Labor market shifts, rising healthcare costs, and the gradual decline of traditional pension and 401(k) plans have left millions of Americans scrambling to save for retirement. And a preponderance of research says it’s not nearly enough, particularly for those in and nearing retirement. But do these factors add up to a retirement crisis?
As many as 80% of Baby Boomers—more than 55 million U.S. residents—may be unprepared for retirement, according to a nationwide McKinsey & Company survey in April of almost 9,000 U.S. households. By many estimations, that constitutes a serious crisis for retirees and for the nation.
As a result, many prospective retirees feel they lack assets, financial acumen, and planning resources to retire confidently and comfortably. “The retirement crisis in America has reached a critical point,” said Jason Schram, founder of Gold IRA Astute, which provides retirement plan rollover services. “It is clear that without intervention, this issue will only become more dire as time goes on.”
Retirement Crisis Causes and Effects
A combination of longer life expectancy, rising healthcare costs, and the gradual decline of traditional employer-sponsored retirement plans has made it difficult for Americans to save enough money for retirement.
The pandemic and escalating costs of living have exacerbated existing problems. According to the Anytime Estimate Retirement Finances Survey, 38% of baby boomers are not saving for retirement at all.
“Many older Americans are struggling to make ends meet. They are being forced to delay retirement or continue working past the age of 65,” said Andrew Lokenauth, a wealth advisor who’s held leadership roles at Goldman Sachs, Citi, and JPMorgan Asset Management.
Baby Boomers, a key demographic in the U.S. retirement quandary, comprise nearly 70 million people. That’s roughly 21.6% of the entire U.S. population, second only to millennials. The retirement crisis hitting this large cohort is triggering ripple effects throughout society, according to Los Angeles insurance expert Linda Chavez.
“Senior citizens are increasingly having to rely solely on Social Security or family members for financial support. This can cause an immense amount of financial strain and stress,” said the founder and CEO of Seniors Life Insurance Finder. “Additionally, it creates a burden on the U.S. economy as fewer people are able to save and invest in the stock market. This, in turn, affects the overall economic growth and stability of the country.”
The Economic Toll
A fast-aging population, with an estimated 10,000 Americans hitting the retirement age of 65 every day until 2030, will have long-lasting effects on the workforce, production, and society at large. “Older Americans unable to retire may continue working longer than they would like, potentially preventing younger workers from entering the job market,” said Kevin Baxter, a personal finance expert and financial advisor of MoneyToday.
“Additionally, those unprepared for retirement may face financial hardship and be forced to rely on public assistance programs. This can put a strain on the economy and social welfare systems.”
Fewer retirees lead to an increased burden on working generations. Younger people shoulder higher taxes to support public programs providing income support for seniors without sufficient savings, according to Schram.
Marginalized groups, including women, minorities, low-income earners, the less educated, and the disabled are particularly vulnerable to financial hardships as they enter their elder years, he added.
“These individuals often lack access to stable retirement savings accounts such as 401(k)s or IRAs. This hinders their ability to accumulate sufficient funds for retirement,” Schram said. “This leaves them more likely to outlive their resources. They fall into poverty, straining public resources while decreasing economic output by drawing many talented workers away from the labor market too soon.”
Is Help on the Way?
One of the final Congressional acts of 2022 ushered in a massive new set of laws that will immediately change the way Americans save for retirement and shape how businesses support those efforts.
The Secure 2.0 Act, part of the $1.7 trillion omnibus spending bill signed by President Joe Biden, includes dozens of changes and provisions to retirement savings.
Among the big takeaways, the Secure 2.0 Act:
- Simplifies requirements for smaller companies to establish retirement plans.
- Increases tax incentives for companies launching these plans.
- In 2025 it requires automatic enrollment for employees at companies establishing new retirement plans unless they opt out. Contributions will increase annually.
- Encourages lower-income earners to save for retirement through federal-funded match contributions directed into individual retirement accounts.
- On Jan. 1, boosted the age for taking required minimum distributions to 73 from 72. In 2033, it will increase to 75.
Widely championed by employees, automatic enrollment, a key stipulation in the package, could change generational saving patterns.
According to research gathered by Los Angeles-based SeniorLiving.org, 60% of U.S. workers support automatic 401(K) enrollment. 71% of workers who qualify but don’t contribute to 401(k)s said they would participate if automatically enrolled.
“Many workers are hoping for support in retirement savings from the Secure 2.0 Act,” said Jeff Hoyt, editor-in-chief of SeniorLiving.org. Hoyt recommends two important retirement planning rules.
- Plan to save ten times your pre-retirement income by age 67.
- For future budget needs, you’ll need to replace 80% of your current earnings each year.
“Nobody knows the future, which is one thing that makes retirement planning a challenge,” Hoyt added. “But a thorough audit of income and spending can help you predict how much money you need to retire comfortably.”
This article is intended for general informational and educational purposes only, and should not be construed as financial or tax advice. For more information about whether a reverse mortgage may be right for you, you should consult an independent financial advisor. For tax advice, please consult a tax professional.