The Alliance for Lifetime Income, a non-profit consumer education organization, published a new economic report that spotlights how underprepared millions of baby boomers are for today's retirement realities and proposes ideas for a new retirement security framework as we approach a historic demographic milestone in the US.
Peak 65 is a term used to describe the point in time when more Americans will turn age 65 than at any point in history, which will occur in 2024.This fast-approaching milestone requires the urgent attention and collective action of retirement security stakeholders, including policymakers, the financial services industry, employers and consumers themselves. The report also focuses attention on a looming retirement income crisis in America, which has been dramatically accelerated by the huge increase in Americans retiring prematurely—due to layoffs or by choice—because of the COVID-19 pandemic.
The Peak 65 Generation—Creating A New Retirement Security Framework, an economic report released today and authored by Jason Fichtner, a senior lecturer at Johns Hopkins University's Paul H. Nitze School of Advanced International Studies, finds that the fundamental problem is that the three-legged stool, which once served as a model for retirement income security—pensions, Social Security and personal savings—is wobbly at best and near collapse at worst.
- Private sector pensions have all but disappeared and public sector pensions are under-funded and at risk of failing to deliver on their promises.
- Social Security is also under-funded and will need significant changes to meet its obligations, meaning future generations will pay more and work longer before getting full access to benefits. As it is now, a large percentage of Americans are opting to take Social Security early and missing out on maximizing the income they could receive by waiting.
- Americans are greatly under saved and the personal savings pool that retirees will need to draw on for retirement income is under pressure in a low-interest rate environment, even failing to meet cost of living increases. Absent private sector pensions, Americans need to find a new way to turn accumulated retirement savings into a "pension-like" stream of protected income.
Fichtner concludes that a new framework is needed to address the current realities that put as many as 50% of households at risk of not having enough money to maintain their standard of living in retirement—and it must include a focus on how protected income can help to provide the security necessary to maintain a given standard of living in retirement.
"The countdown to Peak 65 is on and is a wake-up call that the retirement income crisis in America is no longer just looming, it's here," said Jean Statler, CEO of the Alliance for Lifetime Income. "Boomers realize they may be living 20, 30 or more years in retirement, which is why it makes sense that their number one concern is outliving their savings. Similarly, our Alliance research shows they're worried about having enough money to cover their essential monthly expenses, now and throughout retirement. That's why there's more urgency now than ever before for collective action to equip boomers—as well as those that follow—with retirement plans that include protected income to fill the gap that Social Security leaves, which will give them the protection and security they need and want."
While 65 has long-been considered retirement age, most Americans begin retiring sooner. As the number of people approaching Peak 65 grows, the reality is that the country is already experiencing a retirement boom.
COVID-19 REFRAMES PEAK 65
The call for action is only strengthened by the troubling notion that economic insecurity is also on the rise. The COVID-19 pandemic has resulted in an estimated 4,000,000 workers prematurely retiring, according to Fichtner's analysis. Further, according to Alliance research, nearly half (47%) of all retirees retired as the result of employer circumstances, not because they reached a certain age or savings goal, nor because they wanted to pursue hobbies.
"The collision of COVID-19 and Peak 65 has only accelerated the pace of retirements," said Fichtner, who is also a senior fellow at the Alliance. "It has created a windfall of early retirements, hastening the impact of Peak 65. Pensions have virtually disappeared and we're in an ultra-low interest rate environment making it hard to generate risk-free retirement income. Meanwhile, people are claiming Social Security early and missing out on greater income, which is creating a perfect storm of retirement insecurity in America. With the greatest surge of workplace retirements in history upon us, and our private and public sector retirement systems basically obsolete, there are solutions to solving this crisis, but we must start acting now to avoid that cliff."
CALL FOR COLLECTIVE ACTION
Meeting the challenges presented by Peak 65 will require collective action on the part of all stakeholders in the retirement ecosystem. In consideration of this urgent moment, the Alliance is today calling for the following responses to meet Americans' retirement income needs:
- Ensure that American workers have better access through their workplace retirement plans to solutions that generate protected income easily and efficiently.
- Consider the use of "trial annuities" as part of workplace retirement plans to mitigate behavioral hurdles to annuitization and encourage adoption of proven protected income strategies.
- Make professional financial advice, education and retirement income planning a key workplace benefit.
- Advise clients on income planning, Social Security planning, and the need for adequate sources of protected income in retirement to maintain a desired standard of living.
- Provide clients with more robust retirement income education and resources to encourage optimal Social Security claiming strategies to help maximize this critical source of protected income.
- Consider incorporating annuities into clients' retirement portfolios as a uniquely efficient way for clients to generate protected income—especially in today's low-rate environment.
- Continue to pursue policy improvements and modernization to promote broad access to efficient protected income solutions for consumers.
- Work with the private sector to ensure that lifetime income disclosure practices continue to improve based on new research-based framing practices and plan participant behavior.
About the Alliance for Lifetime Income
The Alliance for Lifetime Income is a non-profit 501(c)(6) educational organization based in Washington, D.C., that creates awareness and educates Americans about the value and importance of having protected lifetime income in retirement. Our vision is for a country where no American has to face the prospect of running out of money in retirement. The Alliance provides consumers and financial advisors with educational resources, interactive tools, and actionable research and insights to use in building retirement income strategies and plans. We believe focusing attention and conversations on retirement income that lasts throughout life leads to greater retirement security for millions of Americans. Learn more at www.allianceforlifetimeincome.org and www.ProtectedIncome.org.