Introduction
The U.S. is undergoing a major demographic shift known as “Peak 65,” with 4.1 million Americans turning 65 each year—the traditional age of retirement in the United States—through 2027. The circumstances faced by this cohort are unique. Baby boomers, defined as people born between 1946 and 1964, have witnessed numerous makeovers of the worker retirement system, including the decline of pensions, the introduction of the 401(k), and most recently, projections that the Social Security program will only be able to pay for 75% of scheduled benefits by 2035.
A 2024 study commissioned by the Alliance for Lifetime Income (ALI) Retirement Income Institute found that the majority of “Peak 65” members are not financially prepared for retirement. The source of the issue is three-fold: 1) The inventor of the 401(k), Ted Benna, thought it would complement rather than replace traditional retirement vehicles like employer-sponsored pensions and Social Security payments, the latter of which were implemented beginning in 1935. The 401(K) program is not meant to be a retiree’s sole source of retirement income due to its sensitivity to market conditions; 2) More than half of “Peak 65” members have assets of $250,000 or less, and will likely have to rely on Social Security benefits for income, which is projected to fulfill only 75% of its scheduled benefits by 2035; 3) Both defined contribution and defined benefit plans were created under the notion that retirement would only last around eight years—Americans, on average, are living much longer. Expected retirement length has increased significantly from expectations of eight years to 18.6 years for men and 21.3 years for women.
All hope is not lost. In addition to traditional retirement vehicles and Social Security payments, “Peak 65” is a chance for insurance companies to expand and modernize their products to bridge the gap between Baby Boomers’ current financial vulnerabilities to a stable monetary future, and for those preparing for retirement to diversify their investments.
What This Means for Insurance Companies
Modernized products for flexibility to meet the circumstances of today’s world
As of 2022, the average American’s life expectancy is 77.5 years, according to the Centers for Disease Control and Prevention. This represents an increase of four years since 1978, the year the 401(K) was created. Annuities with a range of term lengths, penalty-free withdrawal options and access to interest are attractive options for liquidity-concerned retirees who are concerned about meeting all their financial needs.
A deep track record of consistent results
Baby boomers have experienced numerous changes within the financial landscape over the course of their lives, including the bull market runs of the 1980s and 1990s that boosted 401(k) accounts, followed by the two stock market downturns of the 2000s, where consumers and their 401(k) accounts were exposed to the market’s ills. To navigate this changing market while keeping commitments to clients, insurance companies must provide growth and protection on their investments.
Client experience is key
Planning for retirement can be a stressful event; the client’s experience should be top of mind. That means a user-friendly application process and straightforward technology that allows clients to view and manage their investments with ease. And when questions arise, friendly insurers with expertise should be available to provide clients with bespoke support.
Conclusion
By leveraging deep expertise in mortality, disability, and longevity risk, insurers can develop flexible, user-friendly financial products that evolve with policyholders’ needs, all while providing income stability, healthcare coverage, and long-term financial security in retirement.
“Peak 65” isn’t a dilemma—it’s an opportunity.