Peak 65 boomers face a retirement preparedness gap

This is the year when the U.S. hits “Peak 65” – when the number of Americans reaching age 65 is at its highest level. Each year between now until 2027, 4.1 million Americans will turn 65 – that’s 11,000 people a day.

Peak 65 “is our window to make change,” said Jason Fitchner, executive director of the Retirement Income Institute and chief economist at the Bipartisan Policy Center. Fitchner was one of several experts in the retirement space who discussed the findings of the Retirement Income Institute/Alliance for Lifetime Income’s recent study on the economic impact of Peak 65.

Peak 65 raises concerns not only for today’s retirees and preretirees, but for younger generations of workers as well, Fitchner said.

“We’re talking about putting policies in place for the generations that are following, because we’re also in a peak millennial moment,” he said. Millennials are the largest generation in the U.S. today, “and the problems we’re seeing today with the retirement income challenges of current retirees and near-retirees will be magnified for those who are coming 30 years behind them. If we don’t do something today to help them, it’s going to be worse.”

The study showed that peak baby boomers – those ages 65-70 – face a number of financial challenges to retirement, said Robert Shapiro, author of the study. Shapiro is former undersecretary of the Department of Commerce and is chairman of Sonecon, a firm that advises U.S. and foreign businesses, governments and nonprofit organizations.

Peak 65 boomers face enormous gaps

Shapiro said the study found peak boomers face enormous gaps in retirement assets, based on education, race and gender. The education gap is particularly troublesome, he said, with about 32% of this age group holding a college degree.

“Those without a college degree are, by and large, not prepared for retirement,” he said.  “They have not saved enough. Their assets are not great enough.”

 

Other financial challenges revealed in the survey findings are:

• 5% of peak boomers have assets of $250,000 or less.
• Median retirement savings of this age group are $269,000 for men and $185,000 for women.
• Whites had median retirement savings of $299,000 as opposed to $123,000 for Hispanics and $49,000 for Blacks.
• Median retirement savings for college graduates is $591,000, compared with $75,000 for high school graduates and $7,000 for those who did not graduate from high school.
• 24% of this age group has a defined pension.

Gender also plays a role in retirement inequality, Shapiro said. In addition to having lower median retirement savings than men, (as noted above), the survey showed women fall behind men in several other aspects of retirement saving and assets.

• The median annual Social Security benefit for peak boomer men is $28,400 as opposed to $21,400 for women.
• Nearly 70% of peak boomer women qualify for Supplemental Security Income as opposed to 31% of men.

The disparity between peak boomer women and their male counterparts “is true in defined contribution plans, in individual retirement accounts, in savings accounts, in stocks and bonds held outside of retirement accounts, in home equity,” Shapiro said. “This shouldn’t be surprising – there are persistent disparities in earned income between men and women, and savings come out of earned income.”

The impact of Peak 65 on entitlement spending

As the U.S. moves into “Peak 65,” entitlement spending also is impacted, Shapiro said.

Social Security and Medicare benefits will add $347 billion to entitlement spending by 2030. All federal spending for Social Security will increase by $237 billion. Medicare costs will total $887 billion by 2030.

Peak boomers hold 10% of the jobs in the U.S., and their retirement will have an impact on the nation’s economy, Shapiro said.

Their retirements will cause a 7.3 decline in gross domestic product growth, reduce the overall hours worked by 6.5% and cause a 0.9% drop in productivity. Of the 10.9 million peak boomers expected to retire, 1.6 million work in health care, 1.3 million work in manufacturing and 1 million are employed in construction. In addition, the retirement of this age group will lead to a 22% decline in spending for transportation, a 15% decrease in entertainment spending, a 7% drop in spending on food and a 5% decline in spending for housing.

Many peak boomers underestimate how soon they will retire and how long they will live, the study showed.

Shapiro said less than two-thirds of peak boomers plan to fully retire by 2030. One-fifth stopped working by 2022 while some say they plan to work until at least 2039.

The U.S. has seen “more legislative action on retirement issues in the last 10 years than we’ve probably had in the previous 20,” Shapiro said. Part of that legislative action is the passage of the SECURE Act and SECURE 2.0. “But we need to move forward and keep progressing.”

The importance of policies that encourage people to annuitize their retirement savings is particularly crucial, he added.

“If you ask people in their early 60s and late 50s how long they expect to live, the percentage who expects to live beyond 75 is off by 25 percentage points from the actuarial. That means that when people look at annuities, they believe they’re too expensive because they think they are only going to live for 10 or 15 more years. People who believe they are likely to live longer are more likely to buy annuities.”

Susan Rupe is managing editor for InsuranceNewsNet. She formerly served as communications director for an insurance agents' association and was an award-winning newspaper reporter and editor. Contact her at [email protected]. Follow her on X @INNsusan.

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