Retirement: Average Boomer’s savings would only last seven years, study finds
The average baby boomer’s savings will last only seven years in retirement, a new study found, unless they curb their spending during their golden years.
Boomers on average have $920,400 saved for retirement, the Charles Schwab survey of 2,000 Americans aged 55 to 75 with at least $100,000 in investable assets found. But they expect to spend $135,100 per year to sustain their ideal lifestyle in retirement, meaning their savings would run out after seven years.
“Boomers in this study have been saving for retirement and are confident, but for many there’s a potential gap between what they have saved and the retirement they’re envisioning,” said Rob Williams, vice president of financial planning of Charles Schwab. “The reality is that they may come up short.”
So how do they expect to stick with this vision? By working more and putting their needs first.
Working longer and working part-time to sustain dream retirement
Aspiring retirees expect to retire at age 66, the study found, seven year later than their peers who have been retired for at least five years. That implies they plan to work longer, which could help boost their savings and reduce how much they will eventually need in retirement.
“More years until retirement is better than nothing,” Williams said, “especially if you use this time to think how much money you need in case things don’t work out as planned.”
A third of those approaching retirees also plan to work part time in retirement, compared with just 2% of those who have already retired.
More than half of those affected financially by the coronavirus pandemic intend on developing a clear financial plan, and nearly 1 in 4 said they have started to save in an emergency fund.
“To ensure you don’t outlive your money, it’s critical to have a full-blown financial plan in place that’s been tested against market downturns, healthy risks and other unexpected factors,” said Tony Zabiegala, chief operations officer at Strategic Wealth Partners, a financial firm.
Boomers plan to prioritize themselves over their children
Even as more young adults are living with their parents, baby boomers aren’t letting their children sway their retirement goals, according to the Schwab study.
About 2 in 3 baby boomers believe they would rather spend money in retirement than leave an inheritance for their children. Four in 10 believe their quality of life in retirement will be better than that of their children.
“The stresses of election, global warming and the pandemic make them a little bit more concerned about the long term future for their children,” Williams said, “who are also going through financial challenges with college education.”
Where in Mexico will U.S. baby-boomers choose to live?
After studying 22 countries with sizable retirement communities, International Living (a consultancy group) rated Mexico as the most attractive country for foreigners to retire to in after Ecuador, Panama, and Malaysia. The study looked at eight factors: real estate, benefits for retired people, cost of living, integration, entertainment, health, infrastructure, and climate.
According to the US Census Bureau, there are 41 million people of retirement age in the USA. More than half of them have annual incomes of between 70,000 and 150,000 dollars, and they are expected, on average, to live to the age of 83; 80% are homeowners. This number will swell to 72.8 million by 2030, 40% of whom may have difficulties maintaining their previous lifestyles during retirement. Given its proximity, this makes Mexico an attractive destination for many baby-boomers seeking a comfortable retirement lifestyle.
But where in Mexico will these retirees choose to live?
According to this analysis by the consultancy Aregional, there are 36 specific areas in Mexico where the real estate market is targeting US baby boomers seeking a place to retire. About half of these locations (see map) are in central and western Mexico. Locations in these regions include Merida (Yucatan) Guanajuato and San Miguel de Allende (both in the state of Guanajuato), Colima, Comala, and Manzanillo (Colima); Chapala, Ajijic and Puerto Vallarta (Jalisco); and Nuevo Vallarta and Punta Mita (Nayarit) Mazatlan (Sinaloa)
Locations of retiree real estate developments. Credit: Aregional
Locations in northern Mexico important for retiree real estate include Rosarito, Ensenada and Los Algodones (Baja California); Los Cabos, La Paz and Loreto (Baja California Sur); Puerto Peñasco (Sonora) and Mazatlán (Sinaloa).
Retiree real estate is also prominent in several places in the south and south-east of Mexico, including Acapulco and Punta Ixtapa (Guerrero); Huatulco (Oaxaca); Playa del Carmen and Cancún (Quintana Roo); Merida beaches (Yucatán), as well as the cities of Campeche and Veracruz.
It is not known how many US retirees have already chosen to live in Mexico. While it is relatively easy to quantify the number of retiree tourists (those staying more than one night, but less than six months), it is impossible to accurately quantify the number of non-working, non-Mexicans who have chosen to relocate full-time to Mexico. Technically, these “residential tourists” are not really tourists at all but longer-term migrants holding residency visas.
Residential tourists already form a very distinct group in several Mexican towns and cities, with lifestyle needs and spending patterns that are very different from those of regular tourists. Their additional economic impact is believed to exceed $500 million a year.