How baby boomers can close a retirement savings gap

Many baby boomers aren’t on track to retire with enough money. They have some options to adjust their trajectory, researchers said, but these come with trade-offs.

Just 40% of workers who are age 61 to 65 — the youngest members of the boomer cohort — are financially on track for retirement, according to recent research from Vanguard, an asset manager and retirement plan administrator. That group will have enough income to fund their current lifestyle into retirement, researchers estimate.

The rest are expected to fall short. The typical — or, median — 61- to 65-year-old will have a $9,000 annual deficit in retirement, representing a 24% shortfall in their funding needs, Vanguard estimates.

Its analysis assumes people retire and claim Social Security at age 65.

The findings come as a historic demographic shift, known as “peak 65,” is underway in the U.S. A record number of people — more than 4 million a year, or about 11,000 a day — are expected to turn 65 annually from 2024 to 2027.

Of course, knowing the “right” amount of money needed to retire is an impossibility. No one knows how long they will live or how much money they might need for future retirement expenses, such as health care or long-term care.

Yet boomers who suspect they won’t be able to sustain their current standard of living are in a tough spot compared to younger generations.

Gen Z and millennials, for example, have decades to change course, perhaps by saving more for retirement and earning compound interest on those balances. Not so for near-retirees.

Compared to younger investors, boomers also generally hold fewer stocks — the typical growth engine of a retirement portfolio — to insulate their savings from market risk as they prepare to begin retirement withdrawals.

There may be negative implications for the U.S. economy if many boomers are ill-prepared for retirement and are forced to cut spending to make their nest eggs last.

“Some economists sound alarm bells: ‘We have this [retirement] crisis, it’s doom and gloom,'” said David Blanchett, a certified financial planner and head of retirement research at PGIM, an investment manager. “It’s not nearly as bad as it seems.”

Boomers do have a few options to help close any retirement-readiness gap. However, the options may not be accessible or palatable to all households, he said.

Here are three of them.

Delaying retirement is a “silver bullet” when it comes to eliminating or shrinking a retirement funding gap, Blanchett said.

“Even pushing back retirement back a few years can do wonders for retirement outcomes,” he said.

That’s because working longer would yield more career-funded savings, higher Social Security income for life due to delayed claiming, and fewer years of retirement to fund, according to Vanguard’s report.

For example, working two years longer — e.g., retiring and claiming Social Security benefits at age 67 — would increase the share of 61- to 65-year-olds who are prepared for retirement to 47% from 40%, Vanguard found.

However, not everyone will be able to work longer, even if this is something they plan to do.

“It’s not an option that’s available for all,” said Kelly Hahn, head of retirement research in Vanguard’s Investment Strategy Group.

In 2025, 40% of retirees said they left the workforce earlier than planned, according to the Employee Benefit Research Institute’s Retirement Confidence Survey. That share has been roughly similar for the past two decades, hovering around 40% to 50%.

Some of the reasons for an unexpectedly early exit include health problems and layoffs.

Among the reasons for boomers’ somewhat precarious financial position relative to younger generations: The workplace retirement system shifted from a pension-heavy system to a 401(k)-type system, right as young boomers were in their peak earning years, Hahn said.

“They didn’t really benefit fully from the pensions their parents or grandparents may have had,” or from the newer 401(k)-type system of savings, she said.

However, the bulk are sitting on a large non-liquid asset, Hahn said: their homes.

The vast majority — 86% — of baby boomers own homes, a much larger share than younger generations, according to Vanguard calculations based on the Federal Reserve’s most recent Survey of Consumer Finances.

The average boomer has $113,000 of home equity, according to Vanguard’s report.

Tapping into that equity would increase the share of young boomers financially prepared for retirement to 60%, up from the baseline 40%, researchers estimated.

There are many ways to access those funds, experts said.

“The one that will give you the biggest bang for your buck from a quantitative standpoint” is selling one’s home outright and becoming a renter instead of a homeowner, Hahn said.

Homeowners might also consider selling their current home and downsizing, moving to a lower-cost area, or borrowing against their home equity via a reverse mortgage or a home equity line of credit.

However, tapping home equity is often a “tricky topic,” Hahn said.

Most people are reluctant to turn to their home as a piggy bank, viewing it instead as an asset of last resort, Blanchett said.

“The home is the largest tangible asset for most Americans,” he said. “It’s a viable option in theory, but in the past it’s been relatively unpopular.”

A home generally comes with a strong emotional attachment to one’s identity, potentially making it difficult to sell, Hahn said.

Homeowners with a mortgage who secured their loan when rates were low may also feel locked in, given higher interest rates now, she said.

Additionally, accessing home equity via a reverse mortgage or HELOC can also be costly and time-consuming, Blanchett said. Homeowners need to get approved for the loan, which often comes with implicit or explicit costs, he said.

Social connectivity is also a “very important aspect of a happy retirement,” Blanchett said. Retirees would have to weigh the loss of their community and social network against the financial necessity of relocating, he said.

Of course, people might also consider spending less both before and during retirement, Blanchett said.

Saving more money toward the tail end of one’s working years can help accomplish that goal by forcing households to live on reduced cash flow, he said.

The typical retiree experiences a 20% decline in their consumption when they enter retirement, perhaps because a lack of savings causes a reduction in their spending, according to Blanchett’s research.

However, data suggests about 90% are moderately or very satisfied with their retirement, he said.

“These responses strongly suggest that despite perceptions of a retirement crisis, retirees are relatively content,” he wrote.