The Future of Retirement Part Three

This series on retirement started with observations on the future of Social Security. Part Two looked at changes in traditional individual retirement experiences. Today, we’ll round out the discussion and look at economic efficiency, interest rates, demographics, and how artificial intelligence (AI) may impact the future of retirement.

Social security solvency depends on current contributions and withdrawals. Life expectancy today is close to 80 years old. In 1900, it was 47. In 1945, Social Security began under President Franklin D. Roosevelt, with full retirement age set at 65. At that time, life expectancy was 61.7 for the overall population.

Today, the fastest-growing segment of our population is those over 85. It’s staggering to realize that every seven to eight seconds, an American baby boomer turns 68 with everyone expecting to live longer and better financially.

Life expectancy has increased, yet there are fewer young workers contributing to the Social Security coffers. The sustainability of the system depends on increasing the retirement age, along with properly calculating contributions and benefit payments going forward. Demographic realities dictate that changes are necessary as we have a “new” older population living much longer than previous generations.

Interest rates and productivity

As recently as 2022 - 2024, the Federal Open Market Committee (FOMC), or the Fed, increased interest rates to slow the economy and fight inflation as we exited the COVID era. January 2020 money supply was $15.4 trillion and exploded to $21.7 trillion in April 2022. In August 2024, the Fed tapped the brakes and increased the rate to 5.33% to slow economic activity and ease inflation which hit 9.1%. Too many dollars were chasing too few products during this time of supply chain disruptions, production slowdowns, and increased consumer demand.

That time it was different

Following the pandemic, economic activity, investment in manufacturing and production surged. Today, in 2025, we’re experiencing something quite different. Spending previously allocated to manufacturing plants and production is now going to IT and AI equipment and data centers. Already in 2025, spending on AI data centers outpaced consumer spending as a percentage of GDP, with $100 billion already going towards data centers.

Growth didn’t slow when the Fed increased rates; it just moved to the information processing sector. The first quarter of 2025 showed the highest quarterly contribution to the information processing sector since 1980, growing from 5.8% to 6.4% of real gross private investment. Expenditure for AI appears to be immune to expected slowdowns in response to higher interest rates. The question arises: is the AI revolution the future of retirement?

Automation taketh and giveth. AI transforms the labor market by reducing jobs in some sectors, like manufacturing, while creating new positions in others, such as technology and data science. These new jobs require retraining and will presumably command higher wages. Payroll caps on workers’ contributions to Social Security may need to be increased as workers transition from one sector to the next, hopefully increasing their earning potential.

It’s expected that a shift to less physically demanding jobs will allow people to stay in the workforce longer and pay into Social Security for extended periods of time. Even if this occurs, Social Security income as a source of retirement cash flow will need to be supplemented by personal savings, 401(k)s, and Individual Retirement Accounts (IRAs).

Retraining to provide new AI skills for displaced workers will help with the transition into new roles, increasing productivity and wages. This combination will add to the Social Security contributor base.

AI technologies are already improving care for seniors. Smart home devices, wearable health monitors, and companion robots help us remain independent longer, reducing the cost of care. The shift is from predicting and preventing rather than just reacting to illness and accidents. If health care costs decline, retirement savings will go further.

For example, smartwatches, and now smart rings, will alert you and emergency services if you have a hard fall. For instance, I was playing with my dog Hank, and he accidentally bumped into me with a powerful oomph. My watch detected this and asked if I needed emergency help. Wearables monitor respiration, temperature, heart rate, blood oxygen levels, and sleep quality. This data is used to predict if you will fall ill, hopefully alerting the user to seek treatment or make lifestyle adjustments based on predictive health information.

When planning your financial future, identify your objectives and goals as they pertain to living situations and how technology may influence your life. An interesting factoid is that the average American couple spends $315,000 on healthcare costs in retirement.

Longevity planning works best when there is a deep relationship with your professional team. You may benefit by including your family when discussing the financial needs of living longer. These conversations go beyond quantitative factors such as investment returns, interest rates, and portfolio allocation with greater focus on personal solutions as you navigate life stages and ages. Stay focused and plan accordingly.