Boomers retiring did not crash the market as was predicted in 2006

 The first wave of baby boomers (born between 1946 and 1964) became eligible for Social Security early retirement benefits in 2008. At the time there were concerns about how the boomers' retirement would strain the nation's retirement and health systems. In addition, concerns were also raised about the possibility for boomers to sell off large amounts of financial assets in retirement, with relatively fewer younger U.S. workers available to purchase these assets. 

The Comptroller General's conducted an evaluation on his own initiative as part of the continued effort to assist Congress in addressing these issues in 2006. 

Their analysis of data on current retirees' saving and investment behaviour revealed that most retirees slowly spend down their assets in retirement, with many continuing to accumulate assets. They found that other factors mitigated against a sharp and sudden decline in asset prices include the 19-year span over which boomers will reach retirement age, the extended life expectancy of boomers, and the expected increase in boomer employment past traditional retirement ages, which would facilitate additional asset accumulation and reduce the need to sell assets to provide retirement income. Finally, to the extent that boomers are less reluctant than prior generations to treat their homes as a source of retirement income through such strategies as reverse mortgages, they may also depend less heavily on selling their financial assets for income. 

They also found that while the baby boom retirement is not likely to cause a sharp decline in asset prices or returns, the retirement security of boomers and future generations will likely depend increasingly on individual savings and the returns these savings can earn. The decline in traditional DB pensions that provide income for life and their replacement with account-based defined contribution (DC) plans means that fewer boomers will have a dependable income during retirement other than that from Social Security.

However, fiscal uncertainties about Social Security's solvency may result in reduced future benefits for certain age groups and income levels, thereby placing more responsibility for saving on individuals. Collectively, these trends would increase the dependence of individuals on rates of return to accumulate enough financial assets at retirement and to produce sufficient income from their assets during retirement. Given the need for individuals to rely increasingly on their ability to manage their own accumulation and spending of assets and savings, financial literacy will likely play an ever-important role in the retirement security of baby boomers and future generations.

The report also found that older Americans are expected to comprise a larger share of the population, live longer, and spend more years in retirement than previous generations. The share of the U.S. population age 65 and older is projected to increase from 12.4 percent in 2000 to 19.6 percent in 2030 and continue to grow through 2050. 

At the same time, life expectancy is increasing. By 2020, men and women reaching age 65 are expected to live another 17 or 20 years, respectively. Finally, falling fertility rates are contributing to the increasing share of the elderly population. In the 1960s, the fertility rate was an average of three children per woman. Since the 1970s, the fertility rate has hovered around two children per woman, meaning relatively fewer future workers are being born to replace retirees. The combination of these trends is expected to significantly increase the elderly dependency ratio-the number of people aged 65 and over in relation to the number of people aged 15 to 64. In 1950, there was 1-person aged 65 or over for every 8 people aged 15 to 64. By 2000, the elderly dependency ratio had risen to 1-person aged 65 for every 5 people of traditional working age, and by 2050 this ratio is projected to rise further to about 1 elderly to every 3 working-age people Consequently, relatively fewer workers will be supporting those receiving Social Security and Medicare benefits, which play an important role in helping older Americans meet their retirement needs. 

While it is interesting to read the past, it is also important to understand that governments were aware of the issues that we face in retirement today and did little to fix them.

Visions of retirement 4

Many Workers Prefer to Transition into Retirement at Current Employer. When thinking about working past age 65 or working while transitioning into retirement, about half of workers would prefer to stay with their current employer (52 percent). Baby Boomers (63 percent) are significantly more likely to prefer this, compared with Generation X and Millennials (both 47 percent). In contrast, Millennials are more likely to expect to either change employers or start their own business while transitioning into retirement (both 24 percent), compared with Generation X (16 percent for both) and Baby Boomers (15 and 8 percent, respectively). Approximately one in five workers across generations is not sure how their employment-related scenarios will look when transitioning into retirement.

Reasons for Working in Retirement Include Financial and Health. Among workers who are or plan to work in retirement and/or past age 65, somewhat more would do so for financial reasons (80 percent) than for healthy-ageing reasons (72 percent). The top financial reason is that workers want the income (53 percent), while the top healthy-ageing reason is to be active (47 percent).

Generations Share Common Reasons for Working in Retirement. Across generations, workers who are or plan to work in retirement and/or past age 65 more frequently cite financial reasons than healthy-ageing reasons for doing so. Millennials have the narrowest gap between the two types of reasons, with 78 percent citing financial reasons and 76 percent citing healthy-ageing reasons, compared with Generation X (83 percent financial, 67 percent healthy-ageing) and Baby Boomers (81 percent financial, and 69 percent healthy-ageing).

Workers Can Take More Steps to Continue Working Past 65 Workers need to be healthy enough and have access to employment opportunities to fulfill their aspirations and expectations of working past age 65. However, when asked what steps they are taking to help ensure they can continue working, 27 percent of workers say they have not taken any steps. Among those who are taking proactive steps, workers most frequently cite that they are staying healthy (48 percent), performing well at their current job (43 percent) and keeping their skills up to date (40 percent). Baby Boomers are more likely to cite staying healthy (56 percent) and somewhat more likely to cite performing well at their current job (48 percent) than younger workers. In contrast, Millennials are more likely to be networking and meeting new people (23 percent) and going back to school (19 percent) than older workers.

 

Visions of Retirement 3

More than half of Workers Expect to Work Past Age 65. More than half of workers (54 percent) expect to work past age 65 or do not plan to retire. However, expectations differ across generations: More Baby Boomers (69 percent) either expect to or are already working past age 65, or do not plan to retire than Generation X workers (57 percent). In contrast, most Millennials (58 percent) plan to retire at 65 or sooner.

More than half of Workers Plan to Work in Retirement. Fifty-five percent of workers plan to work in retirement, including 41 percent who plan to work part time and 14 percent full time. Just 28 percent do not plan to work after they retire and 17 percent are not sure. Baby Boomers, Generation X, and Millennials share similar expectations of working in retirement; however, Millennials (17 percent) and Generation X (14 percent) are significantly more likely than Baby Boomers (8 percent) to plan to work full-time after they retire.

Four in Ten Envision a Phased Transition into Retirement. Forty-four percent of workers envision a phased transition into retirement during which they will reduce work hours with more leisure time to enjoy life (27 percent), or work in a different capacity that is less demanding and/or brings greater personal satisfaction (17 percent). Twenty-two percent plan to continue working as long as possible until they cannot work anymore. Only 22 percent expect to immediately stop working either when they reach a specific age or savings goal, and 12 percent are not sure. Across generations, these views are generally similar. However, Generation X (26 percent) are more likely to envision continuing to work if possible, compared with Baby Boomers (21 percent) and Millennials (19 percent).

Most Are Realistic About Compensation in Phased Retirement. Among workers who envision a phased transition into retirement, most have realistic expectations regarding how changes in their work arrangements may affect their compensation, job title, and benefits. Most agree that if they were to reduce their hours, they would expect to be paid the same hourly rate (82 percent). If they were to take on a new role with fewer responsibilities, the majority would expect their job title to change (80 percent), and would expect to be paid the market rate for duties involved, even if it means a reduction in their level of pay (77 percent). Notably, nearly three in five workers (59 percent) say that if they were to shift from full-to part-time work, they would expect the same level of employee benefits –an expectation that may not be realistic because many employers do not offer benefits to part-time workers.

 

Visions of retirement 2

Workers Are Dreaming of an Active Retirement. Travelling (67 percent) is workers’ most frequently cited retirement dream, followed by spending more time with family and friends (57 percent) and pursuing hobbies (48 percent). A noteworthy 30 percent of workers dream of doing some form of paid work in retirement such as pursuing an encore career (13 percent), starting a business (13 percent), and/or continuing to work in the same field (11 percent). One in four workers (26 percent) dreams of spending their retirement doing volunteer work.

Workers Across Generations Share Similar Retirement Dreams. Workers’ top three retirement dreams –travelling, spending more time with family and friends, and pursuing hobbies –are common across the generations. However, some retirement dreams differ across generations. Baby Boomers (31 percent) are more likely to dream of doing volunteer work, compared with Generation X (25 percent), and Millennials (23 percent). Millennials (34 percent) are more likely to dream of working in retirement (e.g., pursuing an encore career, starting a business, continue working in the same field), compared with Baby Boomers (26 percent) and Generation X (25 percent).

Retirement Fears Range from Financial to Health-Related. The most frequently cited retirement fears are outliving savings and investments (48 percent), a reduction in or elimination of Social Security (44 percent), declining health that requires long-term care (41 percent), and not being able to meet the family’s basic financial needs (40 percent). Approximately one-third of workers fear a lack of access to adequate and affordable healthcare (34 percent) and cognitive decline/dementia/ Alzheimer’s Disease (32 percent). Other fears include feeling isolated and alone (20 percent), finding meaningful ways to spend time and stay involved (20 percent), and being laid off –not being able to retire on their own terms (18 percent).

Retirement Fears Are Shared Across Generations. Across generations, workers share the same top retirement fear: outliving savings and investments. Other fears vary by generation, such as the fear of a reduction in or elimination of Social Security, which is more frequently cited by Baby Boomers (49 percent) and Generation X (48 percent) than by Millennials (39 percent). Baby Boomers are more likely to cite a fear of declining health that requires long-term care (49 percent) than Generation X (41 percent) and Millennials (36 percent). Not being able to meet the family’s basic financial needs is a retirement fear more likely cited by Millennials and Generation X (both 43 percent) compared with Baby Boomers (32 percent).