What If the Boomers Outlive Their Money?

Even the best laid plans can go awry. COVID-19 forced many baby boomers to retire earlier than they had planned. Now, they’re scratching their heads and wondering how to make their money last to age 100.

In today’s post-pandemic world, many boomers and older seniors are facing a mix of challenges that threaten their financial future. The confluence of forced early retirement, rising inflation, proposed tax hikes and physical longevity are placing many retirement portfolios in jeopardy. Add to that equation the projection that the Social Security trust fund will run out of money in 2034 and therefore jeopardize full benefit payments.

Fortunately, most financial professionals have already begun addressing these disruptions by meeting with clients and making tweaks in an attempt to maximize their clients’ nest eggs.

As clients and their advisors sharpen their pencils and explore all possible options to optimize their retirement assets, some clients have chosen to sell unwanted life insurance policies and use the cash proceeds from the life settlement to enhance their retirement.

Now is the time for retirees and advisors to develop a solid game plan to address the potential threats that clients are facing in the post-pandemic era.

Greatest Fear

Year after year, surveys of older workers and retirees reveal similar results regarding their greatest fear. The nightmare of outliving one’s retirement savings is what keeps most up a night — irrespective of their age. According to the recent Transamerica 2021 Retirement Survey involving workers from Gen Z to baby boomers, 42% of respondents picked the fear of outliving their money as their biggest worry.

Financial and insurance professionals can help calm their clients’ anxiety with thoughtful guidance. Although re-entering the job market may not be possible for older workers, it’s important for seniors and their financial advisors to identify any hidden assets — such as an unwanted life insurance policy — and determine whether the proceeds from selling the policy in the secondary market can be repurposed to meet their goals. For example, in one of our recent transactions, the client’s CPA recommended a life settlement to do just that.

Forced Early Retirement

A recent Pew Research study found that in the third quarter of 2020, more than 28 million baby boomers reported being retired — 3 million more than in Q3 2019. According to Pew, the job losses associated with the COVID-19 recession may have contributed to the spike in boomer retirements.

Forced early retirement strikes a devastating blow to the retirement savings goals of older workers. In addition to locking in a reduction in the amount of their annual Social Security benefits, the loss of one’s employment can have a snowball effect on the senior’s future financial security. Loss of group health insurance, 401(k) matches and other worker-related benefits often cause boomers to begin draining their retirement investments far earlier than is typically safe to do so.

Inflation: 5.9% COLA for Social Security Beneficiaries

Seniors living on a fixed income are often the hardest hit when it comes to rising prices. In 2021, rising energy costs and supply chain issues caused by the pandemic resulted in huge price increases. From the price of gasoline to used cars, higher prices are taking its toll on retirees. Economists predict that until supply and demand even out, the impact will continue to be felt into 2022.

For many seniors, their first glimpse of the actual “rate” of inflation is when the Social Security Administration notifies them of their annual cost-of-living adjustment (COLA).