Perfect Storm May Tarnish Golden Retirement

A combination of retirees' increased longevity, demographic trends and structural changes to the U.S. economy may collide to put an end to retirement as we all know it.

That's according to Hendrix Niemann, managing director of wealth management for CUNA Brokerage Services Inc., who spoke at CUNA's America's Credit Union Conference in San Francisco last week.

“Credit unions are facing major changes to their membership and their asset base. Baby boomers are starting to enter retirement, which means their money will be leaving the credit union as they spend down what they have saved and invested for 30-40 years.”

As a result, they will not be borrowing or depositing, he warned.

“Credit unions need to have a concrete plan in place for replacing those assets, and also for retaining the assets that are going to be passed on to the next generation,” Niemann said.

Over the past 800 years, there have been no documented examples of an economy that had to emerge from a financial crisis while simultaneously absorbing the effects of an aging population, he added.

“Two-thirds of all the people in the history of the world who have lived past the age of 65 are alive today,” Niemann said. “People didn't used to age. They died.”

Today, the average 65-year-old male has a 50% probability of living to be 85 years old with the average 65-year-old female living to be 87, which makes the average length of retirement at least 21 years, he pointed out.

If the person is part of a couple, there is a 50% probability one of them will live to be 91, which makes the average length of retirement jump to 26 years, Niemann said.

“Many people don't realize it, but we've entered a new normal for retirement. The golden age of retirement is not coming back. Many credit union members think it will, but it's not coming back.”

The baby boomers are the largest generation in U.S. history ever to retire and the vast majority of them have not saved enough for retirement, Niemann said. As they realize this, many seniors are postponing retirement or re-entering the workforce.

“The boomers are relying on social safety net programs, such as Social Security and Medicare, that were never designed or intended for a large contingent of beneficiaries who will probably live 25 or 30 years – or more – in retirement,” Niemann said. “Those programs, under their current models, will be unable to pay the benefits seniors believe they are entitled to.”

Today, there are 30 million fewer people in Generation X than in the baby boomer generation, which means 30 million fewer people paying into the retirement system for this massive retiring population, he noted.

The Millennial or Gen Y generation is as big as the boomer generation, but they are far behind their boomer parents in launching their careers, getting married, starting families and buying homes. Niemann said.

This is largely because of a massive and still-growing student debt burden, which now tops $1 trillion, as well as lackluster economic growth since the recession ended five years ago, he explained.

“Ironically, their ability to pay into the system is also being hampered by their own parents, who are blocking their children's path up the economic-ladder because of their own need to continue working,” Niemann said.

Members need credit unions more today than ever before, but they just don't know it, he suggested.

“Most baby boomers don't have a retirement income plan or a plan for funding long-term care. That's where the credit union fits in. Credit unions have a major role to play in educating their members about these issues and helping them navigate the new normal environment.”

Niemann concluded his session by encouraging credit unions to help members, old and young, navigate these changes by starting the conversation.

“Don't wait for members to come to you. Reach out to them. Ask members to visualize their future, and then help them figure out a realistic retirement plan,” Niemann said. “Credit unions have the knowledge, expertise, and resources to help members navigate these changes, but they can't delay. They must start today.”