The “OK, boomer” meme that has swept the internet this year provides an outlet for younger generations to tell their elders that they just don’t get it.
Yet as baby boomers retire, they’re less concerned with memes and more worried about whether things will be OK for them as they grow older. It’s a question all generations should be concerned about as an aging global population comes up against a younger workforce that is experiencing substantial change and struggle.
Much like an elastic band, the population is feeling economically stretched at both ends. With people living longer, the financial pressure of retirement continues to mount — both on the individual retiree and on the society that ends up covering any shortfall. At the same time, millennials are saving less, accumulating more debt, and experiencing greater uncertainty than previous generations.
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How we collectively handle the tension between young and old will help determine what economic growth and retirement security looks like in the future. Managing the competing forces will not be easy, but balancing them will be essential to avoiding a snapback effect where the economy contracts painfully, much like an overstretched rubber band.
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An aging global population puts pressure on one end…
In a recent episode of the State of Retirement podcast, global pension expert Harry Smorenberg explains that life expectancy increasing worldwide means retirees will have to be supported for “25 to 30 or perhaps even 35 years” after they stop working without contributing economically beyond their own savings. He noted that this is not an isolated challenge, with health care costs rising by 10% annually in the Netherlands as the population there ages.
While Smorenberg noted that many retirement-age individuals would like to keep working, with 70% of respondents in one recent Japanese survey expressing a willingness to work longer, the reality is that older workers face many obstacles. Merely being prepared to continue earning a living may not be enough.
In the United States, these challenges are even more acute. By 2030, one American in five will be over the age of 65. At least 80% of those senior citizens will be managing one or more chronic disease, driving health care costs ever higher. At some point, many will need an assisted living facility or nursing home where the median costs for a private room already top $100,000 per year. The U.S. spent $3.5 trillion on health care in 2017 and that figure is now projected to grow 5.5% annually, reaching almost $6 trillion by 2027.
Many workers transition to retirement not just short on savings but “overweight” on debt. Older Americans over age 60 owed more than $3 trillion at the end of 2018. While much of this is mortgage debt, a surprisingly large amount — nearly $100 billion — comes in the form of student loans. Whether they’re co-signing for children or grandchildren or still paying off loans taken later in their own lives, senior citizens are on the hook for these education expenses.
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A changing younger population puts pressure on the other end
At the other end of the rubber band, younger workers owe most of the student loan debt — there was $1.46 trillion in total student loan debt at the end of 2018. As millennials continue to pay off their college educations, they keep putting off saving for retirement. Meanwhile, they are supporting the social safety net for today’s growing elderly population.
Millennials and Generation Z work differently and live differently than their parents and grandparents did. For example, they are increasingly choosing urban living, often renting and putting off the purchase of a home, and devoting a higher percentage of their income to housing than their predecessors.
While there are differences between older and younger members of the population, one area of overlap that has significant economic consequence is “gig” employment. Although popular perception suggests that only younger workers embrace the sharing economy, the reality is that workers over the age of 55 participate in alternative work arrangements at a higher rate than younger Americans, according to the Bureau of Labor Statistics, often to help make up for shortfalls in retirement income needs.
Coming together to achieve economic balance
Avoiding a painful economic snapback from these trends means that policymakers, employers, and individuals must come together to find solutions. Efforts are already underway, with the recent passage of the SECURE Act and the continued adoption of state-facilitated retirement savings programs, to help workers of all generations by expanding access to retirement savings. These and other initiatives also can help promote innovative designs that balance the potential for spending to cover near-term emergencies with long-term planning.
Nevertheless, there still remains much to do. Workers of all ages would benefit from financial education and workforce training they need to earn and save effectively. Leveraging technology will be an important factor in the success of these efforts, both in providing the tools needed to manage savings effectively and opening the doors to new employment opportunities, especially as individuals age and seek more-flexible employment.
Successfully improving retirement income outcomes will only happen when all workers can save for retirement culminates with the continued development and more widespread adoption of lifetime income solutions that turn retirement savings into monthly income. The only way to avoid continued pressure on government spending to support retirees is to make sure they are well-prepared for economic self-sufficiency by the time they stop working.
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Instead of sniping at each other with witty Internet memes, millennials and boomers must join together to balance the competing economic pressures produced by retirement savings challenges. By creating a future that works for everyone, we can avoid a damaging economic snapback. Workers and retirees of all ages have a role to play in driving growth, building savings, and managing a sustainable retirement.