When Social Security was first introduced in the United States in the 1930s, it fundamentally altered life experiences for millions of retirees, even though life expectancy at the time was only around 60. Later, post-WWII prosperity resulted in traditional pensions guaranteed to millions of American workers for the remainder of their lives.
This meant retirees could plan for a life after work that included leisure, which they had not taken advantage of while working full-time and raising children. Coupled with medical advances and the success of public health campaigns over recent decades, many retirees today are living decades past their retirement date.
However, with defined benefits pensions no longer the norm, new retirees face a future where they may well outlive their funds. As a recent study issued by the World Economic Forum shows, Americans are working farther into their golden years and living a more modest lifestyle than previous generations, potentially putting a strain on the nation’s economy and social safety net.
The WEF study concluded that retirees will increasingly live not just a year or two longer than their retirement savings, but a full decade. Financial experts recommend owning around 10 times one’s annual salary when retiring.
Median individual retirement savings vary greatly on an individual level, mirroring the wage and wealth gaps in the country. Lack of individual retirement funds is much more prevalent among minorities than whites. But almost half of Americans don’t have anything saved in any individual retirement account.
Not surprisingly, about one-third of Americans currently over 65 rely on social security for 90 percent or more of their monthly income, which is a meager $1,400 a month on average. Benefits will be reduced further by 2035 if the federal government doesn't address the long-term sustainability of social security as Baby Boomers age into their twilight years.
Thirty years ago, more workers participated in defined benefits plans in which the government or private employer is responsible for saving a monthly amount for the retiree for life. Since then, the number of workers in these plans has shrunk considerably, leading to more defined contribution plans where workers are responsible for their own contributions.
With wages stagnant and education and healthcare costs soaring over the same period, many workers have been unable to contribute much if anything to their individual retirement accounts. Even for those who had large retirement accounts in 2008, the economic downturn shattered their portfolios, delaying retirements for years.
For retirees living on paltry monthly paychecks, a severe illness or long-term medical care can set them back even further. The rate of bankruptcy for those 65 and older increased more than 200 percent between 1991-2016, paralleling the decline of workers in defined benefits plans.
And even though retirees are also eligible for Medicare, it doesn’t cover everything. This is what is known as the Medicare Gap; for instance, Medicare will pay for prescription drugs up to a certain dollar amount, but then the patient is responsible for meeting the deductibles before Medicare covers the costs again. While most Medicare recipients have supplemental care, about one in five do not. Medicare also does not cover dental services, eyewear and hearing aids.
As holders of student loan debt know, declaring bankruptcy typically doesn’t discharge student loan obligations. Student loan debt is not the burden solely of young adults; many older Americans are saddled with the debt as well. On average, the Wall Street Journal reports, people 60 and older still owe almost $34,000 in student loan debt, a 44 percent increase from less than a decade ago. Many of these older Americans are carrying student loan debt not from their own education but their children's.
Collectively, a nation with a large elderly population that is unable to work and generate income, while simultaneously requiring aid, can be a major drag on the economy, and the U.S. is no different. “We could eventually have more people on government assistance programs such as food stamps, and an aging population that cannot sustain itself, which could have societal effects as well,” David Bakke, a writer with Moneycrashers, told Occupy.com.
“People may have to work beyond their retirement age, which could result in reduced productivity in various businesses, and generally speaking, an increase in the so-called welfare state will affect us all in one way or another. And this will certainly have an effect on government budgets and businesses themselves.”
Japan is now facing a threat to its own ability to care for its elderly, with about one-quarter of the population over the age of 65 and a birthrate totaling less than two children per family. At the current trend, this will mean one new worker for every retiree by mid-century. Japan has turned to promoting immigration to improve its national GDP, and even paying parents of newborns.
With incomes stagnant, living costs rising, and retirement funds inadequate or non-existent, retirees are looking to downsize – not just as a matter of convenience but out of economic necessity. Coupled with the economic difficulties facing their adult children, it's now much more common for grown-up children and their retiree parents to live under one roof.
In some cities, rents rising at an astronomical rate have forced retirees into more affordable areas in the suburbs or less desirous neighborhoods. Some retirees are now resorting to rooming with an additional housemate rather than simply downsizing. Online sites can bring together those seeking and looking for roommates to share the cost of living.
“What we know about Baby Boomers is that they don’t want to retire like their parents. They want to say in their homes rather than living in assisted living communities, but rising costs don’t allow them,” said Kelly Hickey, president of Silvernest, a home-sharing company that connects homeowners with renters.
While not a front and center issue in the 2020 elections, the increasing economic burdens on older Americans are part of the growing rallying cry over wealth inequality among progressives. And as politicians are well aware, older Americans are most likely to turn out on election day – meaning candidates need to also address the concerns of retirees if hope to win.
