Here’s how to avoid it


Editor’s Note: This story originally appeared on

Baby boomers seem to overestimate how long their retirement savings will last — or perhaps underestimate how long they will live.

Recent research from the Center for Retirement Research at Boston College has found that baby boomers may be withdrawing their retirement wealth faster than previous generations because they lack the widespread access to pensions enjoyed by older generations.

Using data from the University of Michigan Health and Retirement Study, CRR researchers have determined the more lucrative resources retirees have at their disposal, and the slower their wealth is withdrawn. A financial advisor can help you calculate how much retirement savings and income you will need once you stop working.

Here’s how to avoid this danger.

Babies risk increased longevity

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The baby boomers, the generation of Americans born between 1946 and 1964, were undergoing a “massive shift” in retirement planning, as employers moved from defined benefit plans to defined contribution plans. While defined benefits (DB) or pension plans provide beneficiaries with a guaranteed income stream, defined contribution plans such as a 401(k) are usually much cheaper and less complicated from an employer’s point of view—but they don’t offer employees as a secure future.

As a result, people born after 1960 had limited access to pension plans, the availability of which has declined sharply since the introduction of the 401(k). Using data from the Health and Retirement Study, CRR researchers found that the majority of headed households born between 1920 and 1940 had access to a DB plan.

“Retirees with DB had less need to withdraw financial assets into their retirement accounts to cover their spending and could hold these assets for medical expenses or wills late in life,” write CRR Robert Silesiano and Gal Wechstein.

Without the guaranteed income stream that a pension provides, baby boomers may be at greater risk of running out of their retirement savings, known as longevity risk. In fact, Siliciano and Wettstein compared the withdrawal speed of retirees, both with and without access to DB plans, at ages 70, 75, and 80. At all three ages, retirees with DB plans had slower regression rates.

Researchers found that retirees with $200,000 in initial wealth and access to a DB plan had $28,000 in assets by age 70 than their peers. “By age 75 and by age 80, a household with a DB plan will have drawn 36 log points less than their initial wealth, which equates to $86,000 more in wealth,” Silciano and Wittstein write.

The researchers concluded that baby-boomers who base their expectations on the decline speeds of previous generations “likely underestimate” how quickly they will continue their retirement savings.

How Social Security Extends Your Retirement Savings

Social Security payment
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Silesiano and Wechstein noted early in their paper that retirees with greater proportions of unconditional wealth reduce their wealth at slower rates than others. While unconditional resources include the types of database plans that are now less common, Social Security and Business Pensions also fit the bill.

Workers without pensions and those nearing retirement may consider delaying Social Security as long as possible to maximize their ultimate benefits and amplify their only guaranteed income stream.

To maximize your benefits, you’ll need to have worked at least 35 years and reach your full retirement age (67 for people born after 1960). If you choose to defer claiming Social Security beyond your full retirement age, you will increase your ultimate benefit even more.

What about annuities and other options?

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Business pensions can also replace the guaranteed income that pension plans would have provided, making them a popular investment for some.

These financial contracts enable you to exchange a lump sum or periodic payments for a future income stream. However, you will run the risk of not breaking even if you don’t live long enough. High fees and contract restrictions can also act as a deterrent.

Finally, retirees looking to ensure they don’t run out of savings will need to carefully plan the safe amount to withdraw each year.

Perhaps the most-quoted general rule of thumb for retirement dictates that if you withdraw 4% of your savings during the first year of retirement and then adjust your withdrawals for inflation each subsequent year, that savings must last 30 years.

However, if your first year of retirement corresponds to the downtown market, your wallet will be less valuable than it would otherwise. Known as the “risk-return sequence”, withdrawing money through the downtown market means that your returns will shrink and your nest egg will diminish in size faster.

It is important to remain flexible and be able to adjust the drawdown rate during market fluctuations. Having cash on hand can also help you avoid withdrawing too much from your portfolio when stock prices are dropping.


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Because baby boomers have less access to traditional pension plans, they are more likely to draw down their retirement savings faster than previous generations, whose workers typically received pensions.

Delaying Social Security, investing in an annual salary, and maintaining a flexible withdrawal rate can help mitigate downside risks.

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