Fact Sheet on Retirement Trends

A number of trends point to delayed retirement – to our late sixties or seventies. Live Long & Prosper! details how to effectively manage these trends to ensure a secure and happy rest-of-life.

• The decline of pension and retiree medical plans. Employers are eliminating or reducing defined benefit and retiree medical plans, increasing the need for employees to build their own financial resources that will last the rest of their lives. From 1983 to 1998, the number of traditional defined benefit plans in the United States dropped by two-thirds. Looking ahead to 2031, according to a recent Watson Wyatt study, employer-sponsored retiree medical plans will be paying for only about 10% of retirees’ health costs.

• Low savings rates. Rather than increasing our savings rates to make up for the projected shortfalls in retirement plans, Americans are saving, on average, about half as much as prior generations. The average 401(k) account balance for people in their fifties and sixties is around $100,000. This will generate a lifetime income of around $5,000, accounting for future inflation. Not enough to live on, even with Social Security!

• Recent stock market volatility. The volatility of the stock market in the last few years have pointed to the uncertainty involved with relying on 401(k) plans for most of our retirement income security.

• Potential cutbacks in Social Security. Current Social Security benefits provide a modest level of lifetime income – a good start, but not enough for a comfortable living. Unfortunately, this level is jeopardized by the financing policy of the federal government. For the last several years, Social Security has run a surplus of taxes over benefits paid. However, this money isn’t being invested to pay for the benefits of baby boomers. Instead, it’s being used for all the expenditures of the federal government – military, foreign aid, research, government services, and so on. By 2040, Social Security actuaries project that the annual deficit of benefits paid over Social Security taxes collected will reach nearly $1 trillion – in today’s dollars. It’s inevitable that some combination of benefit cutbacks or tax increases will need to make up this deficit.

• The aging of the workforce. Employers will need older workers to continue producing the goods and services that our nation needs. Currently, there are about 3.8 workers for every person age 60 and older. Recent forecasts project this number to decrease to 2.1 by 2040. If these trends continue, there will be a worker shortage. It’s more likely that this shortage will be partially prevented by baby boomers working later in life than prior generations.