“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, according to The Alliance for Lifetime Income. The annuity advocacy organization released a new report on Tuesday that details how underprepared millions of baby boomers are for today’s retirement realities as the date approaches.
The Peak 65 Generation—Creating A New Retirement Security Framework, authored by Jason Fichtner, a senior lecturer at Johns Hopkins University, 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 underfunded 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.
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 and Peak 65
Economic insecurity is also on the rise, as the COVID-19 pandemic caused 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.
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 called for the following responses to meet Americans’ retirement income needs:
Employers
- 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 the adoption of proven protected income strategies.
- Make professional financial advice, education, and retirement income planning a key workplace benefit.
Financial professionals
- 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.
Public policymakers
- 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.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
