Retirees’ increasing longevity combined with demographic trends and some structural changes to the U.S. economy are colliding to create a perfect storm that’s taking the luster off of the ‘golden years’ and raising credit union member concerns on income sustainability during retirement, said Hendrix Niemann, managing director of wealth management for CUNA Brokerage Services, Inc. (CBSI), during a Discovery Session Wednesday.
“Credit unions are facing major changes to their membership and their asset base,” said Niemann. “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 to 40 years. They won’t be borrowing or depositing. 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 explained that 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.
“Two-thirds of all the people in the history of the world who have lived past the age of 65 are alive today,” said Niemann. “People didn’t use to age. They died.”
Niemann noted that 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. That jumps to 26 years, if the person is part of a couple, as there’s a 50% probability one of them will live to be age 91.
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.
“The boomers,” he said, “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,” 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.”
“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 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.
“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.”
With privately insured credit unions that meet certain requirements eligible to join the FHLB program starting July 5, CUNA compliance staff has developed a final rule analysis with an overview of new requirements.