I have been thinking about the numbers from my recent post. The number that sticks with me the most is the 10,000 people per day turning 65 for the next 15 years. The second number is life expectancy of close to twenty years for those reaching 65. So by the time the last boomers reach 65 in 2030 it is projected that 18% of the nation’s population will be 65 or older. That is a high percentage of old people. So the question is posed in a broad sense. Are we ready as individuals in a financial sense and are we ready as a nation to handle an increasingly older population?
There is a new demographic reality. As Time Magazine points out in the February 23, 2015 issue, we are entering “The New Age of Much Older Age”. The US population has a much higher proportion 65 and over. In 2012 the 65+ age group comprised almost 14% of the US population. This proportion is projected to grow even higher to something like 21% in 2040. Figure 1 from the US Administration on Aging (AoA) 2013 Profile of Older Americans shows the projected growth of the older population through 2060. See also: AoA projections of future growth.
The AoA profile itself states that: “Since 1900, the percentage of Americans 65+ has more than tripled (from 4.1% in 1900 to 13.7% in 2012), and the number has increased over thirteen times (from 3.1 million to 43.1 million). The older population itself is increasingly older. In 2012, the 65-74 age group (24 million) was more than 10 times larger than in 1900; the 75-84 group (13.3 million) was 17 times larger and the 85+ group (5.9 million) was 48 times larger.” So not only do we have more older people, but the group itself is increasingly older. This represents a very big looming demographic change with important consequences.
The easiest question to examine is individual financial preparedness. The AoA report has some data regarding income level derived primarily from us Census Bureau data. One chart shown below shows household income for households headed by a householder age 65 or older. At first glance, depending upon what you call reasonable, you might say that people 65 and over are in reasonable financial shape from an income perspective. About 70% of the 65+ households report an income over $35,000 per year. I am trying to square this with the data showing the median retirement savings for people 55 and older to be about $119,500. How many years could this sum provide income? The more detailed data from the Census Bureau presents a different picture. (Spreadsheet at Census website)
Income for households over 69 declines sharply. The median income for households 65-69 is $52,426. This drops to $48, 956 for those 70-74 and more precipitously to $27,322 for households headed by a householder 75 or older. Apparently, the longer people live the less they have to live on. As this older population grows and gets even older it will become more and more a social issue of how they will obtain sufficient wherewithal.
Another approach to determining financial preparedness for retirement is to calculate required replacement income. This is a bit of a back of the envelope analysis but certainly gets us in the ballpark. The question is: where will retirement income come from? If you take the median income of $52,426 for households 60-64 as pre-retirement income and assume retirement at age 65, where will replacement income come from? Some certainly will come from Social Security. The average Social Security retirement benefit in 2013 was $1,282 per month (according to the Social Security Administration December 2014 Snapshot). It is fairly safe to assume that both spouses will qualify for benefits so the annual income would be about $30,768 per year. That leaves a gap of $21,658 or $1804 per month. According the Fidelity Guaranteed Income Estimator, a joint-life only (no death benefit) guaranteed income for the life of both spouses requires an investment of $403,694. If you do a similar calculation for an investment of $119, 500 the resulting monthly payment is $534 or $6408 per year. Adding this to Social Security benefits yields total annual income of $37,176—30% less than the median pre-retirement income figure.
I have to conclude that sufficient retirement income for the increasingly older 65+ segment of the population for the period of their expected retired life appears questionable. This is not the only question. What kind of social and economic impact will the increased longevity and declining incomes of the elderly have? Fortunately, work is being done. The National Institutes of Health (NIH) supports eleven research centers on the demography and economics of aging. NIH recognizes in its Global Health and Aging report that the scope of the problem is global in nature and examines key questions. The reports preface reads in part:
The world is facing a situation without precedent: We soon will have more older people than children and more people at extreme old age than ever before. As both the proportion of older people and the length of life increase throughout the world, key questions arise. Will population aging be accompanied by a longer period of good health, a sustained sense of well-being, and extended periods of social engagement and productivity, or will it be associated with more illness, disability, and dependency? How will aging affect health care and social costs? Are these futures inevitable, or can we act to establish a physical and social infrastructure that might foster better health and wellbeing in older age? How will population aging play out differently for low-income countries that will age faster than their counterparts have, but before they become industrialized and wealthy?
In spite of the research efforts, I am not optimistic about the nation’s capacity to anticipate and deal with these issues preemptively. We all better manage our own retirement savings and investments carefully.