Longevity Impacts Retirement Savings and the Workplace

Living longer than expected is one of the most serious issues facing U.S. workers today, according to the Institutional Retirement Income Council (IRIC).

IRIC says longevity and its impact on retirement savings are creating workplace challenges for employers, as well as policy issues for the government, as many workers are delaying retirement in order to accumulate sufficient retirement savings. The report notes that today’s workers need to understand that they could potentially live for many years after they retire, and while no one knows how long will they live, IRIC provides an in-depth analysis of life expectancies in retirement with tables and examples.  

One option IRIC points out is that retirees can use their 401(k) account balance to purchase an annuity. While purchasing an annuity provides some level of certainty and addresses the longevity factor, it also has the potential for a diminished lifestyle in the event of inflation. On the other hand, retirees can hold their retirement assets in an individual retirement account (IRA), invest funds appropriately, and use a withdrawal rate intended to sustain money for one’s lifetime.  This option also presents challenges for retirees, if, for example, they live longer, run out of funds, and end up with a less than desired living standard toward the end of their life.    

“People are living longer. And while most of us consider this a good thing, it also makes it much more difficult for workers to save enough money to generate sufficient income in retirement,” said Fred Reish, an IRIC member and a partner at Drinker Biddle & Reath LLP, who co-authored the report. “Plan sponsors and participants need to better understand longevity and the impact on retirement savings.  We believe that one likely outcome is that many workers will retire at later ages, which will have implications for employers and also policy makers. We also believe that now is the time for the insurance and investment communities to create additional retirement income products for 401(k) participants and retirees that guarantee, or at least virtually assure, that income will last for a lifetime.”  

To obtain a copy of the issue brief, “The Problem with Living Too Long,” visit http://iricouncil.org/thought.