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Amid a widespread retirement crisis in the US, some boomers are entering their golden years with savings.
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They benefit from now-rare pensions, property value increases and stock market gains.
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However, lower-income households face challenges such as retirement savings and shrinking pension plans.
If you’re looking for Michael, 75, look to the sky.
The retiree has a unique retirement gig: He is a corporate jet pilot.
He only dabbles in contract gigs because he loves it; that’s a common theme for Michael at this stage of life. He is living the retirement dream and splits his time between Florida and Denver. According to documentation reviewed by Business Insider, his net worth, after a career in the Navy and then working in geology, is just over $6 million.
“It’s completely comfortable. We have absolutely all the money we need to live our lives,” he said. And that nest egg has made a huge emotional difference: He has no financial stress.
It’s a similar story for Connie, a 79-year-old who said she didn’t really start planning for retirement until she was in her 30s, recently divorced and working in state government in Oregon. After about two decades in the public sector, she was able to retire with a nice pension — a type of benefit that’s increasingly rare these days. Her Social Security checks also were boosted when her ex-husband’s survivor benefits kicked in. Now that she’s retired, she’s making more than she did on her previous salary.
“It gives me great peace of mind,” Connie said. It also fills her with some pride: her research and frugality have paid off.
“I definitely fall into the category of people who have had a very ordinary career and never made a lot of money, and yet my retirement income now is probably one and a half times what I ever made when I was working,” she said.
The three retirees Business Insider spoke to for this story are bright spots in a pension crisis in which more than half of Americans 65 and older live on just $30,000 a year and Social Security funds are expected to run out in 2035 without legislative action. All of their full names are known to BI, but their last names have been withheld due to privacy concerns.
As the way we save for retirement has evolved, some people are now cashing in on the golden age of retirement savings – when benefits were more generous and real estate and stock investments boomed. While it is still possible to achieve this, a fat retirement account has become more rare. And the retirees who make that dream come true are grateful.
“Now that I’m retired and I don’t have any financial stress and I can help our kids, travel to visit them and things like that, it’s just a fantastic place to be,” Michael said.
The confluence of factors that led to retirement account flushing
A stable pension based on a lifetime of savings and smart decisions is possible – Michael and Connie are examples of this. But it’s also a reality that’s becoming increasingly rare, especially for lower-income Americans.
A 2023 report from the Government Accountability Office found that lower-income households between the ages of 51 and 64 (who earn about $19,100 on average) are increasingly less likely to have anything in a retirement account.
In 2007, about 21% of low-income households had a retirement account, according to GAO’s Survey of Consumer Finances calculations. By 2019, that had dropped to 10%. While the losses weren’t as great for people in the middle-income quintile, their retirement accounts did decline slightly from 2007 to 2019. As GAO found: “For all but the highest income group, there was no discernible difference between median balances in 2019 and 2007.”
The decline in one type of account in particular could be to blame for this. In recent decades, the US has moved away from pensions, with employers providing consistent payouts to former employees in their post-working years. Now more American workers have defined contribution plans, such as 401(k)s, that rely on employees contributing money to grow their coffers.
The share of households with a low income and an available pension also fell by half between 2007 and 2019.
Michael recognizes that some people probably worked hard all their lives but didn’t have better-paying jobs, meaning they had less to put away.
“Retirement could have gone the other way for us. I could have made some bad decisions and we could have lost a lot of money and it would have been a different scenario in terms of comfort,” he said.
“We got lucky with a few investments and it grew and grew,” Michael added.
The assets held by today’s retirees are also flourishing; 401(k) investments have been boosted by a rising stock market, meaning people making money from retirement investments now are on the winning side of historic S&P 500 highs.
“If we look at someone who had a 401(k) pretty early on, so between about 1982 and 2002, we had pretty high stock market returns,” David John, senior strategic policy advisor at AARP, told BI. He added: “They managed to build up retirement savings at a time when there were both stock market returns and quite low inflation.”
Connie chose a variable account to fund her retirement — her employers’ contributions went toward investments, rather than promising a fixed return each year. Even though her account lost money for a number of years due to the market, her overall earnings have still exceeded what she would have had with a simple lump sum.
‘There are far fewer pensions these days. That’s true,’ Connie said.
And for today’s group of retirees with those benefits, another reason could be to boost their profits: Baby boomers are holding on to immensely valuable real estate. Thirty years ago, when today’s retirees might have started buying real estate, homes sold for a median of about $130,000. Today, they go for nearly $300,000 more.
Today’s retirees also continue to receive full Social Security benefits, something that is increasingly at risk for the next generation of workers who are throwing in the towel. All because retirement savings is increasingly becoming an individual responsibility.
“Essentially, the people who need it the most are the ones who are least likely to have a retirement plan or pension,” John said.
Some have still managed to achieve this stability, but it is more of an uphill battle
Valerie, 46, is one of the Gen Xers trying to follow in the footsteps of affluent baby boomers. Valerie, who lives in Seattle, is already retired. According to documentation seen by BI, she has more than $1 million in her 401(k), but it was a hard fight. Valerie — a former retail clerk — tried investing in real estate but found herself on the other side of a tough market: Her properties were foreclosed on during the mortgage crisis, she said, and she “barely had $20 to get by.”
“I kept thinking about all these other ideas, like, how do I build wealth again? Should I just give it up? Is this the end of my life?” she said. For Valerie, the answer ultimately hinged on her 401(k) — she said she would borrow money from it and reinvest it in the market and then pay back the loans. Now that she has a retirement plan, she’s more willing to take risks to build more wealth.
“When I was 18 to 19 years old, I remember predicting that I would be at the point where I am financially in my retirement account if I didn’t do anything about it and put in the effort. And indeed, the calculations are correct.” she said.
Valerie is one of the data points that shows it’s not all bad news for future retirees, but that it may actually be an uphill battle.
“We have an economy that is changing rapidly and there will be opportunities for investment growth, savings and new products. I mean, there’s an amazing amount of innovation happening there,” John said. There’s a chance it won’t be as easy as it is for someone “who, for example, started investing in the 1980s or 1990s and is now reaching the end of their career,” he said.
“But yes, in the future it is still possible.”
Are you doing well with your pension, or are you afraid that you can no longer retire? Contact this reporter via jkaplan@businessinsider.com.
Read the original article on Business Insider
