Retirement savers have been hammered in recent years. COVID, a recession and stock-market decline have hit hard.
Many Americans, particularly in the “late” Baby Boomer cohort, have fallen behind on saving for retirement. According to a recent study by the Center for Retirement Research at Boston College (CRRC), “Late Boomers have surprisingly low levels of retirement wealth compared to earlier cohorts. A decline in some wealth components had been expected as a result of the rise in Social Security’s Full Retirement Age and the shift from defined benefit to defined contribution plans.’
“But increasing 401(k)/IRA balances were predicted to offset the gap, since Late Boomers were the first generation where workers could have spent their whole career covered by a 401(k) plan. That did not happen: retirement wealth dropped across all but the top quintile,” the study found. Here’s a breakdown on the savings shortfall:
- Late Boomers have less retirement wealth than earlier cohorts, including surprisingly low 401(k) assets.
- The results show that part of the drop is due to a decline in the share of Late Boomers who are White, married, and have college degrees.
- The main factor, though, is that Late Boomers saw a weakening in the link between work and wealth due to the Great Recession.
- The Great Recession (2008-09) story is a bit of good news for younger cohorts, as some of the downward pressure on their wealth holdings should abate.
How You Can Catch Up
1) If working and your employer offers a 401(k), contribute the maximum amount and take all employer matching contributions. For 2023, the top contribution limit is $22,500.
2) Are you over 50? Then you can contribute even more to catch up. In that case, your annual contribution can be up to $30,000.
3) Are you offered a Health Savings Account? While these funds are earmarked for health and related expenses, they are yours to keep. The annual inflation-adjusted limit on HSA contributions for self-only coverage will be $3,850, up from $3,650 in 2022. The HSA contribution limit for family coverage will be $7,750, up from $7,300, according to the Society for Human Resources.