Steps Baby Boomers Need to Take Before Retirement

It's never too late for Baby Boomers to review retirement plans

Retired baby boomers sitting on a front porch

Johnny Greig / iStock

If you are a Baby Boomer in your peak earning years, reading the headlines about the retirement challenges that are just around the corner may seem a bit overwhelming. But there is some good news! According to a 2017 research report from Financial Finesse on financial wellness across different generations, Baby Boomers are in the strongest overall financial position when compared with other age groups.

However, good news occasionally comes with bad. In light of the COVID-19 pandemic, 32% of Baby Boomers have declining confidence in their ability to retire comfortably. While it’s never too late to plan, the reality is that Baby Boomers don’t have as much time as younger generations to close the retirement preparedness gap.

If you are a Baby Boomer thinking about your own retirement prospects, here are some important steps you can take right now:

Create a Personal Spending Plan With Your Retirement Budget in Mind

Budgeting has a bad reputation because most people experience stress and frustration while struggling to find a method to consistently monitor spending. If you are a Baby Boomer approaching retirement, you should focus on creating a proactive spending plan that tells your money where to go in advance to make sure your spending is aligned with your life goals. 

There are many reasons why you need to create a spending plan now more than ever. First, spending plans will help you avoid spending more than you have coming in and increase your overall debt. Baby Boomers who are concerned about their debt obligations are less likely to report confidence in their own retirement preparedness and these debt worries are one reason many people are postponing retirement.

Spending plans also help free up extra money to pay down debt. They can also be used to help identify extra savings that may help you max out tax-advantaged accounts like 401(k)s, IRAs, and HSAs. Perhaps the biggest benefit of creating a budget or spending plan during the late-career stage is the awareness of how much income you really need to do the things you want to do in retirement.

Your retirement calculations are really only ballpark estimates until you take the time to truly understand where your money is going. Being aware of your current spending provides some useful information to help you see how your retirement income plan really looks.

Prioritize Your Financial Goals

Life is what happens to you while you're busy making other plans. In our financial lives, it can be easy to get distracted when multiple goals are competing for our same limited resources of time and money.

The best way to prioritize your financial life goals is to create a plan and put it in writing. If you are married or have a partner on the path to financial freedom, set aside time to discuss your short and long-term goals. If you are trying to decide whether it makes more sense to get out of debt, save additional funds for retirement, or pay for long-term care insurance, make sure your basic retirement needs are covered before deciding to set aside assets for your child or grandchild’s education.

Unfortunately, there are no financial aid departments out there for our own retirement. Showing your loved ones the path to true financial independence could be one of the most memorable gifts that you give the people that matter the most. 

Evaluate Your Health Insurance Options

Health care costs are one of the biggest retirement planning concerns and this really becomes top of mind as your retirement nears. From a budgeting standpoint, health-related costs are a significant portion of the budget during our retirement years.

If you have retiree medical insurance, start reviewing your options and the associated costs. You should also visit the website if you will be retiring prior to age 65 when Medicare eligibility kicks in. If you are in a high-deductible plan with an HSA option, take full advantage of your ability to set aside up to $3,600 for individual coverage or $7,200 for family coverage (plus $1,000 for both if aged 55 or older) of pre-tax dollars in a health savings account for the 2021 tax year to help cover future costs. 

Plan for Potential Long-Term Care Expenses

Long-term care costs can be a significant drain on your retirement nest. You can do an excellent job accumulating enough retirement assets to retire comfortably only to see it disappear quickly after just a few years of long-term care expenses.

According to Genworth, the median annual cost in 2020 for a private room in a nursing home was $105,850. To live in an assisted living facility, the median annual cost in 2020 was $51,600. The median annual cost in 2020 for a home health aide was $54,912.

Ask any friends or family members what their experience has been caring for a loved one needing long-term care services and you will quickly understand this is a real threat. In fact, a 2019 report from the Department of Health and Human Services found 70% of 65-year-olds will need some form of long-term care. The Alzheimer’s Association has projected the cost of dementia in 2021 to be $355 billion and is expected to exceed $1.1 trillion by 2050.

When thinking about how to potentially pay for long-term care you should be aware that Medicare doesn’t cover long-term care expenses. In general, Medicaid requires you to spend down practically all of your assets to qualify and there is a five-year look-back period on assets that were gifted to others.

Your options are to pay out of pocket using your retirement nest egg, spend down assets in order to qualify for Medicaid, or purchase long-term care insurance to protect against this potential risk. You can learn more about long-term care insurance using resources and information found at or

Here are a few guidelines to help you choose the best way to pay for any future long-term care related expenses:

  • If you anticipate your retirement assets will be somewhere between $200,000 to $2-3 million in assets, you may want to consider purchasing long-term care insurance coverage.
  • Check to see if your state offers a long-term care partnership program. Purchasing qualified insurance means for each dollar that the policy pays for your long-term care, it protects a dollar from Medicaid's asset limit.

Review Your Investment Portfolio on a Regular Basis to Verify It’s Properly Diversified

The "set it and forget it" approach to investing for retirement may not hurt you as much in the early stages of your career. However, as retirement approaches, your time horizon shortens and you won’t have as much time to recover from a big loss. A 2017 generational research report from Financial Finesse found that 40-42% of Boomers had 15% or more of their portfolio in one stock. According to Fidelity Investment's 2019 third-quarter analysis, Baby Boomers were more likely to over-allocate their investments in stocks compared to other age groups.

Consider diversifying your retirement investments if you currently have more than 10-15% in any one stock. Individual company stocks have significant upside potential, but they can also decline significantly or go to zero and never recover. This is especially risky for employer stock since you could be out of a job at the same time that your savings are decimated.

After you have reviewed your individual company exposure, think big picture, and make sure your overall investment portfolio is allocated appropriately between different types of asset classes like stocks, bonds, real estate, and cash. One of the simplest ways to diversify your retirement investments is through the use of a balanced fund or a target-date retirement fund. You can also create your own asset allocation mix using an investor risk profile and asset allocation worksheet and re-balancing on a regular basis. 

Estimate How Much Money You Would Like During Your Retirement Years

Running a basic retirement calculation at least once per year is a best practice financial planning activity. So, why is it that so many Baby Boomers have not yet bothered to take the time to calculate whether they are on track to meet their future income goals throughout retirement? 

There are many reasons why people don't take the time to run a basic retirement calculator. Some common reasons include fear of finding out they aren't on track, uncertainty about which tools to use to assess their progress, and a general lack of confidence they are saving enough.

How Much Income Will You Really Need During Retirement?

The best approach is to start anticipating whether you plan on simply trying to maintain your existing standard of living or anticipate requiring more or less. If you have five years or less until your desired retirement age, you should complete an actual budget plan for retirement. Use a basic template to get started.

Otherwise, the general guidance is to initially target a 70 to 90% income replacement rate. You can always adjust this up or down depending on your desired retirement lifestyle. The most important thing to do is estimate whether or not you will be able to generate enough income from all potential resources to achieve a sense of financial independence. There are numerous calculators out there and it's likely your retirement plan at work even has a built-in calculator.

If you haven't run your own retirement estimate recently, take action and take your retirement planning efforts to the next level.