CUNA Brokerage Services Inc.'s Hendrix Niemann addresses the 2014 NACUSO annual conference Tuesday.
The collision of economics, demographics, and longevity is raising credit union member concerns on income sustainability during retirement—and whether the “golden years” are gone for good, a CUNA Brokerage Services Inc. (CBSI) speaker said Tuesday during the National Association of Credit Union Service Organizations’ (NACUSO) annual conference in Lake Buena Vista, Fla.
“Credit unions are on the verge of facing major membership changes,” said Hendrix Niemann, managing director of wealth management for CBSI. “Millennials are set to emerge as credit unions’ dominant demographic by 2025 and baby boomers are starting to enter retirement—while both groups face a challenging recovery.”
In the past 800 years, there are no documented examples of an economy that had to emerge from a financial crisis while simultaneously absorbing the effects of an aging population, Niemann said.
“Two-thirds of all the people in the history of the world who have lived past the age of 65 are alive today,” he said. “People didn’t used to age. They died.”
Today, the average 65-year-old male has a 50% probability of living to age 85 while the average 65-year-old female has the same chance of living to age 87, Niemann said. That makes the average length of retirement at least 21 years.
And, if the person is part of a couple, there is a 50% probability one of them will live to age 91, raising the average length of retirement to 26 years.
“Many people don’t realize it, but we’ve entered a new normal for retirement,” said Niemann. “The golden age of retirement is not coming back.”
The baby boomers are the largest generation in U.S. history to retire, and the vast majority of this group hasn’t saved enough for retirement. 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,” said Niemann. “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.
“The millennial generation—Gen Y—is as big as the baby boomer generation, but they’re far behind their boomer parents in launching their careers,” he said. “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.”
The effects of these demographic trends are exacerbated by the fundamental changes to the U.S. economy that have come about since the 2008 financial crisis and the start of the ‘new normal’ economy we’re currently in, he added.
“The bottom line is this: What retirement looks like, or will look like, for those in retirement or about to retire may be a lot different than they thought it would be,” said Niemann. “There’s a very real and valid fear among retirees that they will outlive their assets or run out of money because their nest egg is simply not large enough, particularly because they have not saved for out-of-pocket health-care costs in retirement that are not covered by Medicare.”
Niemann told his audience they can expect these fears to escalate among members as credit unions’ membership continues to age.
“Members need credit unions more today than ever before, but they just don’t know it yet,” said Niemann. “Most baby boomers don’t have a retirement income plan or a plan for funding long-term care. That’s where credit unions fit 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 encouraged credit unions to help members both old and young navigate these changes by starting the retirement 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,” said Niemann. “Credit unions have the knowledge, expertise, and resources to help members navigate these changes, but they can’t delay. They must start today.”