Things are looking good. Really good. We’re riding high in the longest bull market in history, the Dow closed at a record 26,616 last January, and unemployment is down to 3.9% in August.1 What could be better?
Retirement planning, for starters. Despite the glowing financial vibes of the present, today’s workers may be woefully optimistic of their future.
The seventh annual Aegon Retirement Readiness Survey asked 16,000 workers and retirees across 15 countries which trends are impacting their plans for retirement. While 49% of workers believe future generations of retirees will be worse off than current workers, they still plan to depend on the traditional sources of retirement income.
In fact, U.S. workers surveyed expect 71% of their retirement income to come from the government and their employer. They may be in for a rude awakening.
Retirement systems around the world have generally operated on a three-pillar approach, often referred to as the “three-legged stool.” These include Social Security, workplace retirement benefits, and personal savings. Two of the three legs — Social Security and employer-sponsored retirement plans —have become incredibly strained.
A hole in the bucket
As life expectancy improves, a growing aging population is stretching the viability of Social Security. For a married couple reaching age 65, there’s a 50% chance one of the spouses will live to be at least 92, according to the Society of Actuaries.
Many of your clients may overlook, or completely ignore, the need to factor healthcare costs into their retirement funding. The average cost of a semi-private nursing home is $85,000 a year. The projected total lifetime healthcare costs for a healthy 65-year-old couple is over $404,000. When it comes to saving, your clients can’t afford to be passive.
Working for what
In addition to shrinking Social Security, employer-sponsored retirement plans are also being tested. The traditional one-job-for-life career model may be a thing of the past. It’s increasingly common for workers to change employers several times over their careers, even possibly becoming self-employed here and there.
Keep in mind — your typical defined benefit plan was designed decades ago to fund retirements of long-service workers with a shorter life expectancy. From a cost perspective, these plans may not be sustainable for today’s employers. Now we’re seeing employers shift to offering employee-funded defined contribution plans in which the employer may or may not make a contribution. In doing so, employers are not only expecting workers to self-fund a greater portion of their future retirement income, but also to bear more risk in managing the assets. Are your clients prepared?
A new blueprint
Understanding these variables is paramount to serving clients with true guidance. Yes, things are looking good. A positive market can feel reassuring, but as we learned in 2008, things can turn on a dime.
Chris McGovern, a director with Transamerica’s Advanced Markets Group, understands the true need of covering your bases.
“People get in the mindset that things are going to be good forever,” he said. “If you showed a stock market historical chart to a 5-year-old and said, ‘Which way do you think this goes next?’ it’s pretty obvious which way most people would say it’s eventually going to go. What if you’re 62 when the next recession happens? What do you do now?”
Financial professionals hold the keys to the retirement equation. Our clients not only depend on guidance for today, but expertise that goes the extra mile.
To better understand how these new retirement variables will impact your clients and your business, we’ve prepared a whitepaper with action steps you can take today.
Read the next article in our Retirement Readiness series, Hopes for Retirement Still Outweigh Worries.
1 August Jobs Report Economy Adds 201,00 Jobs and Unemployment Steady. NPR.org. September 2018.
Neither Transamerica nor its agents or representatives may provide tax, investment, or legal advice. Anyone to whom this material is promoted, marketed, or recommended should consult with and rely on their own independent tax and legal advisors and financial professional regarding their particular situation and the concepts presented herein.
Transamerica Resources, Inc. is an Aegon company and is affiliated with various companies which include, but are not limited to, insurance companies and broker dealers. Transamerica Resources, Inc. does not offer insurance products or securities. The information provided is for educational purposes only and should not be construed as, medical, insurance, securities, tax, legal or financial advice or guidance. Please consult your personal independent advisors for answers to your specific questions.