The much-anticipated “Peak 65” is here, and millions of Americans will not have enough reliable income to live comfortably in retirement, according to a white paper and annuity advocacy effort launched Wednesday by the Alliance for Lifetime Income.

“We have the 401(k) generation now, and people’s individual savings, depending on whether they had enough income or not, might be insufficient, and Social Security was only designed to replace about 40% of your income,” Jason Fichtner, executive director of the Alliance’s Retirement Income Institute and chief economist at the Bipartisan Policy Center, said during a livestreamed interview.

The Alliance, a nonprofit that advocates for the use of annuities for retirement income planning, dubs the current workplace the “Peak 65 Zone,” estimating that more than 4.1 million Americans will be turning 65 each year through 2027, which adds up to more than 11,200 people retiring every day.

In Fichtner’s analysis of this retirement wave, the economist said “millions” of Americans lack sufficient protected income in retirement, with an estimate that half have not saved enough money to maintain their current standard of living.

In his report, the economist noted the “demise” of private sector pension plans which once made up a three-pronged retirement security system of employer pensions, Social Security and personal savings. He went on to call for more Americans to have access to protected income solutions such as annuities, which is the organization’s key lobbying effort.

“People are either afraid to spend money because they’re not sure how long they’re going to live … or they spend too much and run short,” Fichtner said on a livestream sponsored by the Alliance to mark the report’s publication. “What happens when you have this protected income strategy of Social Security and annuity on top is you now have you now have that paycheck in retirement. You have what economists call your budget constraint, and you know how much you’re getting per month, and that’s what you spend.”

The retirement industry has been exploring—and creating products—to make annuities more readily available to workplace retirement plan savers. Existing programs, such as the Hueler Companies’ Income Solutions, provide participants with access to annuity options at institutional prices. Other products from firms such as TIAA and Allianz have the option of operating within a workplace retirement plan by deferring some portion of savings into an annuity or offering annuities through a managed account.

Sales of retail annuities hit record levels in 2023, as investors took advantage of locking in higher interest rates, according to reporting last year from insurance industry association LIMRA.

Risk Mitigation

In the white paper, which cited numerous industry studies and government data, Fichtner referred to the market volatility caused by the COVID-19 pandemic, as well as the drop in both equities and bonds in 2022, as showing the need for a protected income stream that a traditional 401(k) will not provide.

He cited research by Econsult Solutions Inc. estimating that 61% of elderly households will be at risk of facing an annual retirement shortfall of $7,050 for their needs—an estimated total of $230 billion for the nation by 2040.  

In the 24-page white paper, Fichtner also cited Boston College’s Center for Retirement Research calling on retirees to replace 70% to 75% of pre-retirement income. He noted, however, that one size does not fit all, and that “some low-income households won’t require any additional annuitization beyond Social Security.” For those in the middle to high income range, however, he called on additional annuitization to “help mitigate risk” and sustain households’ standard of living in retirement.

Fichtner noted the risks to Social Security funding in coming years, but also the potential for retirement savers to get higher returns from the government benefit if they hold off claiming until the age of 70. In his own calculations, Fichtner estimated a person claiming the benefit at age 62 will have a 44% lower monthly benefit than someone claiming at age 70.

An annuity, he argued, can be a “bridge” to help people hold off claiming at an earlier age.

“One of those variables that merits consideration is how an annuity can be used as part of an individual’s Social Security claiming strategy, including the steps to maximize the program’s benefits,” Fichtner wrote. “Another option is the use of longevity annuities, which help insure against the risk of outliving one’s assets by paying out a stream of income starting approximately 10 years after the annuity is purchased.”

Retiring, In Stages

In separate researched released Wednesday by Principal Financial Group, the firm also noted Peak 65 as the year more Americans will turn 65 than any year before. According to the survey of small businesses and individual workers, over half of workers would prefer to retire in stages by first reducing their hours in their current roles.

Among working Americans, gradually decreasing hours is the most desired way to retire (52%), with those furthest away from retirement showing the most interest, with Generation X at 67% and Millennials at 56%, according to Principal’s Financial Well-Being Index.

“Attitudes and expectations for retirement continue to evolve, and we expect the desire to approach retirement in phases will continue to grow with future generations,” Chris Littlefield, president of retirement and income solutions at Principal, said in a statement.

The generational split on phased versus full retirement also appeared when it came to the age workers hope to start retirement. For Gen Z, the “Peak 65” would actually be 10 years earlier, with the majority aiming to move into retirement at 55. Meanwhile, Millennials are targeting 59, Gen Xers 64 and Baby Boomers 68.

Principal noted that retention and recruitment of older employees is critical for businesses to thrive in the current Peak 65 environment.

Among employers surveyed, 77% agreed that the knowledge older employees have about their company is crucial to success. Despite that finding, Principal noted that not all employers have experience with offering phased retirement: Only 11% of small and midsize businesses reported phased retirement job opportunities on a regular basis, compared with nearly one-quarter of large businesses.

Principal surveyed 500 business leaders in November 2023 who work at companies with between two and 10,000 employees and whose companies offer either health insurance or retirement as an employee benefit. It also surveyed 200 workers and 127 people who consider themselves retired or have previously fully retired and gone back to work.