SAN FRANCISCO (7/7/14)--Longevity, demographics and the economic climate are coming together to take the polish off retirement's "golden years," and credit unions need to be prepared, advised a CUNA Brokerage Services Inc. (CBSI) speaker at the Credit Union National Association's 2014 America's Credit Union Conference last week.
"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," Hendrix Niemann, managing director of wealth management, CUNA Brokerage Services Inc., tells a Discovery breakout session audience at the Credit Union National Association's 2014 America's Credit Union Conference. "Credit unions have a major role to play in educating their members about these issues and helping them navigate the new normal environment." (CUNA Mutual Group Photo)
"Credit unions are facing major changes to their membership and their asset base," said Hendrix Niemann, CBSI managing director of wealth management. "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. They will not be borrowing or depositing."
He told the Discovery breakout session audience that credit unions need to have a concrete plan in place for replacing those assets and also for retaining assets that are going to be passed on to the next generation.
Niemann said 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."
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--making the average length of retirement 21 years. If the person is part of a couple, there is a 50% chance one of them will live to be 91, which makes the average length of retirement jump to 26 years, Niemann told audience members.
"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. 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. When they realize this, they postpone retirement or re-enter 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," he said, adding, "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 effects of these demographic trends are exacerbated by fundamental changes to the U.S. economy 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 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," 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."