A Dramatically Different Retirement Landscape Calls for a New Approach

In 2020, the scourge of the novel coronavirus upended countless lives and threw markets and economies into turmoil. It’s not surprising that in the wake of the pandemic’s first wave, many Americans saw their retirement plans derailed, too. But the coming storm for that next group of retirees has been brewing for some time, and in a recent economic analysis, economist Jason Fichtner makes a case for why we need a new approach to retirement security.

Firstly, consider the landscape. In just three short years, more Americans will reach the traditional age of retirement (age 65) than ever before. Here’s what that looks like. Today alone, 10,000 people in the United States turned 65 years old. That will happen again tomorrow and the next day. In fact, that number is expected to jump to more than 12,000 people a day by around 2024, according to the U.S. Census. That historic milestone for baby boomers has been dubbed “Peak 65™.”

This watershed moment comes on the heels of an economic downturn and a historic stretch of low interest rates. Fichtner points to estimates, created by the Center for Retirement Research at Boston College, that approximately 50% of households are “at risk” of not having enough to maintain their standard of living in retirement.1

Besides personal savings and investments in the market, Americans have access to only three types of protected lifetime income available today – pensions, Social Security, and annuities. Only 20% of all civilian workers participate in a defined-benefit pension, with a substantial portion of those workers employed in federal, state, and local governments.2 Undoubtedly, the retirement landscape has changed dramatically, employer-provided pensions have virtually disappeared, all while Social Security income is accessed too early for people to benefit from the maximum income possible.

That reality coupled with the uncertainty of future Social Security benefits and unprecedented numbers of Baby Boomers retiring earlier than planned is increasing retirement insecurity for millions of Americans reaching Peak 65™ in 2024.

The retirement picture may look bleak but there is a path forward.

The 2021 Edelman Trust Barometer, an annual trust and credibility survey, showed that employers are the most trusted source of information for Americans across the board. Employers can encourage employee saving and retirement income security in a variety of ways. In fact, a 2021 survey by the Bipartisan Policy Center finds that many workers want their employers to help them save.3

However, employers can also play a critical role in helping their workers turn retirement savings into protected lifetime income by providing access to annuities through workplace retirement plans. Fichtner notes that annuities are especially valuable in low-interest rate environments (like we are experiencing now) due in large part to their use of mortality credits and risk pooling.4 Employers, plan sponsors and government should work together to develop public policies that aim to improve access and availability to as many options as possible that would help people save and generate protected lifetime income from annuities that they can count on.

Finally, employers looking to attract and keep top talent could leverage the relatively new trend of making financial advice a valuable workplace benefit. This benefit need not be solely designed to help employees discuss retirement options. Employees are looking for professional financial advice on a wide variety of issues, including saving for emergencies, a home, education, and even help with basic financial literacy like developing a monthly budget. Employers taking an active role in bridging these gaps is a key component of the new retirement security framework.

The retirement picture may look bleak but there is a path forward. It means shifting how we save, changing the conversation from just accumulating savings to generating retirement income that lasts, and recognizing the important role employers need to play in addressing the retirement income gap. For corporate America the benefits should be obvious: a financially secure workforce is a more productive workforce.

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