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A Rapidly Changing Environment Gives Aging and Retirement Research a Lot to Do

By Anna M. Rappaport

Retirement Section News, October 2023

An aging population, inflation, the growth of gig employment, increasing diversity, climate developments, and COVID, are among a wide variety of economic and societal changes that affect the workplace, the lives of individuals and ultimately retirement. The Aging and Retirement Strategic Research Program has been very busy doing a wide variety of research to address the impact of these and other changes, working with different partners and committees. I presented a summary of some of the recent work to the Chicago Actuarial Association at a workshop on Aug. 10, 2023. This article reviews some of the high points of that presentation. The presentation is available from the SOA Research Institute and can be used by actuaries to update clients on this research and share with their communities. The research is useful to actuaries, but some of it is also useful for employee benefit plan sponsors, companies offering financial products, advisors, and the public.

The Current Environment for Retirement Planning

When things are not changing dramatically, it is pretty easy to assume that the retirement plans and programs of the future will be similar to those in the past. But today, things have been and are continuing to change rapidly and dramatically.

Long Term Issues

Today’s environment includes a substantial number of challenges to retirement security for large segments of the population. These challenges are not new, but they have not been fully addressed and include:

  • Social Security/Medicare financial imbalance—Both Social Security and Medicare are critical to retirement security, but the current levels of financing are not adequate to fund the current level of benefits over the longer term.

  • Big differences in philosophy about retirement security—These differences are reflected in the shift away from pooling of risks, the shift to defined contribution plans as primary employer sponsored retirement plans in the private sector, and the substantial portion of the population who are not participating in any employer sponsored retirement plans. The shift to defined contribution plans has been growing for many years.

  • Many people not planning long-term or focused on risk—Many individuals are not planning for the long-term and often, when they do plan for retirement, it tends to be focused primarily on expected cash flows rather than risk protection. This creates more challenges as employers have moved away from risk protection in their retirement programs.

  • Individuals without employer coverage—About half the working age population are not saving for retirement in an employer sponsored plan and while they generally have Social Security and Medicare, those benefits alone are not sufficient to provide an adequate retirement. In order for the system to serve the population well, there needs to be a better way to provide benefits to these individuals. Some options discussed include relying on greater personal savings, state sponsored savings plans, adjusting Social Security benefits, and/or increasing access to and participation in employer plans.

  • Failure to address demographic and population changes—There has been growing inequality over the last few decades with many people in the lower economic levels continuing to fall behind. There is increasing recognition of the major economic disparities between different population groups. The SOA has had a major focus on exploring the differences by race and ethnicity in its retirement research. Financial fragility is a barrier to saving for retirement and is a key driver of the financial situation of a substantial number of Americans and this has been a focus of SOA consumer research.

The population has aged a great deal in the last 100 years, partly as a result of greater life expectancy and also as a result of shifting fertility rates and immigration. In the last few years, there have been some decreases in life expectancy, and future changes are unclear at present. But overall, periods of retirement have grown longer as retirement ages have failed to keep up with life expectancy changes. If the time of retirement does not change, that will mean there will be many more people at older ages not working compared to the number of workers. It will also mean that households have more years of retirement to be paid for by savings and/or retirement benefits and that there are more households needing public support. Depending on the health and vitality of the aging population, it will change the mix of services needed to support them. And the situation is complicated by very large differences in life expectancy by race and ethnicity. The SOA’s Living to 100 and Beyond research program has since 2002 been focused on technical matters related to mortality projections and the implications of longer life spans. An article in the July 2023 Retirement Section News summarizes some highlights from the 2023 Living to 100 symposium.

Recent Developments

  • Rapid changes in technology and its adoption—Technologies that were available and being tested but not adopted on a widespread basis were rapidly adopted and further developed during COVID. There was a major expansion of meeting and conference technologies and remote medical visits as well as technologies to support remote work.

  • Big changes in how and where we work—Remote work was much more accepted during COVID, and many people are continuing with remote work and hybrid models.

  • COVID changed lives and priorities—Lives were drastically changed during COVID, many people moved, and some people decided to make changes that they plan to continue. Economically some people are better off than before COVID, but more are worse off and financially fragile. Many people left the workforce, particularly women, caregivers, and those at retirement age. It remains to be seen how many will return. Some businesses failed and their owners may be much worse off. Long COVID is a major problem, but it is not known what effects there will be and whether they may affect people in the long term.

  • Inflation and workforce shortages—In 2022, the economy was moving away from the pandemic, but it was faced with inflation and workforce and supply shortages.

All of these changes did not show up in SOA research in 2021 and 2022 as changes in personal retirement risk priorities or planning. However, this may very well be different in 2023 and later as inflation has affected many families’ spending needs and resources.

Major Research by the Aging and Retirement Strategic Research Program

The Aging and Retirement Strategic Research Program is like an umbrella that covers several SOA programs including:

  • Committee on Post-Retirement Needs and Risks: Focus is primarily on the individual and on the years after retirement. Projects are generally multi-disciplinary. Areas of emphasis include consumer research, consumer education, personal retirement planning, essay calls, retirement income, housing in retirement, and special topic research reports.

  • Retirement Section Research Committee: First priority is supporting actuaries who are working with employer sponsored retirement and financial wellness programs. Retirement programs include defined benefit, defined contribution, and retiree medical plans, as well as employee education.

  • Long-term Care Section: Focus is on long-term care insurance and on caregiving.

  • Mortality Research and Experience Studies.

The reports are all on the SOA website. Much of this research has been going on for many years.

Work of the Committee on Post-Retirement Needs and Risks

The Committee on Post-Retirement Needs and Risks grew out of work sponsored by the Retirement Section Council 25 years ago. The work has been designed to build a growing body of knowledge, to track trends in retirement attitudes and planning, and to look at a number of topics through a variety of different studies. To help users understand related work, summary reports and Fast Facts briefs have often been published. The available summary reports include:

Consumer Research

The SOA consumer research includes surveys, focus groups and in-depth interviews. It is supplemented by some conversations with experts on a list maintained by the Committee on Post-Retirement Needs and Risks.

The research includes a series of biannual post-retirement risk surveys. The first survey was completed in 2001 and 11 risk surveys have been completed to date. Two surveys of financial and retirement priorities across the generations were also conducted. Most of the surveys include topics of special emphasis and the most recent surveys include results by race and ethnicity. The focus groups and in-depth interviews started with people who were retired less than 10 years and they were followed up with focus groups of people retired more than 15 years. The third step of this journey was research with people at age 85 and over. The surveys are very important because typical retirement planning models are based on assumptions different from what was found in the consumer research. The reality of where people are often does not line up with where professionals think they should be.

Major Findings from the Consumer Research

The “Journey through Retirement” report mentioned above gives a very good picture of the overall findings. There are some major findings throughout this research. Here are a few:

  • The top risk concerns among pre-retirees and retirees are usually concerns about inflation, health care costs and long-term care. Pre-retirees have consistently been more concerned than retirees.
  • Respondents tend to react to recent economic developments, but their changes in concerns are usually rather temporary.
  • Many individuals retire earlier than planned, and they are often pushed into retirement by ill-health, family needs for support, and/or a difficult work environment or job loss.
  • Many individuals plan for the short term and are focused on regular cash flows. The big question is “Will I be able to pay my bills for the next few years?”
  • Many individuals are not focused on risk or the longer term. Focus group responses include “I will deal with it when it happens.”
  • Retirees prefer to retain rather than spend down their assets. The most common method of drawing down assets is to take Required Minimum Distributions, but many retirees don’t see this as a plan since it is required.
  • Retirees are quite resilient and are willing to reduce spending.
  • Many can handle a shock successfully, but when they have multiple shocks it becomes more difficult. Shocks that are particularly difficult include a major long-term care event, divorce after retirement and a family needing support over the long-term.
  • Family help is very important once people need help. It is often not planned for, but family steps in when needed.

Consumer Publications Available

The SOA (in some cases working with partners) has released a number of different publications to provide consumer education related to retirement issues. Examples of the publications for use before and earlier in retirement include:

“Managing Post–Retirement Risks–Strategies for a Secure Retirement (Risk Chart)”:
The SOA sponsored retirement risk chart provides information for consumers and other audiences on a wide range of retirement risks and strategies for managing these risks. This is particularly important because many consumers do not consider some of these risks.

“Managing Retirement Decisions”: This is a series of issue briefs focused on the major decisions encountered at the time of and in retirement, offering information about questions to ask and practical considerations. This is an important series since many of these decisions may not be considered in retirement planning.

“Thinking Ahead: Informing the Design of a Roadmap for Keeping Your Money Safe as You Age”: The SOA published a report summarizing the research phase of a multi-phase project leading to publication of a Conversation Guide to plan for changes in financial capacity and decision-making. The AARP supported the implementation phase of this project, which offers a variety of information and tools for consumers.

“Retirement Health and Happiness” is a publication for individuals reaching retirement, which offers a big picture perspective on retirement planning, with some key questions to ask and resources to help find solutions. The SOA and Financial Finesse partnered on this project. It is part of a series on retirement literacy.

Late-in-Life Decision Guide focusing on issues that arise later in life in four areas: Finances, health and health care, housing and transportation, and support systems. It focuses on three periods: No limitations, moderate limitations, and major limitations. Many people do not plan adequately for the second and third periods and it can cause problems when they do not. The guide was produced to follow up on issues raised in the research on individuals aged 85 and over. The SOA and Financial Finesse partnered on this project.

Solo agers, retirees aging alone without supporting family or friends, has also surfaced as a big challenge. The SOA is currently working on a guide for solo agers.

Tools to Assist in Retirement Planning

The Actuaries Longevity Illustrator is a tool allowing households to make a customized estimate of their longevity.

The publication “Retirement Planning Tools” provides an overview of what to expect from retirement planning tools and provides some suggestions for matching and choosing a tool to meet personal needs. It focuses on three levels of tools and what inputs are common, what outputs are common and what information you can expect to get from each of the levels. It also provides information about assessing the quality of tools offered. The SOA and Financial Finesse partnered on this project.

The Future of Retirement and Dealing with Change

The SOA recently engaged a firm, the Future Hunters, to prepare a report on “Megatrends Affecting the Future of Retirement Plans,” i.e., large societal trends that will impact many areas of life including work and retirement. This report offers an organized look at emerging major societal changes with some ideas about potential future directions.

The SOA consumer research indicated that households do not plan for retirement the way retirement professionals expect them to. Working with Deloitte, the SOA used conjoint analysis to collect input on what employees want in a retirement plan. The resulting “What Retirement Plan Features Do Employees Really Want?” analysis looked at a variety of plan features that can be combined in different ways. This project has a tool attached to it, so professionals who are looking at different plan designs can test them with this tool. This information can be used together with the SOA consumer research to get a picture of what appeals to employees.

As mentioned earlier, the SOA also did a summary report on its COVID research that looked at what happened from a retirement plan perspective and where the unanswered questions were in 2022. Long COVID and its effect, the future of work and how many people will return to the workplace are among the unanswered questions.

Through a series of reports with different perspectives, the SOA is providing actuaries and other retirement professionals insights on the future to help them think about what may change, how to build scenarios and what seems most likely.

Future Uncertainty

What is clear is that there are major changes in the environment and, in the context for retirement, a lot of uncertainties. Several big issues that point to substantial change include the impact of the aging society, workers without employer plans, and the financial imbalance in Social Security and Medicare. These factors indicate a system that needs updating as well as the need for one that can adapt to future changes. The lack of consensus about how to update the system and how to address other national priorities create major barriers to addressing these issues.

Other factors may increase future uncertainties as well, including the impact of demographic changes, immigration, climate change and its impact, and use of technology and artificial intelligence. All of these factors may impact the nature, supply, and/or shortage of support services available to the aging population.

No one knows how much impact long COVID will have and whether it will increase rates of disability or mortality. No one knows how many more surges there will be or whether a new pandemic is around the corner. Inflation has had a big impact in the last two years and it is unclear how inflation will progress. Arrangements for employment are already in a state of flux, and the potential impact of artificial intelligence on work and employment opportunities could be huge. When the impact of these factors become clearer in the future, there will likely be changes in compensation and benefits.

Actuaries working with different stakeholders need to be prepared to help them think through a range of scenarios and develop and manage programs that will be flexible and will work in the face of uncertainty.

Statements of fact and opinions expressed herein are those of the individual authors and are not necessarily those of the Society of Actuaries, the newsletter editors, or the respective authors’ employers.

Anna Rappaport, FSA, serves as chairperson of the Committee on Post-Retirement Needs and Risks. She can be reached at anna.rappaport@gmail.com.