Most of my blog posts about retirement fall into the gloom-and-doom category, but here’s a twist: A new study says retirees have never had it better and have “more health, wealth, and time to enjoy life,” making them poised “to reimagine retirement as a new time in life to live with fewer constraints.”
Skeptical? I confess I was, too. But Matt Fellowes, the author of The State of Retirees study, who is founder and CEO of the money-management firm United Income and a respected retirement researcher, makes a compelling case based on the data he reviewed from the U.S. government, academia and think tanks. Fellowes has one big caveat, though: Retirement isn’t likely to be as sweet, financially, when today’s workers retire.
The Big Gulf Between Workers and Retirees
“Unquestionably, there is a large share of the current population of workers who are going to be ill-prepared to pay for retirement, if they plan to retire at the current median retirement age of 62 or 63,” Fellowes, a former Brookings Institution fellow, told me. “The next generation of retirees certainly doesn’t seem to be on track, at least not financially.”
The key difference between today’s retirees and today’s workers: Many retirees have guaranteed pensions funded by their employers and diminishing numbers of workers will. You might say the big gulf between retirees and workers will turn into The Big Gulp.
But, Fellowes adds, “if you look at people who have retired, they’re unambiguously living much better than previous retirees by just about every measure.”
5 Findings from the United Income Study on Retirees
As the cable TV pundits like to say, let’s unpack five of the findings — many of them surprising — in the United Income study:
Today’s retirees are, generally speaking, healthier than in the past. The average life expectancy for people who make it to 60 is now 83, the report says, nine years longer than in 1900. “Longer lives have changed retirement by giving retirees more options for how and where to spend their time,” Fellowes told me.
And the percentage of retirees aged 60 or older without any physical or cognitive limitations increased from 49 percent in 1963 to nearly 62 percent by 2016, notes Fellowes, who is on the advisory board of the Stanford Center on Longevity. Roughly three in four current retirees also report no difficulty walking at least one-quarter of a mile and say they are in good or excellent health. “Even more report no difficulty with memory,” says the report.
But what about the large numbers of retirees with dementia and Alzheimer’s? How can that be happening if fewer retirees have cognitive limitations than in the past? “This is a really important point. Both things are true,” said Fellowes. “More retirees can pass basic cognitive tests than previous generations and cognitive illnesses like dementia have been growing pretty rapidly.”
There’s one health problem that is rising for retirees, though: weight. “As with the rest of the population, the percentage of retirees who are overweight or obese has also been steadily increasing, which has increased the incidence of diabetes,” the report states. “But it has so far not stunted the consistent growth over time in the percentage of healthy retirees.”
Today’s retirees are, generally speaking, wealthier than in the past. In the past 30 years, “average wealth among retirees has increased by over 100 percent, now amounting to $752,000,” the report says. The stock market run-up accounts for most of that wealth surge, which means that retirees who don’t own stocks — typically “low-wealth households” in Fellowes’ parlance — haven’t benefited the way others have. “That population is getting left farther and farther behind,” lamented Fellowes.
The wealthier retirees, he says, are also living more frugally than necessary. “They’re a lot more conservative [about spending] than previous generations,” he notes. Their big fears: health-care costs (retirement health costs have risen 5.5 percent annually since 2015, according to the HealthView Services analytical firm) and long-term care costs.
“Households do not plan well for major long-term care and assisted living expenses,” said actuary Anna Rappaport at a webinar I attended May 2 on spending in retirement. Indeed, only 54 percent of people age 75 and older recently surveyed by Home Instead Senior Care said they have enough money saved to cover in-home care.
At that retirement spending webinar, T. Rowe Price’s Sudipto Banerjee, a Next Avenue Influencer in Aging, offered one explanation for retirees’ tightfisted nature: Some retirees, he said, may have “built up savings habits throughout their working lives and find it difficult to change habits overnight and start spending.”
Financial insecurity among retirees has broadly declined, due to those record levels of wealth. The percentage of retirees living on the minimum wage or less was cut in half over the past 30 years, says United Income; today, it accounts for just one in eight retirees. And the share of retirees living below the poverty line has fallen by more than 10 percent during that time period. But, the report says, “this is not to suggest that financial challenges do not remain for retirees or that wealth gains have been universal.” In fact, wealth inequality has soared by 42 percent in the past 30 years, due mostly to whether retirees had invested in the stock market.
Those “Best Places to Retire” surveys are pretty meaningless; retirees increasingly aren’t moving. “Staying put and quality of life is increasingly important to retirees as their vitality and bank accounts have increased in value over time,” the United Income report said.
United Income found the share of retirees who’ve moved in the past five years fell from 23 percent in 1980 to just 15 percent in 2015. And only 1 percent who did move left the state where they lived. “I was surprised by this,” Fellowes told me.
The share of retirees in suburbs has risen 40 percent over the past 40 years; now accounting for nearly one in two retirees, the report noted. Despite the generally higher cost of living near big cities, “the urbanized retired population is likely choosing to stay near friends, family, and the cultural attractions, like sporting teams and theaters, that they have come to know well,” wrote Fellowes.
What’s more, according to the report, there is no relationship between the most popular states among retirees and whether a state has sunny weather, low crime or low taxes. Four of the five states with the most retirees are high-tax California, high-crime-rate Florida and cold-winter New York and Pennsylvania (Texas rounds the list). California had the highest net gain of retirees from 1967 to 2017: from 7 percent to 11 percent.
Why aren’t more people leaving snowy climes for sunny ones in retirement if they can afford to do so? “It doesn’t make any sense. The only answer I can give is that friends and family are more important to people than a shovel,” says Fellowes.
Policymakers could do more. “We need leadership to unlock the tremendous financial and civic potential this generation has,” says Fellowes. Two ideas he thinks are worth considering to help today’s workers retire more comfortably: make it easier for small businesses to offer retirement plans and let employers offer payroll-deduction, emergency-savings programs similar to 401(k)s.
Fellowes has one other idea that’s a little out there, but worth exploring: let retirees pool some of the $14 trillion they have in financial assets and put the money into what his report calls “publicly backed and tax-incentivized bonds that could fund wide-scale investments in infrastructure improvements, such as bridges, ports, or highways.” That could be one spectacular result from the state of retirees.
Next Avenue Editors Also Recommend:
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- Making Sure Our Longer Lives Are Healthy Ones
- Retirement Confidence Is Up, But There’s a Catch
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