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Epilogue
The American retirement crisis is a train wreck ready to happen. Imagine a train carrying 77 million Baby Boomers toward retirement and on the same track, coming from the opposite direction, another train carrying under-funded pension promises, shrinking Social Security benefits and rising healthcare costs. Unable to stop either train, a serious crash seems inevitable. Even Baby Boomers who have diligently saved over the years are fearful of getting caught in such a tangled mess. But is it really inevitable?
It seems clear that you will spend more time in retirement than your parents did. It also seems clear that many of you have not put away enough savings to support your retirement years. And the things you were counting on to support you — pension plans, Social Security and personal savings — are not as secure and trustworthy as they used to be. In fact, most of the burden of saving for retirement has shifted away from your employers and the government to you. But research and market experience with investing suggest that you are your own worst enemy when it comes to building retirement savings through investments. And at least 40 percent of you haven’t even started to save for retirement.
Taxes, inflation and healthcare are other stumbling blocks to a secure retirement. Taxes and inflation can be satisfactorily handled, but not without planning. It is healthcare that frightens people in retirement and those approaching retirement. Even those who have managed to save and build substantial nest eggs are insecure when it comes to the impact of healthcare on retirement income. Increases in health costs threaten to eat up Social Security benefits for retirees, and will probably make a sizeable dent in the incomes of wealthier retirees, especially if they have to spend part of their retirement years in a nursing home or have home care.
To put it simply, there is a crisis, but few of you are in crisis mode.
Lack of Information and Planning
Until now, many of you were unaware of the impending retirement crisis and the factors contributing to it. Using your parents as examples, most of you assumed that your retirement years would be like your parents’ retirement, only better. Once you had put in your years of work — making contributions to your pension plans, Social Security and individual retirement accounts — you would retire to a comfortable, leisurely life and enjoy your Golden Years. Perhaps you would even retire earlier than your parents had. Lacking any information to the contrary, you assumed that everything was right with your retirement. But underneath the surface, the elements of a sound, successful retirement were showing cracks in their foundations, and soon they would begin to crumble, threatening your future.
Given your self-assurance, confidence and heavy reliance on employers and the government for much of your retirement income, you seem to have been lulled into complacency about the need to plan for retirement. Without a sense of urgency, a need to save for the future gave way to a consumption mentality, which eventually created a huge debt burden for many of you. The frugal nature of your parents was replaced with a desire to own as many material things as possible, even if it meant borrowing or spending beyond what you actually earned. Little, if any, thought was given to developing a retirement plan or increasing your level of savings to ensure a secure future. Even those of you who had an active propensity to invest did so not to secure your future, but to make more money for the present or the short-term future. Very few members of your enormous demographic group engaged in serious retirement planning. And those who did were focused on asset accumulation.
Not until after the bear market of 2000-2002 did it become apparent that you were headed for a retirement that could potentially be worse than your parents’. The spread of information concerning the nature of the crumbling legs of the retirement stool painted a different picture of the future for you. Your self-assurance and confidence began to turn to worry, anxiety and downright fear. Those safe, secure defined benefit pension plans were in decline, and many were seriously under-funded by employers. As information about people living longer emerged, it became apparent that retirees would soon outnumber workers, which meant that less money was being contributed to government entitlement programs as more was being withdrawn. Without change, entitlement programs would bottom out, ending benefits meant for retirement. To save these programs would require either tax increases or benefit cuts, both of which meant lower retirement incomes for you. What had appeared to be a rather pleasant ending to a fruitful life now seemed rather dismal. For the first time in your lives, you contemplated the prospect of not having enough money for your retirement years.
Unfortunately, many of you, who grew up during a time of relative economic prosperity, have not shared your parents’ attitude of saving and financial prudence. When you look back, you may see lost years, sometimes two and three decades, where few, if any, assets were put away for the future. If you missed out on years of compounding interest, you are hardly in a position to make up the difference during the few remaining years before retirement. It’s little wonder that our nation’s retirement confidence is lagging.
Perhaps the biggest stumbling block is fear of planning. Part of this comes from an attitude of procrastination and not wanting to face up to the task, but another part is a lack of information. This fuels a lack of confidence. A recent survey by Transamerica suggests that 50 percent of the respondents agreed they would like to receive more information and advice. In fact, they would prefer to rely on outside experts to monitor and manage their retirement investments. They simply don’t know as much as they should about retirement planning and investing.1 But the trick is to overcome the fear and take the first step toward the solution.
Taking Charge
The responsibility for your financial future in retirement lies with you. Until now, many of you have ignored your future, preferring to spend assets in the present rather than save them for the future. Now that retirement is more real to you, there is increasing concern about whether or not there will be enough money for retirement. This situation is not going to change unless you take charge and do something about it.
Since your retirement can take multiple paths, you need the advice of a professional who can help determine which path is right for you. Don’t rely on your own instincts. Find a financial professional who is truly concerned about your needs, ambitions and retirement plan. Since you are placing your retirement and your financial future in an adviser’s hands, you must find someone you can trust. Trust and relationship comfort are critical dimensions; you must be able to take this adviser’s advice and follow it. If you are not comfortable doing that, then you need to keep looking.
Finally, once a plan is in place, follow it. You’ve paid the adviser to help you analyze your retirement needs and goals, and the two of you have come up with a plan to reach them. If something feels wrong, discuss it with your adviser. Make use of his or her knowledge. Together, the two of you have a much better chance of making the appropriate decision than you do by yourself.
Plan and invest carefully! The retirement zone is just ahead!
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Transamerica Survey Shows Lack of Confidence and Knowledge in Retirement Savings,” Insurance Newscast, March 10, 2006. |