Hard Financial Truths Boomers Must Face

If you are a Baby Boomer, retirement is either already here or close enough to see on the horizon. For many Boomers, though, the financial reality of what comes next may be harder than the plan assumed.

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 every Baby Boomer should be prepared for.

This post was updated on August 16, 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 the CPI-W. The core problem is that the CPI-W tracks the spending habits of working-age Americans, not retirees. Older households spend a disproportionately large 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. Over that stretch, 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. The Senior Citizens League’s 2026 Loss of Buying Power study found the erosion has continued: measured from a 2016 baseline, benefits have lost approximately 13.7% of their purchasing power, and payments would need to rise by about $296 per month just to recover that more recent ground. The 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.

2. Social Security’s Trust Funds Face a Shortfall

Beyond the buying power problem, Social Security faces a structural funding challenge. The 2026 Social Security Trustees Report, released June 9, 2026, projects that the combined trust fund reserves will 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 a roughly 17% automatic cut. The picture for the retirement-only OASI trust fund is considerably tighter: that fund is now projected to run out in the fourth quarter of 2032, at which point incoming revenue would cover only 78% of scheduled retirement benefits, triggering an automatic 22% cut for all recipients. The Bipartisan Policy Center notes that the enactment of the One Big Beautiful Bill Act in 2025, which reduced revenue from the taxation of Social Security benefits, helped move the OASI depletion date one year earlier than the prior year’s estimate.

Congress could step in to prevent those cuts, and lawmakers have done exactly that in past funding crises. Any fix will likely involve trade-offs: higher payroll taxes, changes to the benefit formula, or adjustments affecting future retirees. Current and near-retirees should not panic about the immediate term. Social Security will not disappear overnight, and as of 2026, the program has sufficient income and trust fund assets to pay full scheduled benefits. But building some flexibility into a retirement plan now can go a long way toward insulating against the unexpected.

3. Savings May Produce Less Income Than Expected

Boomers with retirement savings may need a more realistic picture of how much income those accounts can actually sustain. Many retirees rely on the 4% rule, which calls for withdrawing 4% of a portfolio in the first year of retirement and then adjusting that dollar amount for inflation annually. More recent research suggests that starting rate may be too aggressive for some. Morningstar’s 2025 “State of Retirement Income” report pegged the highest safe starting withdrawal rate at 3.9% for new retirees targeting consistent inflation-adjusted spending over a 30-year horizon. That is a modest improvement from the 3.7% the firm found in its 2024 research, but it remains below the traditional 4% benchmark.

The practical effect is worth spelling out. 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. The $1,000 difference may look small in year one, but it compounds across decades of inflation-adjusted spending, and the real constraint is the underlying rate itself. Morningstar’s research applies to portfolios with an equity weighting between 30% and 50%; more aggressive allocations do not support higher withdrawal rates because of the sequence-of-return risk they carry. Boomers who built retirement budgets around the 4% assumption, or around even older rules of thumb, should revisit those projections with current data 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 as people 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 excludes long-term care costs, which can add substantially more. For a couple, Fidelity puts the combined figure at approximately $345,000. Because healthcare inflation consistently outpaces general inflation, the gap between what retirees budget and what they actually spend tends to widen with every passing year.

None of these realities should suggest that a secure retirement is out of reach. They do mean that sound planning demands current data rather than 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 adds TSCL’s 2026 Loss of Buying Power finding that benefits have lost approximately 13.7% of purchasing power since 2016, clarifies that the OASI trust fund’s 2032 depletion would trigger a 22% benefit cut (not 17%), and credits the One Big Beautiful Bill Act as a factor in the accelerated depletion timeline per the 2026 Trustees Report and Bipartisan Policy Center analysis. It also adds Fidelity’s $345,000 couples healthcare estimate from the 2025 report and Morningstar’s equity allocation context for the 3.9% safe withdrawal rate.

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