Busted Boomers and Beyond: Living with Less from Social Security and Pensions

The Last Fully Covered Social Security and Pension Recipients As millions of baby boomers barrel headfirst into retirement, the sheer size of that generation is driving massive shifts in the way we think about -- and fund -- our post-working years. Indeed, at the rate things are changing and in the direction they're moving, the early boomers are on track to be the last people to receive both full pensions and full Social Security benefits.

A combination of an extended bad employment market and a large number of boomers hitting Social Security eligibility has put an incredible strain on that system's finances.

Indeed, by the time 2036 rolls around -- or potentially sooner -- Social Security's Trust Fund is expected to be exhausted, which we lead to benefits falling by about one quarter. And even among those boomers with pensions, the ones born at the tail end of the boom are expected to have a mere 53% of the pension wealth of earlier generations.

How Much Will Your Retirement Income Be Slashed?

With Social Security's Trust Fund not expected to last as long as the boomers do, and with so many pensions winding down, there's little guaranteed money left to count on when it comes to retirement planning.

According to a recent study by The Urban Institute, somewhere between 30% and 40% of later-born boomers won't have the financial resources to replace even 75% of their pre-retirement income.

That 75% level is generally regarded as being in the neighborhood of where you'll want to be in order to maintain your lifestyle once you stop drawing a paycheck. The less of that income stream that comes from guaranteed outside sources, the more of it will need to come from you. And that becomes ever more important the further away from retirement you are.

If 30% to 40% of later-born boomers will be unable to reach that 75% threshold, imagine what the picture will look like for Gen X, Gen Y, the millennials, and later generations with even less in guaranteed retirement pay.

Heads Up, Gen X

It's not a pleasant picture, especially for those who don't prepare now for that eventuality.

The good news (if you can call it that) is that for those who are late in the boomer generation or are members of any generation that follows, there is still time to plan and build the nest egg you need. The bad news is that the longer you wait, the tougher it gets on two fronts:
  • The longer you wait, the fewer years you have to let compounding work for you, and
  • The longer you wait, the more cash you need to put away each year to sock away the same total amount.
It's not exactly rocket science, but it does take decades of discipline to achieve a viable solution to this twofold problem. Let's say you've got a target to save $250,000, which is enough, based on the 4% rule, to provide a $10,000 annual income supplement to Social Security and whatever pension you may have. The table below shows how much you'll need to save each month, based on various return rates and years of savings, to reach that target:

Years to Go
8% Annual Return
6% Annual Return
4% Annual Return
2% Annual Return
0% Annual Return
30
$167.74
$248.88
$360.20
$507.38
$694.44
25
$262.87
$360.75
$486.26
$642.97
$833.33
20
$424.43
$541.08
$681.62
$848.04
$1,041.67
15
$722.46
$859.64
$1,015.89
$1,192.11
$1,388.89
10
$1,366.52
$1,525.51
$1,697.80
$1,883.67
$2,083.33
5
$3,402.43
$3,583.20
$3,770.80
$3,965.27
$4,166.67
Source: Author's calculations.

What's easier? Coming up with $170 a month today, or $3,400 a month 25 years from now? That's assuming your annualized returns come to 8%. But even if you think you'll earn 0% annual returns typical of today's savings accounts over the life of your investments, saving now rather than putting off is still the way to go. Come up with around $700 a month now or you'll be scrambling to find nearly $4,200 a month in 25 years.

No matter how you estimate your potential returns, starting now makes it a significantly easier nut to crack than waiting to begin until retirement is already staring you in the face.

Ready or Not, Your Day Will Come

The cold, hard reality is this: The earliest baby boomers -- today's retirees and near-retirees -- will likely receive their expected pensions and Social Security benefits. They will also be among the last able to rely on a retirement with fully funded benefits, too.

The further away you are from retirement, the larger the question marks become, and the less secure the guarantees. But at least you have time. Time is a gift that is either used wisely or squandered meaninglessly. The choice is yours: Start preparing now, or face a future where the only thing that is certain is the inevitable hit to your own retirement that comes from doing nothing at all.

For more of The Motley Fool's research about Social Security, Medicare and retirement, click here.

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cjstottle

Social Security is not a Ponzi scheme. In a Ponzi scheme investors give up their money voluntarily.

July 10 2012 at 12:49 PM Report abuse rate up rate down Reply
opadoda

payroll deduction of 2% on people working now is a sign that their benefits will decrease. For people getting an extra
40 to 100 dollars more a month while they are working is not building their social security benefits. Oh yeah, that payroll deduction is working people are paying 2 % less into social security. Does this make sense?

March 14 2012 at 10:12 AM Report abuse +1 rate up rate down Reply
WANDA LITTLE

it'd be nice to know where our goverment got off by dipping into my retirement money ,when its suppose to be never to have been touched....who made them my keeper??I am a baby boome(64)r and I can't wait to get what is left (there can't be much to look forward to).Well the goverment has always got what they wanted and it didn't make any differance if we objected or not. So when do we take a stand???NEVER????

March 13 2012 at 6:32 PM Report abuse +1 rate up rate down Reply
WANDA LITTLE

it'd be nice to know where our goverment got off by dipping into my retirement money ,when its suppose to be never to have been touched....who made them my keeper??I am a baby boome(64)r and I can't wait to get what is left (there can't be much to look forward to).Well the goverment has always got what they wanted and it didn't make any differance if we objected or not. So when do we take a stand???NEVER????

March 13 2012 at 6:32 PM Report abuse rate up rate down Reply
Master of my fate..

The only sure way is to do it yourself. IRA's or just savings accumulate over time, but also lose thier value over time as more money is being printed by the goverment. Best way I know that has worked for me is investing good solid companies that pay dividends. companies like P&G, J&J, or MLP's or utilities all pay great dividends. Which are taxed less as well.
Portions of Social Security payments should also be self directed, with some oversite to prevent very riskey investments. Pres. Bush tried to do that but was shot down buy the democrates who argued that the SS system was perfectly secure. Give a extra incentive like a full tuition tax deduction to attend family finance or investment
classes. I truly believe thier are many good people elected to office, but I also believe " Gov. is not the Solution for most things, Gov. is the Problem. We need to get the people to realise thier fate and "lot in life" is thier responsibilit to manage or fix not the role of government to fix or take care of them.
Feed a man a fish and he eats today, teach him how to fish and he eats everyday.

March 13 2012 at 11:11 AM Report abuse rate up rate down Reply
tsimpson2333

There are solutions: 1. Extent the retirement age to 68 (full retirement) and 65 for early retirement---for people currently under 55. 2. Consider charging companies a soc. sec. tax on the amount paid for "outsourcing." Must insure that it does not result in people of other countries becoming eligible. 3. Cut other entitlement programs in modest amounts over the next 20 years.

March 12 2012 at 8:26 AM Report abuse -1 rate up rate down Reply
mike edwards

its kinda doomsday for people putting money away for thier future banks are paying .045 percent on money they must stsart paying better or the retirement picture is doomed this country has been spiraling down for the last 50 years someone has to put the brakes on the salaries of people working for the gov are 5 and 6 times private people make with all their benefits we just cant afford doing this every thing im saying is not for myself but for my grandkids and the future of this country im a vietnam vet who seen people die for this country and believes its not in the greatest hands lets make a move to put it back the way it was before the change

March 12 2012 at 8:19 AM Report abuse +1 rate up rate down Reply
mike edwards

its kinda doomsday for people putting money away for thier future banks are paying .045 percent on money they must stsart paying better or the retirement picture is doomed this country has been spiraling down for the last 50 years someone has to put the brakes on the salaries of people working for the gov are 5 and 6 times private people make with all their benefits we just cant afford doing this every thing im saying is not for myself but for my grandkids and the future of this country im a vietnam vet who seen people die for this country and believes its not in the greatest hands lets make a move to put it back the way it was before the change

March 12 2012 at 8:19 AM Report abuse +1 rate up rate down Reply
Old Dog 65

"With Social Security's Trust Fund not expected to last as long as the boomers do, and with so many pensions winding down, there's little guaranteed money left to count on when it comes to retirement planning. "

What IDIOT wrote this article? The statement quoted above is absolutely wrong, as there is NO, NONE, NOT ONE RED CENT of "guaranteed money" in the SSA system. Never has been, never will be. There is absolutely no obligation or guarantee of SSA to ever pay anyone one thin dime. The only guarantee is that the government will take their share of your wages, and the employer must pay their percentage in taxes as well, or face fines and jail time, but there is no guarantee of one cent of payout. Every dollar that has been paid in taxes to the government related to SSA has already been spent, with IOUs written to cover the spent money. The Federal government will have to sell some sucker a NEW Treasury bond to pay off the IOU so the SSA can distribute the cash. What happens when the worlds' investors say "no thank you" to buying new US Treasury bonds? Think of what is happening in Greece with their bonds. Who is going to "bail out" the U.S. like the other European nations are bailing out Greece? I can't think of any country that stupid... except maybe Greece, and they are already bankrupt and out of cash...

March 10 2012 at 6:53 PM Report abuse +1 rate up rate down Reply
miamiprep

I turn 59 this year, retired at 50. I'm guessing I'll mostly get the full SS & Medicare benefit. Have been converting my IRA's -> Roth IRA's slowly & paying the taxes now. Then, in the future, my withdrawals will be tax-free -- and I believe tax rates will be much higher in the future.

March 09 2012 at 8:11 PM Report abuse rate up rate down Reply