As Peak 65 Approaches, Many Americans are Flying Without a Net
Author: Cyrus Bamji
In 1997, my mother turned 65. Just two years prior, she and my father had retired here to the U.S. to be close to their children and grandchildren. They were straight out of central casting – middle-class, hard-working retirees in good health who were excited about starting the next chapter in life. They brought with them a closet full of clothes, a few pieces of furniture, and a trunk-load of small heirlooms and memorabilia from around the world.
Never having worked in the U.S., they couldn’t count on a monthly check from Social Security and neither had protected income from a pension. However, they had saved and invested well, and had no debt. Though they worried about overspending and remaining healthy for what could be decades in retirement, they lived happily, comfortably, and with peace of mind knowing they would never run out of money for one reason alone – they had an annuity.
4 Million Americans Turn 65 in 2024
Next year, our country will mark a historic demographic milestone called Peak 65. That’s when the U.S. will experience more Americans turning the traditional retirement age of 65 than at any time in history. Unlike my parents, almost all will have Social Security income they can count on. But like my parents, most will not have protected income from a pension, to help fill the gap in lifetime income left by Social Security.
At Peak 65 next year, more than 12,000 Americans will turn 65 each day, an estimated 4 million in 2024, according to census data. Unfortunately, half of these Peak 65 Americans have $100,000 or less in investable assets according to newly released 2023 Protected Retirement Income & Planning Study (PRIP) from the Alliance for Lifetime Income. At best, many of them won’t be able to maintain the lifestyle they want in retirement. At worst, they face the prospect of outliving their savings.
The Perfect Peak 65 Storm
Today, four storm clouds have gathered to create a perfect storm of retirement insecurity. The first cloud is good news – Americans are living longer. Despite the rare dip in life expectancy in 2021, thanks to changes in lifestyle, medical advances, and other factors, life expectancy in the U.S. has been on the rise for decades. Because we’re living longer, our money has to live longer as well.
Second, the ongoing market volatility, high inflation, and fears of recession have significantly reduced the value of people’s retirement savings, while undermining their confidence in retirement – especially those who are Peak 65 or just retired. According to Fidelity, the average 401K suffered a 20% drop last year, and according to the PRIP study, 70% of consumers are worried that the markets are reducing their potential for retirement income.
Third, are re-kindled fears about the future of Social Security. PRIP data shows that only 1 in 5 Americans are now confident in the overall solvency of Social Security, despite re-assurances from government officials.
And finally, the fourth cloud ties back to my parents predicament and that of millions of people Peak 65. The PRIP survey shows that fewer than half of Americans aged 61 to 65 have protected income from a pension or annuity. It’s not surprising then that only about half believe their retirement savings will last their lifetime.
The Silver Lining for Retirement Security
Despite the storm clouds, there is good news to report. The PRIP study finds that many consumers and financial advisors changed their approach to retirement planning last year and began focusing more on retirement income. 32% of consumers made changes to their investments in 2022, moving to both safer investments and greater protection. An overwhelming 93% of consumers who protected their portfolio with an annuity are happy with their investment choices and have a significantly more positive outlook on their retirement prospects. As importantly, more advisors are recommending annuities to build protected retirement portfolios, increasing from 44% to 51% in 2022.
It’s no surprise then that demand for protected income from annuities has skyrocketed to an all-time high, with industry trade group LIMRA reporting that consumers purchased a record $312 billion in annuities last year.
Our Parents Were Wiser
Both my mom and dad happened to be from the smallest generation in modern history – the Silent Generation, born between 1928 and 1945, sandwiched between the Greatest generation and Baby Boomers. Many of their generation had the luxury of protected income from pensions to provide the retirement security many younger Boomers and generations thereafter need and want today. Though my parents didn’t have the benefit of a pension or the safety net of Social Security, perhaps they instinctively knew that protecting retirement was more important than being wealthy in retirement. It’s an important lesson that most of us planning retirement or retired can take to heart during these unprecedented and highly uncertain times.
About the Author: Cyrus Bamji
Cyrus Bamji is the Chief Communications Officer with the Alliance for Lifetime Income, a nonprofit consumer organization that educates consumers about how to protect their retirement. He is passionate and committed to the Alliance’s vision, that no American should face the prospect of running out of money in retirement.