A significant portion of older Americans are headed for retirement with insufficient savings.
The Federal Reserve reports a median retirement savings of $185,000 for Americans aged 55 to 64 as of 2022.
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Among Americans ages 65 to 74, the number increases to $200,000. But neither balance is a particularly large amount, given that retirement could easily last 20 years or longer.
Baby boomers as a whole might not seem prepared for retirement, but that doesn’t mean all older Americans are doomed. Some baby boomers are headed for financial security, and it’s all thanks to the smart decisions they make on a regular basis.
Here are three things financially savvy baby boomers do with their money that could lead to decades of comfort once they retire.
Pay themselves first
Earlier this year, U.S. News & World Report found that 42% of Americans across all ages don’t have an emergency fund.
But financially savvy boomers don’t let themselves get into a situation where they can’t cover a surprise bill and end up with debt. Rather, they practice paying themselves first.
On a basic level, paying yourself first means allocating money to your savings from every paycheck before using it for anything else — but there are different ways to do it.
If your employer offers a 401(k) and you sign up, contributions can be taken directly from your paycheck. If not, you can set up automatic transfers to an IRA so that you’re funding your retirement plan every month.
You can also set up automatic transfers from a checking account, where your paycheck might land, to a savings account to build an emergency fund. Having emergency cash reserves could spare you from having to take out a loan or put an unplanned expense on a credit card.
Experian says that baby boomers have an average of $6,754 in credit card debt. But having savings ready at all times could help you avoid debt and the financial insecurity it can lead to.
Read more: Want an extra $1,300,000 when you retire? Dave Ramsey says this 7-step plan ‘works every single time’ to kill debt, get rich in America — and that ‘anyone’ can do it
Avoid lifestyle creep
As people’s paychecks increase, a funny thing starts to happen. Instead of taking the opportunity to save more money, many folks opt to spend more instead. But that could lead to more stress, more debt and less stability.
A 2024 report from PYMNTS Intelligence found that 48% of Americans earning more than $100,000 a year live paycheck to paycheck. And the reason may boil down to lifestyle creep.
Financially literate boomers don’t let themselves increase their spending as they edge toward the end of their careers and their earnings peak.
Instead, they find ways to be happy with their current standard of living and continue saving so they can support their lifestyles without worry once retirement arrives. It’s a practice you may want to adopt so you can benefit from your growing paycheck instead of having it become a source of stress.
Smart investing
Investing isn’t just important when you’re young and trying to build retirement wealth. It’s just as important to hold your investments as you approach retirement, and during retirement.
Boomers that are financially stable continue to invest, and they don’t completely withdraw from the stock market out of fear.
It’s a good idea to scale back on stocks as you age to minimize your risks. But ditching stocks completely could mean not generating enough income to lead the lifestyle you want.
A 2024 Empower review of baby boomers’ investments found that they tend to allocate 36% of their assets to U.S. stocks and only 7.6% to international stocks, which can be more volatile. It also found that boomers tend to keep 10.5% of their assets in U.S. bonds and 29.6% in cash.
Boomers who maintain a diverse investment mix over time often end up having more stable returns. They should also consider assets that can generate income for them once they’re no longer working. Some options that work well in that regard include dividend stocks, municipal bonds and real estate investment trusts (REITs).
Certificate of deposit (CD) laddering can also be a good option, namely because doing so offers low-risk returns while earning different interest rates over different term lengths. When each CD reaches maturity, you can reinvest your earnings. When interest rates fall, CDs become less attractive. However, in the near term, CDs are another smart option for boomers to consider for their investments.
Savvy boomers also invest in the most tax-advantaged manner possible. For those who are still working, IRAs and 401(k)s make sense.
The nice thing about these accounts is that there are no age limits for making your annual contributions, so boomers can fund them as long as they’re still working and earning money. You may want to continue funding your IRA or 401(k) for as long as possible to take advantage of the tax benefits involved.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
