If you are a Baby Boomer, retirement is either already here or getting very close. For many Boomers, though, the financial reality of retirement may turn out to be more challenging than expected.
Several forces can squeeze retirement income in ways that catch people off guard. Social Security’s shrinking buying power, uncertainty about the program’s long-term funding, the limits of a savings portfolio, and the relentless rise of healthcare costs all deserve a hard look. Here are four financial realities Baby Boomers should be prepared for.
This post was updated on May 7, 2026.
1. Social Security Benefits Have Lost Buying Power
Social Security benefits are designed to rise with inflation through annual Cost-of-Living Adjustments, or COLAs. These increases are tied to the Consumer Price Index for Urban Wage Earners and Clerical Workers, known as CPI-W. The problem is that the CPI-W tracks the spending habits of working-age Americans, not retirees. Older households spend a far greater share of their budgets on healthcare, and COLAs calculated from the CPI-W routinely fail to keep pace with what retirees actually pay.
According to The Senior Citizens League, Social Security benefits lost about 20% of their buying power between 2010 and 2024. Between those years, COLAs lifted benefits by 58%, but the cost of goods and services typical retirees purchase rose by 73%. To restore the lost value, the average retired worker would need roughly $370 more per month. That gap matters because Social Security replaces only about 40% of pre-retirement income to begin with. Boomers counting on it to cover most expenses will need to recalibrate. The 2026 COLA came in at just 2.8%, and rising Medicare Part B premiums eroded a portion of even that modest increase for most enrollees.
2. Social Security’s Trust Funds Face a Shortfall
Beyond the buying power problem, Social Security faces a structural funding challenge. According to the 2026 Social Security Trustees Report, released June 2026, combined trust fund reserves are projected to be depleted in 2034. If Congress does not act before then, the program would have sufficient income to pay only about 83% of scheduled benefits, meaning retirees would face an automatic cut of roughly 17%. The picture for the retirement-only OASI trust fund is tighter still: that fund is now projected to run out in late 2032, a timeline that the enactment of the “One Big Beautiful Bill” in July 2025 helped accelerate.
Congress could step in to prevent those cuts, and lawmakers have done exactly that in past funding crises. Any fix, however, will likely involve trade-offs such as higher payroll taxes, benefit formula changes, or adjustments affecting future retirees. Current and near retirees should stay calm about the near term. Social Security will not disappear overnight. But awareness of the uncertainty, and some flexibility built into a retirement plan, can go a long way toward protecting against the unexpected.
3. Savings May Produce Less Income Than Expected
Boomers with retirement savings may also need a more realistic picture of how much income those accounts can sustain. Many retirees follow the 4% rule, which calls for withdrawing 4% of a portfolio in the first year of retirement, then adjusting that dollar amount for inflation each year. More recent research suggests that starting rate may be too aggressive for some. Morningstar’s 2025 “State of Retirement Income” research pegged the highest safe starting withdrawal rate at 3.9% for new retirees targeting a consistent level of spending over a 30-year horizon, a slight improvement from the 3.7% the firm found in its 2024 research but still below the traditional 4% threshold.
The practical effect is worth understanding. A $1 million portfolio at a 3.9% starting rate would generate $39,000 in first-year withdrawals, compared with $40,000 under the 4% rule. That $1,000 difference may seem modest, but it compounds over years of inflation-adjusted spending, and the real constraint is the underlying rate itself. Boomers who built retirement budgets around the 4% assumption, or around even older rules of thumb, should revisit those projections with current estimates in hand.
4. Healthcare Costs Could Be Higher Than Expected
Healthcare is one of the largest and most unpredictable expenses retirees face, and Medicare alone does not cover the full bill. Premiums, deductibles, prescription costs, dental care, and vision care all remain the retiree’s responsibility, and those costs tend to grow with age. According to Fidelity’s 2025 Retiree Health Care Cost Estimate, a 65-year-old retiring today can expect to spend an average of $172,500 on healthcare and medical expenses throughout retirement. That figure is up more than 4% from Fidelity’s 2024 estimate of $165,000, and it does not include long-term care costs, which can add substantially more. Because healthcare inflation consistently outpaces general inflation, the gap between what retirees budget and what they actually spend tends to widen over time.
None of these realities should suggest that a secure retirement is out of reach. They do mean, however, that sound planning demands current data, not outdated assumptions. Social Security, inflation, portfolio withdrawal rates, taxes, and healthcare costs all interact to shape how far retirement income actually goes. Boomers who account for all four of these pressures now will be far better positioned to handle whatever comes next.
Editor’s note: This update refreshes key figures throughout the article, including Morningstar’s latest safe withdrawal rate (raised to 3.9% in the firm’s 2025 research), Fidelity’s 2025 healthcare cost estimate of $172,500 for a 65-year-old retiree, and the 2026 Social Security Trustees Report projections, which now show the retirement-only OASI fund is projected to deplete in late 2032 and that the combined fund would pay approximately 83% of scheduled benefits if depleted in 2034.
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