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A long-anticipated tidal wave of retirees has arrived. In 2024, more than four million Americans—an average of 11,000 per day—have reached or will reach age 65. This surge, the largest in history, will continue through 2027, according to a recent study from Northwestern Mutual, the 2024 Planning & Progress Report.
The study highlights that those closest to retirement are largely unprepared. Nearly half of Baby Boomers (those born between 1946 and 1964) and Gen Xers (born between 1965 and 1980) admit they aren’t confident about their financial preparedness for retirement. Despite being the generations with the most knowledge, experience and potential resources, many are still unsure about their financial future.
The study gets even more depressing when you dig a bit deeper. On average, Gen Xers believe they have a 42% chance of outliving their savings, while Boomers estimate their risk at 37%. Yet, despite these anxieties, nearly two-thirds in each generation have done nothing to prepare for this possibility.
It gets worse. Only 49% of Boomers and 40% of Gen Xers know how much money they will actually need to retire comfortably. Even fewer have considered addressing long-term care (41% of Boomers and 34% of Gen Xers) and planning for the possibility of outliving their savings (37% and 35%, respectively).
Not paying attention to taxes can cost retirees thousands of dollars. The most common ways to lower tax liability include having a strategic withdrawal strategy for traditional and Roth accounts, mixing account types, and leveraging Health Savings Accounts. The usage of these “plain vanilla” strategies remains shockingly low. The survey shows only three in ten Americans have a plan to minimize taxes on their retirement income.
Many retirees don’t realize their retirement income might be taxed at up to 30% until they begin to withdraw and spend it. At that point, their options are limited, and the financial damage is often irreversible. Retirees may unknowingly lose a large portion of their savings to taxes that could have been minimized or avoided with proper planning.
If you are nearing retirement and have been putting money into a 401(k) or IRA, you are on the right track. Fully preparing for retirement, though, also requires developing a comprehensive financial plan that integrates tax strategies, healthcare costs, and contingency plans for potential shortfalls. Just thinking about this planning can feel overwhelming, which is probably why so many people feel uncertain about retirement and yet put off addressing it.
The best way to get started is to seek out trustworthy help and advice. Ideally, this means consulting a professional, such as a fee-only financial planner, who has a fiduciary responsibility to act in your best interest and can create a plan tailored to your needs. The National Association of Personal Financial Planners can help you find advisors. If cost is a concern, some offer services at hourly rates. Many meet with clients virtually.
An advisor can help you consider strategies like the following:
- Develop a comprehensive plan that includes a diversified income strategy and managing withdrawal rates to help your savings last.
- Use tax-efficient withdrawals and Roth conversions to minimize tax liabilities and maximize your retirement income.
- Plan for long-term care costs. This might include LTC insurance, building a dedicated fund through investment accounts or HSAs, or using community-based care to minimize expenses.
- Consider downsizing or relocating to reduce living costs and free up equity for long-term needs.
If you are part of this wave of retirees, don’t turn it into a perfect storm by combining uncertainty with inaction. Planning now will help you avoid being pulled under and allow you to surf the wave to solid ground.
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