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7 Key Challenges to Retirement
Longevity – Getting Old
According to Cerulli Associates, in the next 20 years, 43 million households, nearly half of all existing American households, will move into retirement, pushing the number of 65+ year olds to more than 69 million people.
Since 1900, the average life expectancy of Americans has nearly doubled. The Society of Actuaries just increased the top age of its mortality chart from 100 years to 120 years. And for a 65-year-old couple, the odds that one spouse will live until age 90 are over 50 percent.
The Invisible Enemy – Inflation
You may have forgotten about inflation, but it has not forgotten about you.
Inflation is truly the invisible enemy of your income. It eats away at your purchasing power, and can decrease the value of your assets. For example, according to Ibbotson Research, $1 in 1983 was worth only 52 cents in 2003 – assuming an average rate of inflation of 3.1 percent. Similarly, if you need $50,000 a year in today’s dollars, you will need $65,239 in 10 years, and $101,640 in 25 years. And these amounts would just maintain your standard of living, not increase it.
Taxation: The Tax Axe
Did you know that taxes are the single greatest monthly expense in your household, accounting for 30 percent of your income – twice as much as the next expense category?
The amount surprises most people. Well, here’s another shock; You may not consider yourself rich, but chances are the IRS does. If your household earned $56,475 in 2005, the IRS says you’re rich, and that puts you squarely in the top 25 percent of all taxpayers in America.
Disappearing Pensions
About 44 million Americans are covered by pension plans, yet the number of these plans is plummeting. In fact, each year, more than 1,000 employers voluntarily shut down their pension plans, leaving a shrinking pool of employers paying into the federal retirement insurance program. Consequently, the number of employer-sponsored pension plans has declined precipitously, from 114,000 in 1985, to 31,200 in 2004.
In spring 2005, a U.S. bankruptcy judge approved a proposal from the United Airlines parent, UAL Corp., to transfer four under funded employee pension plans to the federal government, paving the way for the largest pension default in U.S. History.
Social Insecurity
The federal government currently owes Social Security over $1.5 trillion; without a tax increase or a reduction in benefits, Social Security marches toward bankruptcy.
Yet according to the Social Security Administration, nearly two-thirds of retirees rely on Social Security for 50 percent of their income, and 33 percent use it for 90 percent of their income. Without Social Security, half of retirees would be in poverty.
The Nightmare of Health Care
While the White House and the media continue to focus on Social Security, the real “gorilla in the closet” is health care, a problem with no proposed solution.
In fact, in 2005, elder care replaced child care as the number one dependent care in U.S. households. And finally, the Employee Benefits Research Institute (EBRI) estimates that, even with Medicare, the average American will need almost $300,000 just to pay Medicare premiums in retirement.
Red, White and Broke
It has become blatantly obvious that investors make blunders, and don’t always have appropriate market or retirement planning knowledge.
In 2004, America’s savings rate hit its lowest point since the Great Depression. Personal bankruptcies hit an all time high. Six out of ten adults have saved less than $10,000. And that same number – six out of ten – don’t have any sort of retirement account other than Social Security – and remember that’s an IOU, not a savings account. |