Ten years from now, the typical 70-year-old will still have foreign travel on his or her mind, but perhaps with a few new twists.
Getting time off from work could be one. Exotic locales, meanwhile, could lose pride of place as the inspiration for wanderlust to a search for affordable health care.
Welcome to the future of retirement — underwritten by meager 401(k) accounts and financially repressed capital markets that offer scant room for living off of investment income.
It's a future many retirement experts see as fundamentally bleak — so much so that the possibility of a new pillar of retirement saving being introduced shouldn't be ruled out, some say.
“I would be surprised if we don't have some supplement to Social Security that isn't currently here,” said Dean Baker, co-director of the Washington-based Center for Economic and Policy Research. A cash balance plan at the state or national level to supplement 401(k) plans could be one option, he said.
But for the flood of baby boomers now approaching 65, with little hope of a policy-driven rabbit being pulled out of a hat, a fundamental re-examination of retirement expectations is the only recourse.
In a telephone interview, Glen Hiemstra, a Seattle-based consultant and founder of thefuturist.com, said when he began predicting 20 years ago that a growing number of people approaching 65 would choose to keep working in an economy increasingly dominated by information technology, it was a thesis anchored on “personal preference.”
Today, after a devastating financial crisis and a 401(k) experiment that's showing every sign of falling short of meeting retirees' needs for sufficient income, it's no longer a question of choice. The “end of retirement,” as Mr. Hiemstra titled a 1995 forecast, is being driven now “as much by financial necessity” as by the changing nature of work, he said.
“People will work longer ... they're not going to have much choice economically,” he said.
Signs of that trend are apparent already.
In a recent telephone interview, Brigitte Miksa, Munich-based head of international pensions with Allianz Asset Management, noted research showing the percentage of income coming from employment for couples where the head of the household was 65 or older stood at 31% in 2010, up from 8.2% in 2000.
At present, there's still plenty of people heading into retirement with defined benefit plan coverage, but over the next 10 to 20 years, people relying on defined contribution plans and Social Security to fund retirement at 65 will find themselves falling “way short” of what they need, warned Alicia H. Munnell, the Boston-based director of Boston College's Center for Retirement Research.
It's the people retiring in 20 or 30 years who will bear the brunt of the shift in market risk and longevity risk posed by the shift to a defined contribution-centric retirement system, agreed Gary Koenig, Washington-based director of economic security with the AARP's Public Policy Institute. However, among the people retiring a decade from now, those who lost jobs in the financial crisis of 2008 or saw their retirement savings decimated will experience a foretaste of those tougher times to come for younger cohorts, he said.