Retirement Income Solutions: One Size Does Not Fit All
People of a certain age will recognize the “three-legged stool” paradigm of how the post-WWII generation viewed retirement planning. Attributed to President Franklin D. Roosevelt (FDR), the term refers to what were then considered the three pillars of retirement income: an employer pension, savings, and Social Security. Without one, your stool would collapse.
Fast-forward to the pandemic, where older workers and retirees began to focus on and better understand their monthly expenses, especially as some retirees who were part of the great resignation began to consider returning to work due to a lack of sufficient resources. It’s clear that economic times change, just like FDR’s “three-legged stool” paradigm; in the 21st-century workplace, pensions and group insurance plans once offered by employers are rare. As the retirement paradigm continues to evolve, it’s also become apparent that consumers’ individual retirement income solution needs evolve, too. As a result, one size no longer fits all.
Some Retirement Basics
Retirement for most Americans is a concept that remains fraught with concern. A recent survey by the Indexed Annuity Leadership Council (IALC) shows that Americans in general fear outliving their income in retirement (25%), not being able to maintain their current lifestyle (23%), and unexpected and debilitating health care expenses (19%).1 The pandemic only compounded these fears and made Americans more risk-averse (42%) about their finances.2 As a result, a vast majority of Americans (86%), say that guaranteeing their income in retirement is important.3 More than half surveyed would even consider working part-time (54%) to supplement their retirement income, and this figure rises to 69% among those considering retirement in the next five years and 73% among those planning to retire in five years or beyond.4
Women’s Retirement Specifics
Despite the consensus on the importance of retirement savings, some groups still find it much harder to save for retirement, based on factors beyond their control. Women on the whole experience significant retirement planning and savings setbacks, if nothing else because of the persistent gender wage gap; women today currently make 83 cents for every male dollar.5 Women also tend to live longer than men; the current life expectancy for women aged 65 is another 21 years, three more years than for a man of the same age.6 Life expectancy for Hispanic women aged 65 is another 23 years, while for African American women aged 65, it is another 20 years.7 Living longer also makes women more susceptible to greater financial risks, including inflation, outliving assets, the death of a spouse, and unexpected health costs. Therefore, women need more resources to cover their longer retirement and to prevent falling into poverty in later life. Unfortunately, women in general receive less in terms of retirement income. In 2017, median income for women age 65+ was $19,180, compared to men of the same age, whose median income was $32,654.8
Other Retirement Inequalities
Another stark reality of retirement planning in the 21st century is that the U.S. retirement infrastructure is mostly based on workers saving for their own for retirement during their active working years. To succeed, workers need to accumulate a large amount of savings by the time they retire, and most Americans are failing to amass sufficient funds to maintain their current standard of living.9 The net result is that most middle-class Americans will continue to fall behind, while those in higher tax brackets with financial assets will continue to grow wealthier. Members of the Generation X and the Millennial generations are also projected to experience some income inequality challenges, since they started working during periods of economic instability, namely recessions and other world events, i.e., Sept. 11 and the dot-com bubble burst in the late 1990s that resulted in little to stagnant wage growth. Further complicating retirement is the fact that roughly half of today’s workers do not have workplace retirement savings plans, and a lack of a 401k or 403(b) plan creates hurdles that limit a worker’s ability to invest and own financial assets.10 Widening access to retirement plans would increase Americans’ ownership of financial assets and bring millions into investment markets to help address financial asset inequality.
Takeaways and Solutions
After reviewing so many statistics about the state of retirement in the U.S., the primary takeaway is that today’s workers simply need to take responsibility with more education and advanced planning throughout their lifetimes. Workers in all stages of life also need to be more proactive about determining their own income needs and evaluating what options will work best for them. Important questions to ask concern early retirement, expected standard of living, working in the “gig” economy, and other potential income sources. Other steps include increasing access to workplace retirement savings plans to enable more workers to own financial assets, and portability of retirement savings to minimize leakage. Employers could also provide more retirement education and encourage the right balance of highly paid and lower paid employees to enroll,11 along with more auto-enrollment initiatives. While much progress has been made, more work is necessary in retirement income solutions, (guaranteed and non-guaranteed), availability through retirement plans and individual markets, and legislative support.
The spectrum of retirement income solutions continues to evolve, including retirement plan sponsors providing access to lifetime income solutions and individual market options. Although many factors that contribute to retirement in the 21st century, such as life expectancy, greater economic conditions, and other intangibles will continue to unfold, education and preparation remain dependable constants in retirement income solutions planning for the foreseeable future.
1 Retirement Fears Survey, Indexed Annuity Leadership Council, 2022.
2 “Annuities, Retirement, and the Pandemic,” Indexed Annuity Leadership Council, June 2022
5 “These 8 charts show the glaring gap between men’s and women’s salaries in the US,” Business Insider, March 2022
6 WISER’s Top 5 Retirement Challenges for Women, 2021
9 “Stark And Growing Economic Inequality Fuels Retirement Insecurity,” Forbes, September 2021
11 “Retirement Plan Education—Take It to the Next Level,” SHRM, May 2014