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One of the long-term challenges for the American economy is that the U.S. population is aging at the same time that the retirement funding shortfall in America continues to worsen.
A recent report from Principal found that “by 2030 the shortfall between how much money people need to retire comfortably and how much they’ve saved will continue.” This retirement funding gap is a structural problem that economists have identified for many years and is not abating.
In fact, saving enough money to fund a comfortable retirement has become even more challenging in recent years. A recent study by Goldman Sachs found that a “financial vortex” of competing priorities may exacerbate that challenge, reducing retirement savings by as much as 37% in the years ahead.
The Wall Street Journal cast an important spotlight on this national crisis with an eye-opening data series, “Here’s What Retirement Looks Like in America in Six Charts.” Here is a snapshot of what they found:
Aging Population
By 2030, more than one in five Americans will be over the age of 65, a steep rise from just one in 10 seniors in the population back in the 1970s. That trend line is likely to continue until the 65+ demographic represents nearly 25% of the population by 2060.
Retirement Savings
Total household balances in retirement accounts for those 65 and older are $407,581 on average, but that data is skewed by the fact that 11.6% of seniors have balances in excess of $1 million. Most retirees have far less saved.
Social Security Benefits
For many retirees, Social Security comprises the vast majority of their retirement income. The average benefit for those folks is currently about $1,825 per month.
Health Expenses
Households headed by people 65 or older spend an average of $7,030 per year on healthcare, as compared to less than half that amount when they were in their 20s and 30s.
24 Hours of Retirement
Many Americans anticipate that in retirement they will travel and pursue their hobbies, but the data suggests they spend it primarily on leisure activities: 9 hours a day sleeping; 6.25 hours a day relaxing; 4.5 hours a day watching TV; and 1.25 hours a day eating/drinking are the top four activities.
Net Worth
Americans’ net worth tends to peak around the time they start spending down their assets in retirement. Those in the 65-74 age group have a media net worth of $266,400 and those 75 and older have a median net worth of $254,800.
These data findings raise a number of important public policy issues for future debate in America, but they also illustrate the practical reality that retirees are in need of sources of liquidity right now.
A growing number of seniors — and their financial advisors — are learning that one unexpected source they may be able to tap to access cash is a life insurance policy. Life insurance is a common asset in the U.S., with roughly six in 10 people in America covered by some sort of life insurance, according to LIMRA’s Insurance Barometer Study. Awareness is growing that life insurance is personal property and can be sold by the owner, just like any other asset in a senior’s portfolio.
A life settlement transaction is a safe and well-regulated vehicle for seniors to extract liquidity from an unwanted or unaffordable life insurance policy. Our industry has paid billions of dollars to consumers over the years, generating immediate cash payments for them to help pay for retirement expenses, offset expensive health care bills or provide financial assistance to their family members.
These transactions are proven financial options to help seniors close their retirement funding gaps by converting their life insurance policies into far more cash than they otherwise could by working with their insurance carriers. In fact, a 2022 study by the Life Insurance Settlement Association found that consumers who sold their life insurance policies through life settlements received an average of 7.8 times more money than they would have obtained by lapsing or surrendering the policies back to the insurance companies.
The Wall Street Journal data series illustrates the depth of our national challenges associated with an aging population and growing retirement funding gap in America. In the years ahead, this surge in the number of seniors with underfunded retirement savings also creates a large and growing addressable market for participants in the life settlement industry.
For more information about how to construct a life settlement portfolio or review your life settlement investing strategy, please go to www.northstarlife.com.