Financial shocks could disrupt tomorrow’s retirees
While today’s retirees, dependent as they are on Social Security and traditional pensions rather than 401(k)s, are better able to withstand financial shocks, tomorrow’s retirees won’t have it so easy.
They will be more in danger of being forced to downsize or spend down their assets to meet unexpected expenses such as a spike in medical bills or a loss of income through being widowed.
So says a brief from the Center for Retirement Research at Boston College, which investigated the financial fragility of the elderly to see how well they might be able to deal with financial shocks.
The reason the elderly are seen as financially fragile, the brief says, stems from the fact that, “once retired, they have little ability to increase their income compared to working households.”
And with future retirees becoming ever more dependent on their own retirement savings, and receiving less of their retirement income from Social Security and defined benefit plans, those financial shocks will get harder and harder to deal with.
To see how that will play out, the study looked at the share of expenditures a typical elderly household devotes to basic needs. Next, it looked at how well today’s elderly can absorb those aforementioned major financial shocks. And finally, it examined the increased dependence of tomorrow’s elderly on financial assets, whether those assets are sufficient, and how well those assets do at absorbing shocks.
Nearly 80 percent of the spending of a typical elderly household, the report finds, is used to secure five “basic” needs: housing, health care, food, clothing, and transportation. In lower-income households or the homes of single individuals and in households that rent or have a mortgage, those basic needs make up even more of a household’s spending.
And while there are areas in which a household can cut back—such as entertainment, gifts or perhaps cable TV—as well as potential cutbacks on basic needs, typical retirees can’t cut by more than 20 percent “without experiencing hardship.” And among those lower-income and single households, as well as those with rent or mortgages to pay, the margin is even slimmer.
The need for medical care is so important to those who need it, says the report, that the question becomes whether medical expenditures crowd out spending on other basic items.
And while a widow is estimated by federal poverty thresholds to need 79 percent of the couple’s income to maintain her standard of living, other studies indicate that widows get substantially less than that from Social Security and a pension—estimates, depending on the study, range from 62 percent to 55 percent. And that likely does not leave a widow enough to meet basic expenses.
Among current retirees, only 10 percent report having to cut back on necessary food or medications because of lack of money over the past 2 years.
However, retirees tomorrow, if they have failed to save enough to see them through retirement, are likely to experience income declines of from 6 to 21 percent for GenXers—and that’s assuming that GenXers “annuitize most of their savings at an actuarially fair rate…” despite the fact that very few actually annuitize, and cannot get actuarially fair rates even if they do.
And since the brief also finds that the greater dependency of tomorrow’s retirees on whatever they’ve managed to save in 401(k)s means that they’re exposed to new sources of risk—“that households accumulate too little and draw out too little to cushion shocks and that their finances are increasingly exposed to market downturns”—that means that future retirees will be subjected to a reduced cushion between income and fixed expenses.
To compensate, they will need to downsize and cut their fixed expenses. Neither one bodes well for a comfortable retirement.
Read the article.
Source:
Satter M. (1 March 2018). "Financial shocks could disrupt tomorrow’s retirees" [Web Blog Post]. Retrieved from address https://www.benefitspro.com/2018/03/01/financial-shocks-could-disrupt-tomorrows-retirees/
The urgent need for companies to attract talent and retain potential retirees
The race for talent drives competitors into a frenzy. Established players are forced to offer new perks, hire earlier, and watch constantly for poachers as newer destinations elbow their way toward accomplished graduates.
This fight isn't just happening in the tech scene, at hip ad agencies, or in fashion and entertainment. The battle is also taking place between banks and private-equity firms and it could easily translate to healthcare, consulting, or manufacturing. The talent crunch animates countless industries.
Companies can't just slide higher compensation numbers across the table to attract them. When one of the largest automotive corporations needed more electronics specialists to work on its electric vehicle, it used current employees' unique accounts of their job's personal and professional rewards to attract workers via social media and recruitment networks.
And of course, there is Silicon Valley. Young people are still flocking to tech, often at the expense of Wall Street. Its entrepreneurialism, relevance, pace, and community encapsulate targeted job traits, and rankings bear this out.
The tech talent phenomenon also gets at a key dynamic of the overall workforce- age. There is natural tension between accomplished veterans and flashy potential. One might assume it's the threat of the latter displacing the former, but the old guard isn't giving way anytime soon.
Older workers are healthier and more capable than ever in their later years-they're not all simply delaying retirement for financial, post-recession reasons. Their experience has taught them work habits and productivity tricks, and developed facilities with flexible and remote work advancements, which younger workers are still getting acquainted with. And the company's culture will be better off imbued with the elders' loyalty.
Baby boomers' abilities to adapt in an ever-changing workplace are keeping them significantly more engaged and productive than elder workforces of previous generations. The Bureau of Labor Statistics is projecting a rise in labor force participation for people over the age of 55 over the next decade, most dramatically for workers 75 years and older, with a predicted increase of 38%.
It will be important for companies to develop intellectual capital transition strategies that focus on leveraging the knowledge of older workers in the training and mentoring of their younger staff.
Alongside the rest of the world, age tensions in the US are moderate. Only a quarter of Americans think that their aging country is a major problem, according to a Pew Research Center survey. Other countries are less confident that they will be taken care of well in their later years. While the graying shift in the US is steeper than the global average, some powerful nations must address the change more urgently.
The value of long-time workers may be most stark in specialized industries like defense, where the usual limits on recruiting are exacerbated by factors like budget cuts and employee screening. All companies must work with core employees on retirement planning to avoid sudden, gaping vacancies and lost chances to transfer knowledge. The result should be a workplace that is attractive to all age groups, opening larger pools of talent to recruit from than the competition.
