The 76 million American children born between 1945 and 1964 are rapidly approaching retirement age. And just like anything this well-observed generation has ever done, sociologists, government officials, academics, actuaries and industry professionals of all stripes are theorizing, postulating and debating the effect that this wave of retirees will have on the industry and society as a whole.
Many contend that the impact of the wave upon our shoreline would leave a very different impression in the sand were it not for two separate, yet interconnected factors: The Great Recession and the seismic shift in many professions from defined benefit (DB) retirement plans to defined contribution (DC) plans. The confluence of the deliberate conversion from DB plans to DC plans and the learning curve that accompanies any great transition, coupled with the devastating jolt of the Great Recession in 2008 and the years of anemic recovery that followed, have rendered many boomers’ retirement plans in tatters: In desperate need of revision, retooling and rebuilding.
And while boomers scurry to rebuild their nest eggs like birds, frantically rebuilding a nest after a storm, many are delaying retirement in order to do so. But would this generation that has always seemed to go against the grain, whether it be by embracing counter-culture values or by fomenting great social change in this country, be delaying retirement anyway, even if DB plans remained a constant and if the last five years were full of bull markets? Some seem to think so. After all, boomers are a generation that have always seen and done things their way, whether that means shrugging off conventional social mores altogether or eventually embracing those same mores, albeit on their own accord. What makes anyone think they would retire any differently?
Retiring later, naturally?
The trend towards later retirement could very well be a function of people living longer, healthier lives. As the average lifespan lengthens and individuals remain mentally sharp and physically able, later retirement could simply be a manifestation of the extended vitality rather than a reaction to inadequate planning as a result of the DB to DC conversion and the Great Recession.
Accompanying rich, longer lives is the need for them to be funded. While previous generations anticipated living an abbreviated period of their lives in retirement, according to recent research by LIMRA, the average life expectancy for a person who reaches age 65 is 83 for males and 86 for females. Potentially, boomers could be spending around 20 years in retirement if they retire in the traditional age range. Therefore, it is only natural that they attempt to work later into their lives either because they are able to, as a response to the financial crisis, or simply to fund extended lives and the health issues that accompany them.
Mathew Drinkwater, associate managing director, retirement research, at LIMRA feels that although people are living longer lives, a major reason for the capacity for individuals to delay retirement is a product of the different type of work many people do today as opposed to previous generations. Every year the trend away from heavy industrial jobs to service jobs becomes more and more ingrained, there are more individuals in the workforce that feel capable of working past the traditional age of retirement.
For those boomers who intend to delay retirement indefinitely, in order to format a more sound retirement plan or simply to remain active, they must consider the fact that they are not the masters of their retirement destiny. For myriad reasons ranging from unanticipated health issues to company downsizing, according to LIMRA, only 45 percent of pre retirees retire on the date they have planned. The statistic highlights the importance of comprehensive retirement planning, including contingency planning, for boomers.
So, what’s the plan?
Retirement planning that was initiated when boomers were in their 30s and 40s was built around a retirement age of 65. Now, because people are living longer, they feel the need to postpone that initial retirement age because their original retirement plans may have to last five or ten years longer than they were designed to, according Warren Hunter, chairman of DMW Direct, a direct response advertising agency specializing in the insurance arena.
And boomers need assistance doing so. Formatting a secure retirement plan poses enough of a challenge without the variables and repercussions of the Great Recession and extended life spans. If they are not already a component of boomers’ retirement plans, annuities could be a product that adds more security during a delayed retirement. boomers do, however, need help navigating the positives and pitfalls of deciding to work later into life.
Annamaria Banaszek, Senior Vice President, New York Life, sees the trend of boomers retiring later as an alternate trail to the traditional path of retirement, one that is fraught with complications that require robust planning advice from industry professionals. “The world is complicated, financial matters are complicated, the markets are complicated, and what boomers need is someone to quarterback for them, they need someone to sit across or even sit on the same side as them as they explore what it means to retire later,” Banaszek said.
The implications of delayed retirement
Although the concept behind retiring around age 65 is accepted as a cultural norm, it is important to understand it is a rather recent phenomenon. An article by The Motley Fool found that most Americans worked to near death until after World War II. The article contains figures from the Bureau of Labor Statistics that show 78 percent of men age 65 and older participated in the workforce in 1880 and by 1930, 58 percent of men over 65 were still in the workforce.
Historic trends aside, retiring around age 65 is a structural tenet the American workforce and society as a whole has grown accustomed to and any augmentation to that scale is bound to have a profound impact. The Center for Retirement Research at Boston College (BC) found in a 2013 study that a recent low point of six percent of the working population being over the age of 60 has now climbed to 10 percent. This percentage could grow even more, with the ageing of the baby boomers expected to cause it to jump to 13 percent by the middle of the next decade.
BC’s Center for Retirement Research found that older employees are often exceedingly productive, potentially discrediting an ageist bias. Older workers do, however cause employers to generally incur greater health insurance costs and there is a loose correlation between experienced, well-educated, older workers and a high youth unemployment rate. However, some industry experts are not sure delayed retirement is as sturdy of a trend as others.
A questionable notion?
When it comes to delayed retirement, Massachusetts Mutual Insurance Company (MassMutual) views the phenomena more as potential trend than one that has already been realized. Since many boomers have yet to hit 65, it is hard to conclude they are going to be working longer than they expected. Although MassMutual recognizes that many workers think they are going to have to delay retirement and the company is vigilantly monitoring the trend, they have not concluded that a delayed retirement will be as common as many contend.
“If they are going to work longer, it is going to be because of one of two things: It is either going to be out of necessity or it is going to be out of a desire to possibly pursue other interests and hobbies they could turn into a second career,” Phil Michalowski, vice president of the U.S. insurance group for MassMutual said. He also cautioned that some individuals may not have a firm grasp on the adequacy of their individual retirement plans and could be delaying retirement out of a fear that they will not have enough money.
It is logical to conclude, however, that if a Boomer is financially able and has had a satisfying career, they will retire at the age of 65 like the generations before them.
Sam Friedman, insurance leader for Deloitte Research at Deloitte’s Center for Financial Services is concerned that the trend of delayed retirement may not be realized simply because many boomers may not be able to work as long as they expect to. As the LIMRA data indicated, it is not unheard of for individuals to suddenly enter retirement, be it due to a company switching locations or repositioning itself in the marketplace or because of an unexpected inability to work due to health or mobility issues. It should also be noted that in many instances, people are encouraged to retire due to a company striving to remain competitive in an ever-changing marketplace or younger workers willing to work for less.
Whether the trend of delayed retirement is fully realized or not, the trajectory cannot be denied: The Employee Benefit Retirement Institute found in a 2011 study that in 2010, after the recession had officially ended, the percentage of American workers age 50 or older who expect to retire at age 70 increased to 14.8 percent from 11.2 percent in 2006
An undeniable opportunity
Quibbling over whether the trend will be fully realized or not is an interesting sociological discussion but one that should be considered inconsequential for producers and carriers. There is an undeniable opportunity here: In its latest issue brief, the Center for Retirement Research at Boston College reports that over the past 25 years, the labor force participation of men ages 60 to 74 jumped from 35 percent to 44 percent. The statistic translates into a fantastic opportunity for industry professionals, especially those who cater to pre retirees. Once again, the onus is on the shoulders of the industry to educate and implore these individuals to comprehensively prepare for retirement, whether it arrives at the stroke of midnight on someone’s 65 birthday or, in a more realistic scenario, a couple of years later. The general public, for the most part, are still confused about retirement and are unsure about what they need to have a successful one, causing many to simply delay it indefinitely until they plunge themselves into retirement on the hunch that they have worked long enough. It does not have to be this way. “This should be a wake-up call for the industry, from confusion could come great opportunity,” Hunter said.