The Future of Retirement: Longer Lifespans and Changing Needs
What are the disruptive forces affecting retirement and how can you prepare?
Over the last several decades, headlines about Social Security running out of funds to support retiring seniors have become somewhat commonplace in mainstream media. In fact, the latest estimate suggests the program will begin to run short of the necessary funds to support the retired population as early as 2033 — if officials don't do something about it before then.
However, many other disruptive factors will also impact retirement in the future, including longer lifespans and the changing needs of seniors. Thus, the time for workers to start preparing to deal with these disruptive factors is now.
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Here are three of the largest forces that threaten to disrupt retirement in the future and some potential solutions to help workers prepare.
The population is aging
First, it's been obvious that the population is generally getting older, which is a function of multiple factors. Fertility rates have plummeted, while the average life expectancy has skyrocketed. As a result, there are now more people over the age of 60 than there are under the age of five, according to the World Economic Forum (WEF). Additionally, the World Health Organization estimates that the percentage of the global population over the age of 60 will almost double over the next 30 years — from 12% to 22%.
The only way to combat this issue is to work as long as possible, which is why the average age of retirement is rising steadily. The 2023 Retirement Confidence Survey from the Employee Benefit Research Institute (EBRI) found the average expected age of retirement now stands at 65. However, the current median age for retiring workers remains at 62, indicating that people aren't working as long as they expect to.
People are living longer
According to the WEF, human life expectancy doubled between 1900 and 2000. In fact, up to half of those who are currently five years old are likely to live to the age of 100, extending the typical lifetime by another 30 years in the coming decades, according to the Stanford Center on Longevity.
One of the primary impacts of longer lifespans is a significant increase in the need for medical care. Outliving your savings is another potential concern associated with longer lifespans. Coping with these concerns in the future will likely require you to save more money now and look for ways to grow your nest egg by investing.
The widely publicized shortages in Social Security stem primarily from the aging population, which is leading to a much larger retired cohort compared to the number of Americans still working. According to the Urban Institute, the number of workers sharing the cost of supporting beneficiaries will plunge to about two workers per beneficiary in 2040, versus nearly four workers per beneficiary in 1970.
However, our longer lifespans and the fact that a smaller percentage of income is applied to the payroll taxes that support the benefit program are also critical issues for Social Security. Some combination of tax increases and benefit reductions will likely be needed to support Social Security in the future, so workers would do well to start taking steps now to prepare for those eventualities.
Save, save, save — and other solutions
Of course, the simplest solution to all these issues is to save more money, but that's not always possible for everyone, especially during periods of skyrocketing inflation or unemployment. Still, you might be able to squeeze a little more into your savings and investment accounts using these basic tips:
Unfortunately, experts have known for some time that Americans aren't saving enough for retirement. In fact, a recent survey conducted by U.S. News found that 41% of Americans didn't put any money into their retirement funds in 2022 because of runaway inflation. Here are some additional steps to consider beyond boosting savings:
During periods of persistently high inflation like now, it may seem impossible to save anything for retirement. However, most people can find at least a small amount of extra savings each month if they look closely. Finally, investing has become more important than ever before for those who want to be able to retire at some point.
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Jacob is the founder and CEO of ValueWalk. What started as a hobby 10 years ago turned into a well-known financial media empire focusing in particular on simplifying the opaque world of the hedge fund world. Before doing ValueWalk full time, Jacob worked as an equity analyst specializing in mid and small-cap stocks. Jacob also worked in business development for hedge funds. He lives with his wife and five children in New Jersey. Full Disclosure: Jacob only invests in broad-based ETFs and mutual funds to avoid any conflict of interest.
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