It’s no secret that retirement planning has taken a backseat for many Americans lately. Rising rates coupled with inflation — and now the resumption of student loan payments — have taken a toll on wallets and left little for savings. What’s more, fears around Social Security benefits due to an aging population also add to Americans’ jitteriness about how they will fare during their golden years.
And now, a recent New York Times report finds that by 2050 people age 65 and older will make up 24% of the U.S. population. In turn, this growing number of retirees will be dependent on a dwindling number of working-age people to support them.
While this is not as bad as other developed countries, it is still far higher than it is today and some experts expect that “things many wealthier countries take for granted — like pensions, retirement ages and strict immigration policies — will need overhauls to be sustainable,” according to The New York Times.
What Are the Implications for Social Security and Long-Term Healthcare?
While the fact that America is aging is nothing new, the implications for U.S. GDP growth, social support systems and retirement are profound, said Paul Brahim, managing director, senior vice president and financial advisor at Wealth Enhancement Group.
“With fewer people contributing to Social Security, its viability as a retirement income source will be severely challenged,” Brahim said. “It is conceivable that retirement age eligibility will push out further beyond and living longer will be touted as the reason. Since we are living longer, we will either need more savings to support retirement or we will work longer or a combination of both.”
Other experts agreed, saying that an aging population will also mean revisions in government-sponsored retirement programs — e.g., Social Security — will have to take place.
“Likely reductions in Social Security, raising the claiming age for Social Security and/or means testing will take place for Social Security to survive,” said Prof. Robert Johnson of Heider College of Business at Creighton University.
According to Dr. Jay Zigmont, CFP and founder of Childfree Wealth, retirement in 2050 may end up exacerbating existing income disparities and making the split even wider. If changes are not made very soon to the Social Security system, Zigmont said, retirees in 2050 will be getting reduced payments — if they get payments at all.
On the other hand, people who plan for their own retirement and look at Social Security as a bonus may be well off, Zigmont said.
In addition to retirement and Social Security concerns in 2050, Zigmont said he is worried about paying for long-term care.
“Medicare does not pay for long-term care, and Medicaid requires you to spend all of your assets before you can get coverage,” said Zigmont, adding that it currently costs $108,000 per year for a private room in a skilled nursing facility.
“Men on average will use 2.2 years of care, and women 3.7,” he said. “To make things worse, the cost for long-term care is rising on average by 5% each year. If it maintains that rate between now and 2050, the cost will be over $400,000 per year, which is unsustainable.”
So, What Will Retirement Look Like in 2050?
According to Brahim, “It will not be what our grandparents did.”
We will not have the complete cessation of work, and the standard of living will be supported by Social Security, savings and employment.
“The employment may be part-time. It may be hybrid. It may be a second or third career with space in between to rest and recharge. But it will not be unlimited rounds of golf and cruises around the world,” according to him.
He added that the changing demographics won’t permit this except for those who are exceptionally well prepared with sufficient portfolio assets to make both Social Security and work optional.
He noted, however, that a qualified, competent certified financial planner can guide you through this change and model the savings needed to meet the challenge of increasing longevity and decreasing government resources to support you in retirement.
Chris Moschner, chief marketing officer at American Advisors Group, echoed the sentiment, saying that millions of Americans need retirement plans as robust and as vigorous as all of the medical advances extending their lives.
“For a select few, retirement is truly a period of bliss, a place that sits between heaven and Earth,” Moschner said. “But for an overwhelming majority of Americans, the concept of a secure retirement is becoming increasingly out of reach.”
Strain on Labor Force
The landscape of retirement in 2050 is poised for a seismic transformation, driven by unprecedented demographic shifts and an aging population. One of the most pressing challenges will be the strain on the working-age population to support a growing number of retirees, said Tarek El Ali, CEO at Smart Insurance Agents.
In turn, this could catalyze a reimagining of retirement age and workforce participation.
“Delayed retirement might become more common as governments, employers and individuals adjust to this new reality,” El Ali said. “Employers could incentivize longer working years, offering flexible arrangements and upskilling opportunities for older employees.”
Pensions could undergo substantial modifications, he added, as with the burden of an aging population, governments and employers might recalibrate pension schemes, increasing contributions or exploring hybrid models that combine traditional pensions with individual retirement accounts.
It’s Not So Stark With Preparation
While there are notable risks due to the aging population, they are not necessarily so stark that you cannot plan for them or manage the changes over the coming decades, according to Stephen Kates, CFP, founder of Clocktower Financial Consulting and expert reviewer for RetireGuide.com.
According to Kates, what will take place is a shift toward an economy and society that will need to be better equipped to handle the needs and preferences of older Americans and the requirements of our future economy.
Retirement is changing in profound ways that will allow many “retired Americans” to continue to work outside the antiqued view of traditional retirement, thanks to flexible and remote work, Kates said.
“Earning money in retirement will become the norm,” he said. “Congress has already begun pushing back the full retirement age for Social Security, and it is likely to be pushed back further in the future for each younger generation.”
Indeed, experts say that people will have to bear a much higher burden of funding their own retirements.
“There are two elements for successful retirement planning that there are no substitutes for: time and consistency,” Johnson said. “The sooner one starts saving for retirement, the more successful they will be. One can’t take a break and time retirement contributions and be successful. Time in the market is much more important than timing the market.”
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