Rutgers New Jersey Agricultural Experiment Station [Later Life Farming]

Module 1c: Retirement in the 21st Century

It's fair to say that retirement in the 21st century will be quite different than that of your parents' generation. Below are some key trends that will affect retirees in years to come:

  • The "three-legged stool" analogy of a pension, Social Security, and personal savings as major sources of retirement income is being replaced by a "four-legged chair" that incorporates work as an additional source of income. This is an attractive option for many farmers who frequently mention a desire to keep working in later life. Moreover, they are likely to have lots of company. A number of studies have found that a large majority of baby boomers also want to work in some capacity for as long as they are able. In addition, severe market downturns, such as 2008-2009, often encourage people to work longer so that their retirement savings can recover from market losses.
  • The increasing cost of health care and the availability and cost of health insurance during retirement is a major concern. Even retirees with "good health insurance" are increasingly paying more out-of-pocket. Two different studies by Fidelity Investments and the Employee Benefit Research Institute (EBRI) estimated out-of-pocket health costs for a 65-year old couple at $215,000 and $295,000, respectively, including Medicare premiums, deductibles, supplemental insurance, and prescription drugs.
  • The long-term stability of Social Security is in question. Increasing numbers of beneficiaries are living longer while fewer workers are paying Social Security taxes to support them. The oldest of some 78.2 million baby boomers have already started to collect benefits and, absent major reforms such as an increase in full retirement age or a cut in benefits, Social Security is projected to be able to pay currently scheduled benefits only through 2041, after which time benefit reductions would be required.
  • The cost of long-term care will continue to be a major concern. Unlike relatively short retirements of a generation or two ago, retirements in the 21st century will increasingly last 20 to 40 years. Life expectancy statistics bear this out. There is a 23% chance that one spouse in a 65-year old couple will live to age 95.
  • New financial products and services will continue to be created to help retirees manage cash withdrawals from retirement assets. Examples include income replacement (managed payout) mutual funds with a choice of maturity dates (e.g., 2048) that investors select to match their projected life expectancy, various types of annuities, and Monte Carlo simulators that calculate the probability of not outliving your assets.

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