Crossing the Retirement Rubicon: Why 2030 Matters So Much

The number of people age 65 and older will outnumber children by 2030, straining social services and potentially retirees’ budgets

401k, retirement, Census, Social SecurityThe retirement ratio will be way off.

By 2030, and for the first time in American history, grandparents may outnumber grandchildren.

The U.S. Census Bureau’s 2017 National Population Projections reports that all baby boomers will be older than age 65, meaning that one in every five Americans will be retirement age.1

By 2035, the Census Bureau estimates 78 million people will be age 65 or older compared to 76.4 million under age 18.

Playgrounds may be quieter, family restaurants emptier and zoo animals lonelier.

Fewer workers, more retirees

As the population ages, the Census Bureau reports the old-age dependency ratio, or the ratio of older adults to working-age adults, is projected to climb.

In 1940, the ratio was nearly 159.4 to one.2 By 2020, there will be about 3.5 working-age adults for every retirement-age person. The ratio will fall to just 2.5 working-age adults for every retirement-age person by 2060.

It means fewer people paying into Social Security and more benefits being drawn, with the Social Security Trust Fund expected to be depleted by 2035.

At that point, the government will have only enough funds from Social Security taxes to pay approximately 75 percent of its benefit obligations under the program.3

Meanwhile, the trust fund for Medicare is also running out. Medicare Part A, which covers hospital costs for seniors, is anticipated to run dry by 2029, according to SSA. It means Medicare Part A would be able to pay 88 percent of expected benefits, falling to 81 percent by 2041.

Will Social Security retirement benefits will be reduced or eliminated? Will Medicare as we know it cease to exist? No one can predict what may happen or what Congress may eventually do to remedy the burgeoning financial issues.

What financial advisors and retirement participants can do is prepare for the potential eventuality that they may have fewer government resources to rely upon. The traditional “three-legged stool” of retirement income, consisting of Social Security, pensions and retirement savings, is becoming increasingly wobbly.

Forty percent of Americans say they are less than confident that they will have enough money to live comfortably throughout retirement and nearly half (44 percent) are less than confident that they are saving enough, according to the 2017 Employee Benefits Research Institute (EBRI) Retirement Confidence Survey.4

Few are confident that Social Security or Medicare (61 percent less than confident) will continue to maintain current benefit levels, EBRI reports.

At the same time—medical costs continue to rise. A 65-year-old couple retiring in 2017 will need an average of $275,000 in today’s dollars to cover medical expenses in retirement, according to Fidelity Benefits Consulting. 5 This cost estimate applies to retirees eligible for Medicare, and does not include potential costs for nursing home care.

Time and money

These financial pressures put a premium not only on saving as much as possible for retirement, but starting as soon as possible, as well. Time and the power of compounding remain among the best weapons available to slay the retirement funding dragon.

As an example, consider a 40-year-old making $60,000 a year who begins deferring 6 percent of his salary or $3,600 a year in a 401(k) plan.6

At 5 percent interest earnings, the retirement savings account will accumulate to $142,475 by age 67.

In a comparative example, a 30-year-old who earns $50,000 annually—$10,000 a year less—and begins deferring 6 percent of her salary or $3,000 a year in a 401(k) plan will accumulate $192,279 at age 67.

That’s nearly $50,000 more with an additional 10 more years of contributions and compounding interest.

If the 30-year-old saver gets really serious about saving and defers 10 percent a year, that total rises to $320,465 at retirement at age 65.

Boosting the deferral further to 15 percent annually nets $480,698 at retirement. So when it comes to compounding, time really is money.

It’s why workplace education programs on retirement planning are becoming increasingly critical. The sooner advisors and other financial experts can connect to workers and convince them of the benefits of starting to save as early as possible, the better off workers should be by the time they want to retire.

More employers are asking advisors to conduct educational sessions about basic retirement planning, as well as financial planning topics such as budgeting, Social Security planning, debt management and others.

Many retirement plan recordkeepers and employee benefits providers are creating educational workshops and modules on a wide range of financial planning topics with the long-term financial wellness of employees in mind.

There’s really no way to know what will happen with Social Security or Medicare benefits by 2030. However, given the current dynamics of an aging population and increasing pressure on senior social programs’ ability to sustain benefits, without some sort of legislative modifications (increased taxes, reduced benefits or a combination of both), the smart money will be on saving more, not less.

While the world may be a different place in 2030, financial advisors can help their clients plan for the worst while hoping for the best. In that way, 2030 could become a date when grandparents pine for more grandchildren instead of the wherewithal to spoil them.

Thomas Foster Jr. is head of strategic relationships for retirement plans for Massachusetts Mutual Life Insurance Co. (MassMutual). 


1 https://www.census.gov/newsroom/press-releases/2018/cb18-41-population-projections.html

2 https://www.ssa.gov/history/ratios.html

3 https://www.ssa.gov/oact/trsum/

4 https://www.ebri.org/pdf/surveys/rcs/2017/RCS_17.FS-3_Preps.Final.pdf

5 https://www.fidelity.com/viewpoints/retirement/retiree-health-costs-rise.

6 https://www.massmutual.com/planning/calculators/retirement-calculator

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