- People may no longer be able to depend on retirement benefits.
- Self-funding retirement savings may become the new norm.
- Longer life expectancies can mean longer retirements — requiring more savings.
What are the top concerns your clients have expressed to you about retirement? Chances are they want to know if they’ll have enough money to last their entire retirement, cover any healthcare costs, and pursue the activities they’re looking forward to in their post-work life.
A new study by the Aegon Center for Longevity and Retirement, “The New Social Contract: a blueprint for retirement in the 21st century,” looks at global perceptions and some of the new realities people are facing in preparing for a financially secure retirement. From how savings are funded to growing life expectancies and attitudes about retirement, the study offers valuable insights for your advising strategy and helpful information for your clients.
The New Reality: Retirement Benefits Are Changing
Retirement savings have traditionally been comprised of the “three-legged stool” of employer pensions/ 401K contributions, social security, and a person’s personal savings. Lately, that stool seems to have lost its stability. Pensions are rarely offered by employers anymore, and 401K plans with matching contributions are also on the decline. In addition, the new gig economy of independent contractors is rising — but with no formal retirement plan in place. According to the survey.
46% of Americans think that future generations of retirees will be worse off than those currently in retirement.
At the same time, insecurity over Social Security benefits is growing as the simple math of a population with increasing life expectancies is taking more benefits. Additionally, lower birth rates and fewer people paying into the system results in a smaller payout pool for retirees.
In order to have a secure retirement, it’s becoming more important for individuals to self-fund their savings. Unfortunately, they are often trying to do so with little financial education in investing or planning a long-term financial strategy. This is where you can really help them.
The New Reality: Healthcare Costs in Retirement Are Rising
According to the study, only 21% of people globally are confident that their own healthcare will be affordable in retirement. Despite those concerns, most retirement plans fail to include healthcare costs.
Those overall rising costs coupled with the hidden costs of ill-heath can be the biggest threat to an individual’s retirement savings plan as they incur costly treatments or force people to retire earlier than expected.
38% of American workers cited ill health as the reason for retiring earlier than they expected.
The New Reality: People Are Living Longer
With advancements in modern medicine and increased awareness of healthy lifestyle habits, people are living longer than previous generations. Most people surveyed still say they plan to retire at the traditional age of 65. However, with longer life expectancies taking people into their mid-80s, that can mean 30 years of retirement their savings is expected to cover. Are your clients prepared to make their savings stretch that long?
The New Reality: People Are Feeling Positive about Their Retirement
The top two words Americans associate most with retirement are "freedom" and "enjoyment."
On the brighter side, people are feeling pretty good about their upcoming retirement years. The study reports that globally, people see retirement as an active stage in life to be more social with friends and family, get involved in their community, and continue working part-time or launch encore careers. Working longer can also help shorten the post-work retirement time their savings would need to cover.
Talk to your clients about these new realities in preparing for a longer, self-funded retirement.
Things to Consider:
- Does your client’s employer offer a sponsored retirement plan or are they an independent contractor who has to do it on their own?
- At what age does your client plan to retire? If it’s 65, are they prepared to fund a longer retirement since they could potentially live longer?
- How is your client’s health? Would they be able to physically and mentally work longer or will they need to set aside additional funds for early retirement and healthcare?
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.