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.