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Annuities May Be Used More As American Retirement Evolves

The Urban Institute recently published an important article about “How Retirement Is Changing in America.” Richard W. Johnson and Karen E. Smith gathered research from multiple sources to summarize the current and future states of retirement. The article included many important charts and tables so that you can really see how things have changed and are projected to change into the future. Over 9,000 people turn 65 every day in America, many of whom are retired or are nearing retirement. While their retirement looks very different than it did for those retiring decades ago, these Americans also have unique opportunities not available to the older generations. Here are nine different findings related to the changing retirement landscape in America.

First of all, the population of older Americans is growing rapidly. The population over 65 is growing at a much faster pace than the population under age 65. That’s because people are living longer and are having fewer children during their lifetime. This means that younger, working Americans have to pay more into Social Security, Medicare and Medicaid. There were .25 adults aged 65 and older compared to the number of adults aged 25-65 in 2010. That number will increase to .48 by 2060. But as more adults work longer, the burden on the younger generations will lessen a little bit. With people living longer, their retirement savings also has to last longer, something that will be discussed later. In addition to a larger aging population, the older population is becoming much more diverse. Non-hispanic whites accounted for 81% of adults over 65 in 2000. That’s more than 3/4 of the population of older Americans! By 2060, that number will be down to 57%. The race and ethnicity of older Americans matters because it affects their total wealth accumulation, health, and networks of caregivers.

The number of married women over 65 is rising at the same time that the number of married men over 65 is falling. This is because the gap between male and female life expectancies is narrowing. This is important because unmarried older women, whether from being widowed, divorced, or never married, are three times as likely to live in poverty in their older ages than married women. Half of women and 2/3 of men will be single for at least a decade in the future, which affects finances and caregiving from a spouse. Another interesting fact about the future of retirees is that more of them than ever before will have a higher education. Americans born in the 1980’s are half as likely to be without a high school diploma and twice as likely to have a four year college degree than Americans born 50 years earlier. Typically this means that they will earn more in their lifetime, have greater wealth and be healthier than those that came before them. The overall trend also shows that older Americans are healthier now than they ever have been. Fewer people aged 80 and up reported poor health from 1998 to 2012, but the article said that the trend may reverse as more middle-aged Americans report declining health issues like diabetes.

We’ve been talking about this trend a lot over the past couple of years. Traditional pensions are becoming a thing of the past, but Americans are saving more for retirement in their employer-based retirement accounts like 401k plans. Only 11% of adults born in the 1980’s will have a traditional employer pension to pay them income during retirement. It’s projected that workers born in the 1980’s will have saved three times more for retirement that those born 50 years earlier by the time they reach age 65. Once you have accumulated your retirement savings, annuities can help create a lifetime income stream that will help account for the increasing longevity mentioned above. In addition to overall retirement savings increasing, women are both earning more and saving more for retirement than ever before. Can you believe that women only earned 1/4 of what men earned in the 1930’s? Women born in the 1970’s will earn 70% of what men will in their lifetime. There is still a long way to go for equal pay, but women earning more helps with their retirement security overall.

Older adults will be working later in life than any generation that came before them, especially as jobs continue to become less physically demanding. Some Americans work longer out of necessity, while others are bored during retirement and go back to work. No matter the reason, working longer increases lifetime earnings, Social Security credits, and retirement savings. You also have less time that you have to make your retirement savings last. If that is one of your main concerns, speak with an expert about using an annuity to combat longevity risk. The final result listed in the article was that more Americans are retiring in debt. Whether it is mortgage debt or credit card debt, this increased debt will affect retirement savings as long as it exists. The face of retirement in America is changing in many ways, which may lead to an increasing use of annuities in retirement planning.

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