In my last post, I wrote about the challenges ahead for the millions of baby boomers as they enter the traditional “retirement years”. As a near retiree myself, I quite naturally have a heightened interest in retirement related topics. An avid reader, I am always on watch for an article or other publication that explores some facet of the retirement planning process that will be beneficial to both me and my clients. In recent months I have noticed a near exponential increase in the number of articles written on this subject. It would seem that an entire industry has sprung up to address the needs (and insecurities) of the mass of baby boomers now entering their 50s and 60s.
As they have with nearly every aspect of our economy and culture, the baby boomers will also rewrite the book on what retirement will look like in the foreseeable future. There is ample evidence that coping with new the retirement reality is a matter of increasing urgency in this country.
The many articles, hard data, and my own observations point to emerging trends that will fundamentally change what “retirement” means for the majority of Americans. The idyllic vision of early retirement is largely a thing of the past. Clearly, the average pre-retiree has not saved enough to maintain their lifestyle in retirement. Social Security income alone will not be sufficient so more seniors will need to work at least part-time indefinitely to supplement Social Security and investment income. Those with neither the skills nor health to continue working will face genuine hardships.
Further, fear of the stock market following the turbulence of the “Great Recession”, and the slow recovery in its aftermath, have kept too many sidelined in overly conservative investments. With continuing low interest rates, taking some risks with investments is unavoidable to achieve an adequate rate of return on retirement savings. Investing in well-diversified stocks makes for a bumpier ride but offers the greatest long-term rewards.
Among the hottest topics is Social Security planning – when and how to take it. Postponing Social Security income until full eligibility (now 67 for those born in 1960 or later) results in much greater lifetime benefits but the decision will depend on many personal and financial factors. (My colleague, Brian Moore, has explored this subject in more depth in his June 11, 2014 blog found here.)
What impact these trends will have on the future of our economy and investment markets is not fully understood but here are a few predictions:
- The participation rate of older workers in the workforce will continue to increase as full or even partial retirement remains out of reach for many seniors. This will mean fewer job opportunities for entry level workers with little skill or experience.
- More seniors who are unable to work for health reasons or lack of needed skills will find themselves living at or near the poverty level. This development will put additional pressure on government and privately funded social services.
- Those who are able to work will continue to save and invest while continuing to pay taxes. Many more will postpone the receipt of Social Security. This may bode well for the investment markets and the health of the Social Security system in the long-run.
Those with sufficient resources for a comfortable retirement may continue to work by choice for the fulfillment meaningful employment provides. Baby Boomers with the means will seek new experiences and make lifestyle choices that will create new markets of opportunity for businesses and investors.
At Legacy Trust we work closely with our clients to plan for a secure financial future and continually monitor the retirement and investment landscape to help them navigate the ever-changing conditions.