Traditionally, retirement has been viewed as a time for relaxing, enjoying the fruits of your labor, and taking a break from work. It is likely, however, that retirement will look very different in the future.
Here, we will analyze some of the trends shaping retirement’s future. In addition, we will offer some predictions about the future of retirement.
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1. The retirement savings gap is widening.
Future retirees face a growing retirement savings gap as one of their biggest challenges. Based on Census data for 2020, fewer than half of Americans
are saving for retirement. It is true that our savings rate increases with age, but only to a certain extent. According to the census, 58% of Americans between 55 and 64 own a retirement account.
In addition, retirement savings have become harder to maintain with the rising cost of living. As a result of inflation in 2022, 41% of Americans saving for retirement paused their retirement investments.
The experts polled in a Principal survey predict this gap will continue to grow by 2030. Barriers such as access, participation, and putting away too little, too late are contributing factors.
In addition, traditional pensions are on the decline. Workers used to receive a pension from their employers in retirement, providing a steady income. It is becoming increasingly rare for workers to receive pensions, which is making them more responsible for saving for retirement themselves.
Suffice it to say, they may have difficulty maintaining their standard of living as they age.
“To close the retirement savings gap, we must focus on more assertively adopting proven default solutions as well as driving behavioral and educational change that not only brings more people into the financial system but also gives them the tools and motivation to effectively save for retirement,” said Chris Littlefield, president of retirement and income solutions, Principal Financial Group.
Additionally, legislation may be helpful in addressing this issue. In December 2022, the SECURE 2.0 Act was signed into law, introducing incentives for retirement savings.
2. There will be an increase in retirement incomes.
So long as policymakers do not cut Social Security benefits, retirement incomes will continue to grow over the next four decades reports the Urban Institute.
Essentially, their data is divided into generations based on 10-year birth cohorts. There are two types of baby boomers: early boomers and late boomers. Xennials make up the youngest cohort, which includes late Gen Xers and early millennials. This term refers to people born between 1976 and 1985.
It is projected that median after-tax family income at age 70 will be 17 percent higher for people born between 1966 and 1975 (Gen Xers) than for people born between 1936 and 1945 (pre-boomers), in inflation-adjusted dollars. Xennials will have a median retirement income 24 percent higher than pre-boomers.
3. The workforce is aging.
As the workforce ages, another trend that is shaping retirement is the aging population. Within 20 years, the number of people aged 65+ is expected to rise by 600 million to 1.3 billion, or 22 percent of the global population. By 2040, almost half of the country will be over the age of 40, according to demographers at the University of Virginia.
As a result, Social Security and other retirement programs will be burdened with more retirees in the future.
There is also an impact of the aging workforce on the workplace. In order to retain and attract older workers, more employers are offering flexible work arrangements and other benefits. Often, older workers are regarded as more experienced and reliable than their younger counterparts.
4. People are retiring later.
Within the last three decades, men’s retirement ages have risen three years, while women’s ages have risen somewhat more. According to Boston College’s Center for Retirement Research (CRR), the average retirement age of men was 62 in 1992, while the average retirement age of women was 59. Today, the average retirement age for men is 65 and 62 for women.
Several factors contribute to this, including:
Increasing living costs.
An urge to work longer.
It is possible to work on a more flexible schedule.
“Delaying retirement can have several benefits, including a higher Social Security benefit, more time to save for retirement, and a reduced risk of running out of money later in life,” says Kami Adams, retirement income specialist at Creative Legacy Group. “However, delaying retirement can also mean missing out on the opportunity to enjoy retirement while still in good health.”
People will likely continue to retire later in life. As people live longer and healthier lives and their financial security is more secure, these trends are occurring.
5. Retirement plans are becoming more customizable.
In the past, retirement plans like 401(k)s and IRAs offered limited investment options. Recently, retirement plans have been becoming increasingly customizable. With exchange-traded and index funds, retirees can tailor their retirement savings according to their personal needs.
There will likely be more customization in retirement plans in the future. There are several reasons, including retirees becoming more sophisticated investors and seeking more control over their retirement accounts.
Different types of investment will likely become even more popular in the near future, according to Principal experts. For example, 82% of the financial professionals surveyed believe guaranteed lifetime income will become more popular by 2030.
6. Technology is transforming retirement.
Retirement is also being impacted by technology. A good example is online financial planning tools that make managing retirement savings easier. In addition, telemedicine is opening up healthcare services to older adults from the comfort of their own homes.
Additionally, investment strategies can be tailored based on personal preferences and risk profiles using robo advisors and other digital investment tools. Principal reports that 90% of respondents believe financial professionals will provide personalization advice, and 81% of employers predict digital advice tools will play a significant role by 2030.
As technology advances, retirement will become even easier and more fulfilling. The use of virtual reality, for example, could create immersive retirement experiences, such as a world tour or concert. In addition, artificial intelligence could provide personalized financial and medical advice.
7. An emphasis on holistic wellness in retirement plans.
With a greater focus on holistic financial wellness, Principal transformed retirement plans after the COVID-19 pandemic. According to the Principal’s survey, 95% of financial professionals and 92% of plan sponsors expect financial wellness programs to grow by 2030, and 85% believe engagement will increase in those programs.
In the years following COVID, retirement plans have changed significantly, with more emphasis placed on financial wellness benefits and education. In particular, young people may have difficulty understanding financial planning and personal finance.
Overall, expect employers to offer a holistic program that supports the needs of the whole employee. These include:
Retirement income planning (estate planning, will prep, income planning, retiree health expenses, RMDs)
Budgeting, financial planning, and insurance requirements
Emergency savings program
Credit card and debt counseling
Healthcare planning for early retirees
Investment education
8. Active retirement is on the rise.
A traditional view of retirement is that it is a time for slowing down and relaxing. It is likely, however, that retirement will become more active in the future. Traveling, volunteering, and pursuing hobbies and interests will be more popular among retirees in the future.
The trend towards more active retirement is driven by several factors. For instance, retirees are living longer compared to earlier retirees. There is also the growing availability of affordable health care. Retirees can also enjoy an increasing number of physical activities, such as pickleball, the fastest-growing sport in the country.
As a final note, retirees are more health-conscious than ever before.
9. Retirement is becoming more globalized.
Retiring used to be seen as a time to sit back and enjoy one’s accomplishments. However, retirement will likely become much more global in the future. Specifically, traveling the world, living in different countries, and working part-time in retirement will become more common among retirees in the future.
Factors that are contributing to globalized retirement are numerous:
In the near future, cutting-edge transportation modes will transform how travelers travel to and from destinations.
Retirement visa programs that let retirees live and work abroad are another factor.
In addition, retirees are more open to experiencing new things than they used to be.
10. The concept of retirement is evolving.
It is no longer the norm for most people to view retirement as a time to stop working and relax. More and more retirees are working part-time or starting their own businesses.
Numerous factors are influencing this trend, including:
A desire to stay active.
An increase in income is necessary.
Flexible work arrangements.
We don’t know what retirement will look like in the future. One thing is certain: it will be different than in the past. In the years to come, the retirement landscape will be shaped by several factors, including those we have discussed so far.
Due to this, it is essential to begin planning for retirement early and to be flexible. As a result, you are more likely to enjoy a happy and fulfilling retirement.
How to Prepare for the Future of Retirement
It is possible to prepare for retirement in several ways. To help you out, here are a few tips:
Invest early in your future. You have more time to grow your money if you start saving early. It doesn’t matter how much you save each month; it adds up over time.
Create a budget and follow it. By tracking your spending, you will be able to avoid overspending.
Make smart investments with your money. You have many investment options available to you. As such, do your research and select investments that are appropriate for your risk tolerance and time horizon.
Consult an expert. Talk to a financial advisor if you have questions about saving for retirement. You can work with them to create a plan that meets your specific needs.
By following these tips, ensure you are financially prepared for a comfortable and fulfilling retirement.
For additional retirement planning tips, follow these steps:
Educate yourself on retirement planning. You can learn more about retirement planning by reading books, visiting websites, or consulting a financial advisor.
Keep up with the latest retirement trends. To make informed retirement decisions, you need to stay up-to-date on the latest trends in the retirement landscape.
Be flexible. As retirement is an uncertain period, flexibility and adaptability are crucial. Depending on your circumstances, you may need to adjust your retirement plans.
Be persistent. It would be best if you put time and effort into retirement savings, but the results are well worth the effort. You shouldn’t give up until you achieve a comfortable and fulfilling retirement.
FAQs
What are the biggest challenges facing retirement in the future?
The future holds many challenges for retirees, including:
Increased life expectancy. Since people are living longer than ever, they need more retirement savings.
Declining pension plans. Many employers no longer offer traditional defined-benefit pensions that guarantee retirees a certain income for life. In other words, workers are responsible for saving for retirement on their own.
Rising healthcare costs. Retirement planning will need to factor in the rising healthcare costs that are outpacing inflation. By 2027, U.S. healthcare costs could exceed the $5.8 trillion projected prior to COVID-19 (in 2019) by $590 billion. This difference is accounted for by an increase in inflation of $370 billion
The gig economy. Many people are working in the gig economy, so they may not have the same retirement benefits as traditional workers. Due to this, these workers are even more likely to need to save on their own for retirement.
How will technology change retirement?
The use of technology has already changed retirement in several ways, and this trend is expected to continue. Technology, for example, makes it easier for retired people to stay in touch with friends and family. With technology, it’s also easier for older people to stay active in their communities.
What are some new retirement trends?
The following are some of the new retirement trends emerging:
Delayed retirement. In order to save enough money to retire, more people are delaying retirement.
Part-time retirement. Increasingly, people are retiring part-time to have some income and flexibility when they retire.
Volunteer retirement. In retirement, more people are volunteering and staying active in their communities.
Geo-arbitrage retirement. Many retirees are taking advantage of lower-cost countries to stretch their retirement savings.
How much will I need to retire in the future?
Life expectancy, health care costs, and lifestyle will all affect the amount of money you need to retire. In general, you will need about 15 times what you spent before you retired.
When should I start planning for retirement?
It is best to start planning for retirement as early as possible. As a result, you can save money and ensure you’re on track to meet your retirement goals more quickly.
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