Peak 65 Is Here: What It Means For You, Your Life And Your Money

5 minute read

2024 is officially here…and so is what’s known as the “Peak 65 Zone.” This year, we will see the largest surge of retiring Americans in recent history, with more than 4.1 million people hitting that birthday each year through 2027. That amounts to more than 11,200 every single day. A new research report that’s out today – The Peak 65® Zone is Here – Creating a New Framework for America’s Retirement Security – authored by Jason Fichtner, Executive Director of the Alliance’s Retirement Income Institute and Chief Economist of the Bipartisan Policy Center, shows that millions of these retiring Americans lack sufficient protected income and face financial insecurity. In fact, one measure suggests about half of these households are at risk of not having enough money saved to maintain their standard of living in retirement.

From inflation to longevity trends, there’s a lot to consider when we think about retirement and making our money last. If you’re retiring this year, or within the next several years, you’re probably wondering, what can I do to protect myself and have enough income to last throughout retirement? These are concerns held by a significant number of those in the Peak 65 zone, according to a recent Ipsos survey sponsored by the Alliance for Lifetime Income. It found that 66% are worried about having enough money for retirement, 79% are concerned about the cost of healthcare in retirement, and overall, only 24% are “very optimistic” about their retirement years.

How do we quell these fears, find financial security and enjoy what are supposed to be some of the best years of our lives? According to Fichtner, it all boils down to rethinking retirement. “With the demise of protected lifetime income available through private sector pension plans, the traditional three-legged stool of retirement security – employer pensions, Social Security and personal savings – has collapsed for this Peak 65 generation,” said Fichtner. “Unlike older retired Baby Boomers, the majority of Peak 65’ers don’t have pensions, which used to help fill that gap left by Social Security. Our current retirement system is obsolete and it’s time for a new retirement security framework that will help Americans fill this protected lifetime income gap.”

WATCH Your Money Map: Peak 65 Is Here: What It Means For You, Your Life And Your Money

In the report, Fichtner calls for establishing a goal that protects up to two-thirds of people’s retirement income, which can be accomplished through a combination of strategies, some of which include:

Increased government collaboration: The government could enact regulations promoting annuities, and/or remove regulations that act as barriers to annuitization. Recent legislation, including the SECURE Act of 2019, which made it easier for a retirement plan sponsor to offer an annuity option in a defined-contribution benefit plan, and SECURE 2.0 of 2022, which increased the amount individuals can move into a qualified longevity annuity contract (QLAC) greatly helped toward this effort. That said, Fichtner argues more can be done. “Given the important role protected income will play in the financial security of millions of Americans, it’s time to recognize how protected income products should be considered an asset class in retirement planning discussions,” he writes.

Building a bridge to maximum Social Security benefits: As Fichtner outlines, more Americans should consider how an annuity can be used as part of their Social Security claiming strategy. “If a person retires before their Social Security full retirement age, one option would be to purchase an annuity as a “bridge” between retiring and claiming Social Security,” he explains. “By using an annuity to provide protected income for a fixed number of years, the person could afford to file for Social Security later, either at their full retirement age or at age 70 to maximize their monthly Social Security benefits.”

Improving financial disclosures: It’s no secret that many people lack the financial education necessary to make complex decisions concerning their money. This is key as the information people receive and the form it takes can influence how people make financial decisions. One of the issues is that historically, typical disclosure statements from defined-contribution plans have focused on accumulated balances — not how much income those balances will provide.  “The [2019] Secure Act requires employers to provide plan participants with an estimate of the lifetime income that their accumulated retirement savings will provide. These illustrations give people a better understanding of the implications of their saving choices and research shows are already having a positive impact on savings rates,” he writes. Fichtner notes that policymakers and employers shouldn’t be satisfied with these one-time changes to disclosure practices. “Participant behavior should be closely monitored and integrated with new research-based framing practices to improve disclosure and education efficacy over time.”

More (and better) employer support: One of the major pieces of the puzzle when it comes to rethinking retirement is asking more of employers. As Fichtner notes, employees are seeking professional financial advice on a wide variety of issues related to financial wellness – everything from saving for emergencies to developing a monthly budget. “It is an important component of the new retirement security framework that employers take an active role in helping their workers save for events that occur during their working lives, as well as helping them to have a financially secure retirement,” he writes. This includes educating employees about annuities, which 64% of consumers say are the most difficult financial product to understand. “Fortunately, today there are numerous educational guides and materials publicly available and designed to address this difficulty—from simple language glossaries to recommended questions to ask a financial professional when considering an annuity.”

With the arrival of the Peak 65 Zone comes major changes not only for today, but for years to come. In the months ahead, “Your Money Map” will continue to examine the challenges–and opportunities–of Peak 65, as well as provide the insight you need to react to this unique time in history.

For the full Peak 65 research report and findings, follow this link.