Peak 65 Is Coming

Tue, 30 March 2021  |  retirement 

The Alliance for Lifetime Income, a non-profit consumer education organization, has released a new economic report that spotlights how underprepared millions of baby boomers are for today's retirement realities and proposes ideas for a new retirement security framework as we approach a historic demographic milestone in the US.

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.This fast-approaching milestone requires the urgent attention and collective action of retirement security stakeholders, including policymakers, the financial services industry, employers and consumers themselves. The report also focuses attention on a looming retirement income crisis in America, which has been dramatically accelerated by the huge increase in Americans retiring prematurely—due to layoffs or by choice—because of the COVID-19 pandemic.

The Peak 65 Generation—Creating A New Retirement Security Framework, an economic report released today and authored by Jason Fichtner, a senior lecturer at Johns Hopkins University's Paul H. Nitze School of Advanced International Studies, 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 under-funded 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.

"The countdown to Peak 65 is on and is a wake-up call that the retirement income crisis in America is no longer just looming, it's here," said Jean Statler, CEO of the Alliance for Lifetime Income. "Boomers realize they may be living 20, 30 or more years in retirement, which is why it makes sense that their number one concern is outliving their savings. Similarly, our Alliance research shows they're worried about having enough money to cover their essential monthly expenses, now and throughout retirement. That's why there's more urgency now than ever before for collective action to equip boomers—as well as those that follow—with retirement plans that include protected income to fill the gap that Social Security leaves, which will give them the protection and security they need and want."

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 REFRAMES PEAK 65
The call for action is only strengthened by the troubling notion that economic insecurity is also on the rise. The COVID-19 pandemic has resulted in 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.

"The collision of COVID-19 and Peak 65 has only accelerated the pace of retirements," said Fichtner, who is also a senior fellow at the Alliance. "It has created a windfall of early retirements, hastening the impact of Peak 65. Pensions have virtually disappeared and we're in an ultra-low interest rate environment making it hard to generate risk-free retirement income. Meanwhile, people are claiming Social Security early and missing out on greater income, which is creating a perfect storm of retirement insecurity in America. With the greatest surge of workplace retirements in history upon us, and our private and public sector retirement systems basically obsolete, there are solutions to solving this crisis, but we must start acting now to avoid that cliff."

Source: Alliance for Lifetime Income