Some realities are unsettling. We may choose to ignore them, we may contest them, but that does not make them disappear.
I would not consider myself a pessimist but there are current facts and highly probable trends that I cannot reconcile with a ‘life as we know it’ scenario for the upcoming senior population (of which I am a member).
The current social contract consists pretty much in working 40 years, paying your taxes and retiring in dignified conditions. I do not understand how this situation can continue in the future. Let’s take the example of the USA and look at a few facts.
Let's set the stage by looking at how much money people really live on in the USA. According to the 2016 Census ACS survey, the breakdown of the median household income for the United States is as follows:
Total population: $57,617
People 55-64: $65,239
People 65-74: $49,072
People 75+: $31,313
To maintain their lifestyle in retirement, half of the US population will need about $50,000 per year.
In a 2013 report, the Economic Policy Institute stated: 'Nearly half of families have no retirement account savings at all. That makes median (50th percentile) values low for all age groups, ranging from $480 for families in their mid-30s to $17,000 for families approaching retirement in 2013.'
Here is the actual data for people aged 50+ pointing to a very dire situation for most and an increasing gap between the have and the have-not:
Families between 50 - 55: Average retirement savings - $124,831 Families between 50 - 55: Median retirement savings - $8,000
Families between 55 - 61: Average retirement savings - $163,577 Families between 55 - 61: Median retirement savings - $17,000
'Retirement wealth has not grown fast enough to keep pace with an aging population and other changes.' - Economic Policy Institute
By most accounts, the necessary savings for someone hoping to maintain a $50,000 per year lifestyle over 30 years will be above $1 million. This is very far from the current savings situation.
The 2017 Federal Poverty Level (FPL) for a household of 4 people is set at $24,600 per year. If we consider the situation of seniors most likely living in a household of 2 people, the FPL is $20,290 per year.
The absolute number of people over 65 living in poverty has passed from 3.3M in 2000 to 4.6M in 2014. In both years, it represented 10% of the population of the 65+ age group. More generally, this rate has oscillated between 8.7% (in 2011) and 14.6% (in1982) over the past 40 years.
As baby boomers retire in the next few years, the aging of society is inevitable. A shift in the age structure is expected with the 65+ group passing from 14.4% of a 318M total population in 2014, to 22 % of a 380M population in 2040 (Study by Sandra L. Colby and Jennifer M. Ortman Issued March 2015).
These numbers do not anticipate major increases in life expectancy in the future, however the MacArthur Research Network on an Aging Society has pointed out that official figures do not take into account potential advances in medical science, and estimated women's average life span would extend to 89 - 94 years (vs 81 in 2017), and men's to 83 - 86 years (vs 79 in 2017) in 2050.
To summarize in simple terms, we can say with a significant degree of probability that:
1. The number of 65+ under the poverty level will be above 8M people in 20 years (simple extrapolation of current figures assuming no worsening of the economy).
2. A much larger group will reach retirement at 65 with family savings under $20,000, a small pension and will live longer than before. With the cost of money increasing and their pension likely to stagnate over time, we can anticipate many will eventually join the poverty ranks.
3. We could end up with a compelling portion of the population under poverty or near poverty levels in the next 20 years.
Some people will tax me of alarmism, will contest the facts and probabilities. They will claim that elders in history have always found the way to survive in dignified manners, and that society will eventually adjust and regulate itself as retirees represent an ever increasing political force. It is a possible scenario.
I would contend that we are witnessing unprecedented factors that could represent a significant break from history and put tremendous financial pressure on the system:
We have never experienced such a large percentage of seniors in the population as we will see in 20 years.
We have never dealt with a population living so long (and soon much longer) after retirement.
We have never seen such a loosening of family bonds (family fragmentation, step families, an increased geographic mobility...) in history. It may result in reduced intergenerational solidarity and make elders more vulnerable than ever before.
The time to plan is now.
It is up to each of us whatever our age to deal with our own situation. You could adopt a fatalist attitude counting on elected officials to come up with a solution. I am afraid this problem is beyond their abilities to agree. I prefer instead trying to remediate to my own circumstances. Whichever way you choose, you should be ready to assume the consequences of your choice.
The situation is not hopeless for those ready to roll up their sleeves. The gig economy and a democratization of learning offer middle-agers unprecedented opportunities to complement their income. It supposes that they are ready to re-invent themselves, to re-consider their approach to 'retirement' and to keep in good health.
I will continue exposing some of my favorite business models to make money after 50 in this blog. Please share with us your favorite ways to earn extra income.