LAKE BUENA VISTA, Fla. (4/17/14)--The collision of economics, demographics, and longevity is raising credit union member concerns on income sustainability during retirement, a CUNA Brokerage Services Inc. speaker told a National Association of Credit Union Service Organizations (NACUSO) annual conference audience Tuesday.
"Credit unions are on the verge of facing major membership changes," said Hendrix Niemann, managing director of wealth management for CBSI, during a breakout session at NACUSO's annual conference. "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."
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. And, 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," he added. "The golden age of retirement is not coming back. Many credit union members think it will, but it's not coming back."
Retirement, for those in retirement or about to retire, may be a lot different than they thought it would be, Niemann said. "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 grows older. "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."
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 explained. 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," he added.
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 are far behind their Boomer parents in launching their careers, largely because of a massive and still-growing student debt burden, which now tops $1 trillion," said Niemann. "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.
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," he advised. "Reach out to them. Ask members to visualize their future, and then help them figure out a realistic retirement plan. Credit unions have the knowledge, expertise, and resources to help members navigate these changes, but they can't delay. They must start today."