Future Retirement Longer Lifespans, Changing Needs
Future Retirement Longer Lifespans, Changing Needs
The Future of Retirement: Disruptive Forces and Solutions
Over the last several decades, headlines about Social Security running out of funds to support retiring seniors have become somewhat commonplace in mainstream media. In fact, the latest estimate suggests the program will begin to run short of the necessary funds to support the retired population as early as 2033 — if officials don’t do something about it before then.
However, many other disruptive factors will also impact retirement in the future, including longer lifespans and the changing needs of seniors. Thus, the time for workers to start preparing to deal with these disruptive factors is now.
The population is aging
First, it’s been obvious that the population is generally getting older, which is a function of multiple factors. Fertility rates have plummeted, while the average life expectancy has skyrocketed. As a result, there are now more people over the age of 60 than there are under the age of five, according to the World Economic Forum (WEF). Additionally, the World Health Organization estimates that the percentage of the global population over the age of 60 will almost double over the next 30 years — from 12% to 22%.
The only way to combat this issue is to work as long as possible, which is why the average age of retirement is rising steadily. The 2023 Retirement Confidence Survey from the Employee Benefit Research Institute (EBRI) found the average expected age of retirement now stands at 65. However, the current median age for retiring workers remains at 62, indicating that people aren’t working as long as they expect to.
People are living longer
According to the WEF, human life expectancy doubled between 1900 and 2000. In fact, up to half of those who are currently five years old are likely to live to the age of 100, extending the typical lifetime by another 30 years in the coming decades, according to the Stanford Center on Longevity.
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One of the primary impacts of longer lifespans is a significant increase in the need for medical care. Outliving your savings is another potential concern associated with longer lifespans. Coping with these concerns in the future will likely require you to save more money now and look for ways to grow your nest egg by investing.
The widely publicized shortages in Social Security stem primarily from the aging population, which is leading to a much larger retired cohort compared to the number of Americans still working. According to the Urban Institute, the number of workers sharing the cost of supporting beneficiaries will plunge to about two workers per beneficiary in 2040, versus nearly four workers per beneficiary in 1970.
However, our longer lifespans and the fact that a smaller percentage of income is applied to the payroll taxes that support the benefit program are also critical issues for Social Security. Some combination of tax increases and benefit reductions will likely be needed to support Social Security in the future, so workers would do well to start taking steps now to prepare for those eventualities.
Save, save, save — and other solutions
Of course, the simplest solution to all these issues is to save more money, but that’s not always possible for everyone, especially during periods of skyrocketing inflation or unemployment. Still, you might be able to squeeze a little more into your savings and investment accounts using these basic tips:
- Cut unnecessary expenses: Take a close look at your spending habits and identify areas where you can make cuts. Redirecting even small amounts into savings can add up over time.
- Increase income: Explore opportunities to increase your income, such as taking on a side job or starting a small business.
- Automate savings: Set up automatic transfers from your paycheck to a dedicated retirement savings account, making it easier to save consistently.
- Seek professional advice: Consult with a financial advisor who can help you develop a personalized retirement plan based on your goals and circumstances.
Unfortunately, experts have known for some time that Americans aren’t saving enough for retirement. In fact, a recent survey conducted by U.S. News found that 41% of Americans didn’t put any money into their retirement funds in 2022 because of runaway inflation. Here are some additional steps to consider beyond boosting savings:
- Diversify your investments: Investing in a mix of stocks, bonds, and other assets can help balance risk and potentially increase long-term returns.
- Maximize employer benefits: Take full advantage of any retirement savings programs offered by your employer, such as 401(k) matching contributions.
- Explore alternative retirement options: Consider delaying full retirement or transitioning to part-time work to reduce reliance on savings while still earning income.
During periods of persistently high inflation like now, it may seem impossible to save anything for retirement. However, most people can find at least a small amount of extra savings each month if they look closely. Finally, investing has become more important than ever before for those who want to be able to retire at some point.
Conclusion
Retirement is being disrupted by various factors, including an aging population and increased lifespans. The challenges facing retirement are complex and require proactive planning. By working longer, saving more, and making smart financial decisions, individuals can overcome these challenges and secure a comfortable retirement. It’s never too early to start preparing for the future and taking steps to ensure financial stability during retirement.
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