According to the New York Federal Reserve, debt owed by people age 50 to 80 increased by 59 percent between 2003 and 2015. The Great Recession hit baby boomers hard, with falling stocks denting their retirement savings. And now, as this generation finds itself squeezed between helping children leave the nest (or welcoming grandchildren), retiring and caring for aging parents, boomers find themselves under financial pressure.National Financial Literacy Month in April is a time for boomers to make some of the most important financial decisions of their lives, starting with the following.
1. Pay down debt ASAP. Baby boomers may be close to retirement – or already retired – but plenty have not yet retired debt. As a generation, baby boomers owe more than other generations. Some have mortgage debt, some still carry student loan debt, and many have credit card debt. In fact, boomers’ credit card balances (averaging $7,205) are more than twice those of millennials’ balances (averaging $2,965). In many cases, boomers have higher credit scores and higher incomes because of years of work and bill-paying experience, but they are still charging expenses that they cannot repay readily. If you are preparing to retire, now is the time to get out of the habit of relying on credit cards. And if you have any student loan debt, make a very serious effort to pay off those loans before you retire.
2. Get help planning your retirement strategy. Many baby boomers are woefully underprepared for retirement. The National Institute on Retirement Security (NIRS) has found that people aged 55 to 64 have a median retirement account balance of $14,500. One-third have saved nothing at all. In this day and age, many people will not be able to rely on the pension accounts and other employer benefits that gave many of their parents a comfortable retirement. Instead, more of the retirement savings burden is on the retiree. The situation is even more worrisome for women who did not work for some or all of their career, and have even less saved. Consult a financial planner to evaluate your situation and make a plan for the future. Postponing retirement as long as possible – to age 67, age 70 or beyond – or considering taking on a part-time, post-retirement “encore career” can help the situation. Meanwhile, after paying off debt, saving for retirement should be a major priority for baby boomers.
3. Plan your future living situation now. It can be difficult for a relatively healthy person in his or her 60s to think about moving into senior housing. For many people, however, their current living situations will not be sustainable forever. Do you have medical needs that you can anticipate might require help in the future? Does your current home have stairs, too much space, or bathrooms that cannot accommodate an eventual walker or wheelchair? Are you near medical facilities? Do you need to sell your home to use some of your equity for income? If you rent, can you afford the rent on your retirement income? It is hard to think about these questions, but it can be liberating to make a decision about your living situation while you are in charge, rather than waiting until health or finances force your hand.
4. Watch for tax twists and turns. As you retire and begin drawing from Social Security, 401(k)s and IRAs, your tax picture might change unexpectedly. Social Security income might be taxable, depending on what other assets you have. Taking withdrawals from accounts prior to age 59½ can result in penalties. And for many people, once they pay off their home and no longer have mortgage interest to deduct, they may not have enough in deductions to itemize, which could affect their tax picture. Certain tax benefits are available to seniors, both federally and in some states and local areas. Carefully read tax forms and paperwork, and consult a financial and/or tax advisor before you make any decisions you are unsure about.
The good news for baby boomers is that many of them have confidence – and credit scores – from years of experience working and paying bills. It is important, though, not to become complacent and assume that everything will work out because it worked out for your parents. Staying active in your financial planning now can help the future bring truly golden years.