The good news is that we are living longer. This means that we have many extra years to enjoy ourselves with our friends and family, with our food, drink and other earthly pleasures. As long as we keep popping all the anti-cholesterol, anti-sugar and anti- high blood pressure pills we keep going. We do all the blood tests every year, the doctor never gets out of his seat behind the desk, he simply analyzes the results, prescribes the right pills and we keep going.
There's a saying that if you have your health, you have everything. Well, that's not exactly true - without adequate resources, you could enjoy a long, healthy retirement at a far lower standard of living than you'd prefer! When preparing for retirement, it's vital to keep in mind the importance of money to your quality of life during your "golden years." And with retirements now stretching as long as 20 to 30 years - and beyond - ensuring your retirement dollars outlive you is a paramount concern.
When married people retire, the effect on the spouse can be just as profound as the effect on the retiree. If this effect is negative, and es-pecially if it is unexpected, there is then a rebound impact on the re-tiree. Unless this is anticipated and dealt with in advance, all the well-laid plans the retiree has made - with or without your help, but we hope "with" - will be undermined.
Most likely, our greatest fear as we are nearing or in retirement is
: "Will I run out of money in retirement?" I can see the wrinkled nose and sweaty palms start to kick in as the stress levels raise after someone asks that question. Moreover, it's not an easy quantifiable answer. It's better addressed as "it depends" since it is dependent on various moving parts such as interest rates, longevity, inflation, withdrawals, etc. that muddy the investment waters.
Here are some events and circumstances that could help you avoid a shortfall of money during your retirement:
Faced with sharp declines in defined-benefit plans' funded status, corporate executives are looking to squeeze fees. In addition, more companies are closing their plans to new employees as they figure out how to deal with unfunded liabilities and new requirements under the 2006 Pension Protection Act. Corporate pension executives now more than ever are hunting for ways to cut costs.
Retirement Expenses
"All pension plan expenses are on the table" says Karen Matingou, President of Atéssa Benefits, Inc. and she added "Retirement plan sponsors are looking for ways to reduce all pension plan administration and actuarial expenses." Matingou says that "high priced providers will be priced out of the market. " She feels that technology improvements and regulated procedures are transforming the industry into a commodity that does not warrant high consulting fees.
Matingou suggests that retirement plan sponsors look in these areas to cut costs:
- Send out requests for proposals (RFPs) on all retirement plan administration, actuarial, legal and investment work.
- Retain a trained professional to create the RFPs, evaluate them, interview candidates and make recommendations.
- Consider outsourcing work that is done in-house and reduce staff where possible taking into account the costs for salaries, bonuses, benefits, real estate, recruiting, training and the need to focus on more important HR problems.
2006 Pension Protection Act
Our government is fostering a policy that encourages the freezing and termination of defined benefit pension plans. The Pension Benefit Guarantee Corporation ("PBGC") is a government agency which takes over terminated pension plans which are unfunded. The PBGC last reported under funding at about $20 billion. The PBGC had estimated that it faced about $96 billion in possible liabilities from firms with junk-bond credit ratings and a reasonable chance of pension plan termination. The recent economic crisis and the stock market decline required legislation to help the beleaguered financial, auto and airline industry. This will improve the situation somewhat but has not solved the problem.
Here are a few things the government could do to help future retirees meet their dreams:
Regardless of their financial position, most Boomers are reluctant to leave the workforce. While retirement income plays a role, there is also the fact that many in this generation have associated what they do for a living to their identity as a person. Introduce yourself to a Boomer and chances are he or she will include a job title in the first few seconds of conversation. Assemble a few of them at a gathering and they'll find a way to talk shop. Outplacement counselors know that one of the biggest hurdles for Boomers in transition is to let go of the identity they are clinging to based on a former role. An impending retirement presents them with some of this same trepidation. Additionally, Boomers have tended to use their work environment as a source for building and maintaining a social life.
Businesses have long supposed, understandably, that the Boomers would reach a certain age and begin their slow transition into retirement. The previous generation took the gold watch, the pension, a few office supplies and headed to the basement workshop and the local golf course to putter around. But Boomers do not seem inclined to do so. What happens when the most expensive, longest tenured, most experienced, and, some would say, most devoted contributors won't, or can't, leave their positions? What happens to the emerging generation of leaders and managers who discover that the people to whom they report won't be departing any time soon? And what happens to the generation of workers after them? Is the US workforce headed for a multi-generational train wreck within organizations large and small?
What happen when you want to retire and you don't have enough money? See if you can save, save and save some more. Other alternatives might be to:
- Work longer or work part-time in retirement.
- Downsize your home.
- Move to a more affordable city or state with lower housing costs, lower state taxes and lower expenses.
- Reassess your post-retirement expenses to see if some non-essential expenses can be reduced or eliminated.
The earlier that you know that there is a potential problem, the easier it is to fix. A small increase in your savings rate may be all that is necessary at age 35 but a significant increase would likely be necessary at age 55. Financial planning is critical.
Do we want to work all our life, or would we rather live your retirement years in comfort? Only about one third of us are saving enough for retirement. Many of us are no longer covered by an employer's defined benefit pension plan that will pay a fixed monthly pension at retirement.
It's all up to us now. We have the investment risk that our "nest egg" will not be sufficient and we have the longevity risk that we will out-live our assets. Now that's a huge responsibility. If we will spend 1/3 of our life in retirement, it should be a high priority to plan for retirement and review that plan periodically to be sure we stay on track. Let's develop a plan for a comfortable retirement.
Advance planning for retirement should occur as early as possible. If you're age 30 or older and you don't have a specific investment strategy for retirement (separate from education, home purchase, etc.) it may be too late to accumulate sufficient assets for your retirement, with dignity, throughout your retirement years. Don't count on inheritance from your parents because they may need every penny they have (and some of your pennies!) for their own retirement. If we are responsible for our own investment and longevity risk, we can't underestimate the amount of assets we need to accumulate before retirement. Our retirement planning and modeling should consider:
- Living to between ages 95 to 100.
- Limited, if any, growth in future defined benefit plan benefits.
- Those of you who are at or over age 55 may see only a modest reduction in Social Security and Medicare benefits. Those younger are more likely to see more reductions in benefits or delays in payments.
- While a modest assumption for future inflation of 4% or 5% may be reasonable, doubling that for medical expenses and premiums for the next 10 years would be wise.
- If you have company provided retiree medical benefits, consider the implications of losing that valuable benefit.
Considering these circumstances, you will likely realize that you must save, save and save some more. If you haven't done so already:
