the nursing home that provides the care.

The fragility of Social Security and Medicare is a serious financial concern for many Poor baby boomers. Medicare is forecast to run out of money in 2026 and Social Security in 2034.  Something needs to be done, and the sooner the better. There’s a good chance that human decency will spare the Poor baby boomers at the expense of wealthier folks and younger generations.

The recent Covid-19 relief checks issued to Poor baby boomers are especially important to them, providing a little breathing room in an unusually tense period of time. Poor baby boomers are also likely to continue to work as long as they can, although opportunities become increasingly sparse with age.

Will society continue to care for its 55 million Poor baby boomers? Can it afford to continue to provide the care?

Middle Baby Boomers

Life is easier for our 20 million baby boomers who have saved between $300,000 and $2 million, but they are also most vulnerable to events that could move them into the Poor group, especially major investment losses like we saw in 2008 and early 2020. For most of these boomers, savings are as high as they will ever be because paychecks have stopped and spending has begun. Losses now mean less spending later, so lifestyles suffer and these baby boomers could run out of money late in life.  Middle boomers are in the “Risk Zone” spanning the 5-10 years before and after retirement during which investment losses change the rest of their lives even after the markets start to recover. Their main investment objective at this critical time should be to protect their savings and future standards of living.

The average Middle baby boomer with $1 million should be able to afford the basics, and some extravagances, but needs to be prepared for the big wild card – long term care.  47% of men over 65 and 58% of women will need long-term care during their lifetimes, and the costs could be astronomical. There’s a 78% probability that at least one spouse will require long term care. On average men will need 1.5 years of long-term care and women will need 2.5 years but many find themselves in long term care for a decade or more. End of life medical care costs can bankrupt retirees. Dementia patients can expect to pay at least $300,000.

Medicaid is not an option for most Middle baby boomers. Their only options are to take their chances (self-insure) or buy long term care insurance. The average long-term care insurance annual premium is $3,490, so if they end up paying that over the course of 25 years it’s a whopping $87,250. However, that sort of premium might buy baby boomers over $666,000 in coverage, according to the Long-Term Care Insurance Price Index. Should I Buy Long Term Care Insurance is a good guide for making this complicated financial decision.

Like the Poor baby boomers, Middle baby boomers should be concerned about the viability of Social Security and Medicare because the benefits might be reduced.

Rich Baby Boomers

You would think that this group of 3 million boomers with savings above $2 million would have no cares but you could be wrong. Rich boomers are accustomed to their comfortable lifestyles and want to leave some of their wealth to their kids and grandkids. Two things can spoil their joy: serious investment losses and critical illness. These baby boomers can afford to take good physical care of themselves to ward off critical illness. They can also take good care of their savings by protecting them from losses, especially in the Risk Zone described earlier in this article..

One of the many fixes being considered for Social Security and Medicare is a needs test that many Rich boomers might not pass, but this may not matter much to them.


The majority (70%) of baby boomers will struggle through their retirement years and many will find themselves dependent on the social welfare system, especially Medicaid. Imagine how bad it might be if this system were not in place.

Somewhat wealthier boomers, in the Middle, will probably make it through retirement okay, but will likely be challenged by long term care expenses. Forewarned is forearmed.

The richest group of boomers are indeed fortunate, but they too can be harmed by investment losses and/or poor health. Nobody gets out without some challenges late in life. Preparation is the key to a comfortable lifestyle late in life.

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