By Roger W. Ferguson, Jr., President and CEO at TIAA
America is on the road to making demographic history. By 2035, the nation will have more older people than children for the first time ever. That’s one of the forecasts made in a
new report from the U.S. Census Bureau, which says the 2030s will be a “transformative decade” for the nation’s population.
The driver of this shift is the aging of America’s 74 million Baby Boomers. In just 12 years, all Boomers will be older than 65 putting the nation’s retirement-age population at one in five. This new era will present challenges for policymakers. As the population ages, the ratio of older adults to working-age adults is projected to rise, putting increased pressure on our already-stressed Social Security and Medicare programs. By 2020, there will be about three-and-a-half working-age adults for every retirement-age person, but by 2060, that ratio will fall to just two-and-a-half working-age adults for every retirement-age person.
The statistics underscore one of the key challenges facing individual Americans today: how to ensure a financially secure retirement. As lifespans increase, Americans must prepare for longer retirements than previous generations. Today, more than half of 65-year-old men will live past 85, and one in three is expected to live to at least 90. Life expectancy is even higher for women. Nearly two-thirds of 65-year-old women are expected to reach 85, and almost half will live to 90.[i]
Many Americans have not saved enough to reflect this new reality. Studies have put the “retirement income deficit” the difference between what retirees should have saved and what they have actually saved at between $4 trillion to more than $7 trillion. As a result, many Baby Boomers and Gen-Xers face the prospect of outliving their retirement savings.
There’s a solution to help ensure that doesn’t happen. An annuity can guarantee the payment of a stream of retirement income for as long as a person lives.[ii] Among economists, there is a consensus that lifetime income solutions in the form of annuities offer exceptional protection against retirees outliving their savings. But it’s important to remember that some annuities are better than others. A low-cost annuity from a trusted company is far different than a high-fee annuity carrying hidden expenses.
It’s clear that Americans appreciate what annuities can do.
TIAA’s 2017 Lifetime Income Survey showed that Americans recognize the importance of having a source of monthly income they can’t outlive[iii] to cover their essential living expenses during retirement. But the survey also underscored the fact that most Americans don’t have access to annuities in their retirement plans. TIAA has identified measures we think policymakers should take to fix this “guarantee gap,” which puts Americans at risk of outliving their savings.
We’ve known for some time that as the population ages, the U.S. faces a number of challenges around the issue of retirement security. It’s imperative that we address these challenges, and we should do so sooner rather than later. As the latest Census Bureau report makes clear, we have a date with demographic destiny and it’s approaching fast.
(Originally published on LinkedIn)
This material is for informational or educational purposes only and does not constitute a recommendation or investment advice in connection with a distribution, transfer or rollover, a purchase or sale of securities or other investment property, or the management of securities or other investments, including the development of an investment strategy or retention of an investment manager or advisor. This material does not take into account any specific objectives or circumstances of any particular investor, or suggest any specific course of action. Investment decisions should be made in consultation with an investor’s personal advisor based on the investor’s own objectives and circumstances.
[i] These data are based on calculations for non-smoking individuals with average health using the Actuaries Longevity Illustrator developed by the American Academy of Actuaries and the Society of Actuaries, available at: http://www.longevityillustrator.org/
[ii] All guarantees are based on the claims paying ability of the issuing company.
[iii] All guarantees are based on the claims paying ability of the issuing company.