Retirees and those getting ready to retire must navigate all of this at a time of life when they may not be at their strongest, physically, mentally, or emotionally. But they need to be. As the last of the 73 million baby boomers turn 65 in the next seven years, challenges to the system will only increase.

“You’re probably going to have an increase in the poverty rate,” says retirement planning evangelist Laurence Kotlikoff, a William Fairfield Warren Professor and a Boston University College of Arts & Sciences professor of economics. “People are retiring, some quite early, and retiring with very little. Baby boomers just don’t have enough savings. And Social Security is just not gonna be that big for lots of people.” 

In 2021, 27 percent of adults considered themselves to be retired, even though some were still working in some capacity, according to the Federal Reserve. Some 92 percent of retirees over the age of 65 collected Social Security, and two-thirds drew from retirement accounts or pensions. 

A look at the stats covering the number of older people living in poverty seems to provide good news, having declined from one in three people in the 1960s to only about 10 percent of older people today. Still too many, but a big improvement.

But within that picture is a cautionary tale, says Deborah Carr, a CAS professor of sociology and director of the Center for Innovation in Social Science.

“If you look at just that 10 percent, 3 percent of white married men live in poverty, but over a third of women of color living on their own are in poverty,” Carr says. “So, 10 percent is a good news story overall, but we want to recall that there are some deep pockets of poverty among older people.”

Of course, millions of Americans retire just fine, but BU researchers are working to identify the challenges that keep many others from fully enjoying what are supposed to be their golden years.

Conventional Retirement Advice: A “Bait and Switch”

For most people, it all starts with saving, whether in a bank, under a mattress, or, most commonly today, with an individual retirement account. But Kotlikoff says most middle- and working-class people simply don’t save enough.

“Even after Social Security contributions, and after 401(k) contributions, they should probably be saving another 15 percent of their take-home pay, which is very tough,” Kotlikoff says, noting that perhaps 40 percent of those eligible for a 401(k) don’t take advantage. “Most people are saving nothing.”

Total US personal savings, exclusive of Social Security contributions and 401(k)s, only accounted for 4.1 percent of disposable personal income as of April 2023, according to Forbes Advisor, roughly a third below the 6.2 percent a decade earlier. And Kotlikoff says too much of that money is going in the wrong places.

“Everyone who expects to sustain their living standard through retirement needs to do economics-based financial planning,” Kotlikoff says. Where conventional retirement planning involves setting financial and lifestyle goals, then trying to hit them—sometimes through risky investment strategies—he says the economics-based approach is about determining a sustainable living standard based on your resources, and adjusting your spending as your circumstances change, so you don’t outlive your savings.

“Conventional planning is an elaborate bait and switch designed to sell you investment products that are highly expensive and overly risky,” Kotlikoff says.

5 Tips for Smarter Retirement Savings

Plan Within Your Means

Base your calculations on your assets and calculated benefits, not the lifestyle you’d like to have, to determine a sustainable living standard.

Maximize Benefit Matches

Maximize your contribution to your company’s retirement program and get all of the matching dollars available.

Save, Save, Save

Save in addition to your retirement program, as much as 15 percent of your salary.

Use Planning Tools

The information in this article and others like it is only for informational purposes, so make sure you use a financial planning tool or work with an expert on a routine basis to do lifetime financial planning. MaxiFi Planner is available for free to all BU staff and faculty.

Collect Benefits Later

Collect Social Security and other benefits at the right time—usually later than you think—to save thousands. Kotlikoff has developed software that can help you find your sweet spot.

Inequality Doesn’t Start at 65

Many people cannot save enough, no matter how hard they try. “The economic inequalities we see among people 65 and older are just a continuation of things that have happened earlier,” says Carr.

In 2020, women’s annual earnings were 82.3 percent of men’s, according to the Bureau of Labor Statistics. So, no surprise that among people invested in a 401(k) plan for at least 10 years, the average balance for women was just under three-quarters of men’s. And life events can take a toll, too, says Carr: a woman who gets divorced at an early age—living on her own, paying for a child, perhaps not receiving a lot of child support—is already taking potentially insurmountable financial hits. 

“It starts really that early. When you’re living check to check you cannot amass wealth, so you have no buffer as you move along,” says Carr, a life course sociologist who uses survey data and quantitative methods to study social factors affecting health and well-being in later life. Her books include Aging in America (University of California Press, 2023) and Golden Years? Social Inequality in Later Life (Russell Sage, 2019).

Most working-class people don’t have a pension now, Carr says, “and if they do have a pension, they can’t afford to put anything in it. And so that’s part of the reason why they just amass less over time. So, it’s the intersection of gender inequality, race inequality going back to much earlier years.”

Our Retirement Safety Net Is Full of Holes

Social Security is supposed to be the great retirement safety net, and for many it is. But decisions about when to retire or take Social Security can be difficult—and so can getting good advice.

“Social Security is broke beyond belief,” says Kotlikoff, whose research focuses on macroeconomics and public finance, as well as economic inequality and Social Security. “Its unfunded liability is $65.9 trillion—twice the size of official government debt. Paying for all projected benefits through time requires an immediate and permanent hike in the combined employer-employee FICA tax [Federal Insurance Contributions Act, a federal payroll tax] from 12.4 percent to 17.0 percent.”

But even if the government somehow manages to fully fund its obligation, simply figuring out when and what you should collect and making it happen is a challenge.

“For far too many of America’s seniors with any but the simplest situations, negotiating the complexities and outright scams of the Social Security system on their own is nigh impossible,” says Kotlikoff. “Kafka could not have designed a more complex set of provisions with hidden catch-22s that can haunt you—in the form of clawbacks—decades after you start collecting benefits.” Not to mention that wrong answers are epidemic for those who ask the Social Security Administration for help making their way through the labyrinth.

Kotlikoff recommends waiting longer to retire and to begin collecting, often until age 70, which can deliver a much larger monthly payout than starting at 62 or 65. In one of his regular Forbes columns, Kotlikoff wrote: “Your Social Security retirement benefit rate will climb by at least 8 percent for each year that you wait to start collecting until you reach 70.” He offers MaximizeMySocialSecurity.com to households for $39 a year, which provides specific plans to maximize benefits.

But even careful saving won’t change Social Security’s formulas, or the basic demographic facts.

“Social Security is complex as Larry has told you. And even beyond that, Social Security doesn’t benefit all people or all women in similar ways,” Carr says. A widow can get 100 percent of their late spouse’s benefits, for example, but a divorcee only gets half and only if they were married for more than 10 years.

“We know that divorce is something that historically was more common among low-income people,” she says. “We can’t think about late-life economic inequalities as instantly appearing on your 65th birthday.”

And those inequalities are already having devastating consequences, particularly when it comes to where older Americans call home.

“There is clear evidence that we are in the midst of a growing crisis of homelessness and housing insecurity among older adults,” says Thomas Byrne, a BU School of Social Work associate professor of social welfare policy, whose research focuses on the causes, consequences, and policy solutions to homelessness and housing insecurity. “This crisis is driven in part by the substantial rise in housing costs throughout the country over the past decade or so, which have far outstripped overall inflation and increases in income.”

In other words, a rent hike can throw older adults who have been stably housed their entire lives into a housing crisis, especially people who worked in lower-paying jobs, collect less from Social Security, and may not have a pension or private retirement plan, Byrne says.

“We should be very concerned about what this means for society as a whole, since research shows that older adults experiencing homelessness have geriatric conditions that are on par with members of the general population who are 20 years older,” Byrne says.

How Cognitive Financial Skills Change with Age

Society also needs to factor how older Americans manage (or don’t) those critical financial decisions. Literature on the topic is pretty sparse, says Preeti Sunderaraman, a BU Chobanian & Avedisian School of Medicine assistant professor of neurology. Under a five-year grant from the National Institutes of Health, she has begun to study financial decision-making by older adults—both those with dementia and a control group of healthy individuals.

Her interest evolved out of earlier work with people who had traumatic brain injuries and often did poorly managing their money. “I’m not looking at investment decisions or retirement decisions, I’m looking at how people make everyday financial decisions,” Sunderaraman says. Things like having a budget when shopping at the store.

“We really don’t have a good way to gauge a person’s financial abilities,” she says. “So, I started thinking, how do we make this assessment more objective and in sync with today’s technological advances. At the same time, I also found in my research that different cognitive abilities are related to different aspects of finances. There’s not one ability like memory that is the only factor related to good decision-making—you need attention, you need numeracy.”

Sunderaraman’s latest research involves presenting older adults with a simulated credit card task developed in collaboration with computer scientists, economists, geriatricians, and psychologists. Subjects get an online account and are asked to log in and download and review a statement. There are errors embedded in the statement, and she records how people do on the task and their level of financial awareness.

The type of errors you make may be driven by where the pathology is in your brain, Sunderaraman says. If you have Alzheimer’s disease pathology, you’re going to make certain types of financial errors, such as forgetting to pay bills, whereas if you have frontotemporal dementia, you might buy things excessively. 

“We talk about the baby boom generation, right? And this is exactly what is happening,” says Sunderaraman. “This wave is going to go on for another two decades at least. People as they grow older are at higher risk for cognitive decline.”

What Families Can Do to Help Older Relatives Flourish

The implications are important not only because of the costs to society of bad planning, but also to each individual’s life.

“You’re not just dealing with everyday finances,” Sunderaraman says. “You’re dealing with, OK, I have this whole pot of money because of [my] retirement fund, life insurance, what do I do with that money? Should I sell the house? Should I get a reverse mortgage? What happens when I have to go into a facility? All of that stuff. And who do I trust at that stage to help me with my money?”

5 Tips for Making the Best Financial Decisions as You Age

Know what you’ve got: conduct a comprehensive assessment of your assets and expected expenses.

Plan for a retirement that could last 30 years or more.

Name a power of attorney who could manage your funds in the event you no longer can.

Keep a trusted family member informed about key financial details, like where to find your account numbers, so they can step in if your health fails.

Family members of older adults should also be proactive in discussing financial issues, like advanced care plans and wills, early and often.

Carr, who studies how and why human beings flourish in their lives, says families need to be proactive at that stage.

“These things have to be part of the family conversation, what you discuss at Thanksgiving,” she says. “Do your aging parents have a will? Do they need advanced care planning help? And underscoring [that] you’re not asking because you want their inheritance, this is not a ploy to grab the money.”

The goal, after all, is the same one that motivates the years of retirement planning—all that number crunching and sifting through Social Security rules—which is being able to enjoy our later years.

“If we can take financial worry out of the equation, that absolutely frees up people’s mental space and time to focus on the relationships and experiences that enable flourishing, whether it is time with friends or hobbies or family,” Carr says. “Whatever can be done to minimize economic strain and suffering enables people to pursue their passions even at later ages.”

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