12/18/2014


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Retirement Today

Retirement today is unlike that experienced by our parents and grandparents.

Concerned about your retirement savings? You're in good company. Many folks investing for, or in retirement, are seeing their savings shrink. Many are concerned about their inability to save more and enlarge their retirement capital.

Today, Americans look forward to retirement supported by a mix of different programs, benefits, and funding mechanisms: (1) traditional employer pensions or "defined benefit" plans; (2) "defined contribution" plans such as 401(k), 457(b), and similar programs; (3) IRAs or individual retirement accounts; (4) Social Security; (5) Medicare; and (6) whatever other savings you can muster. As we will see, this mix of benefits and funding mechanisms is piecemeal and is not uniformly available to all.

Many Americans take it for granted that all workers have access to pension or savings plans and still cling to the myth that retirement is "a dazzling, decades-long vacation at the end of life." The myth prevails, but the reality is starkly different.

Americans are retiring earlier--the average retirement age is now sixty-two. Americans have also come to enjoy much longer lives. Instead of the average life span of sixty-one and a half years for both men and women when Social Security was created, today's younger Americans can now expect to live into their late eighties or nineties. Life spans are decidedly longer and growing. That means that individuals need more capital to fund their retirement at the same time that they are increasingly expected to amass that capital on their own.

So contemporary "retirement" is quite unlike that experienced by our parents or grandparents. Even as recently as 1985, eight out of ten American workers in medium-size and large private companies participated in a traditional pension plan. Today, only tow out of ten do. In the 1960's and 70s, American workers could look forward to an average of ten years of retirement life supported by government payment and company pensions. Today's workers have a much longer, self-funded retirement ahead.

In the past, Americans often retired--at least in the national mythology--with a farewell party and send-off gift at age sixty-five or a retirement age of their choosing. Today's Americans are often not in control of when they retire. Today, many people--more than on-third--are thrust into early retirement whether they are financially ready for it or not. Four in ten retirees report that they retired earlier than expected use to job loss, downsizing, poor health, or some other factor. More than a quarter of the workers who recently retired before the age of sixty-five did so because of changes at their company "such as downsizing or closure." And the retirement incomes of many Americans are not at all robust. Today, about one in six Americans over the age of sixty-five lives at or near the poverty level.

So "retirement" is a modern, not necessarily carefree experiment. The "live happily ever after" picture of retirement in the United States is not true for many current retirees. And it is going to be much worse for people retiring in the future.

We are, in fact, in the midst of a developing crisis. We are moving from the security of traditional company pensions, which once guaranteed some retirement income, to do-it-yourself savings that guarantee nothing at all. Our benefit programs, once solvent and sound, now suffer massive funding shortfalls. And many millions of Americans are about to enter their golden years with little retirement preparedness, minuscule savings, and little awareness of the precarious state of their benefit programs. You, however, can and will enjoy a financially sound and secure retirement. But to do so, you must understand what you're up against and why counting on government and corporate benefits instead of personal savings would be naive.

About this article and the author:

Jim Schlagheck is a wealth management specialist, the author of "Cash-Rich Retirement", and the co-producer of "Retirement Revolution", a public television series on better ways to prepare for retirement.  He has worked with leading financial institutions and counseled super-wealthy families around the world.  His book guides readers through a 6-step action plan to build savings and reduce investment losses.  His views are not a solicitation to buy any product or service.  You alone are responsible for determining whether any investment, product, or strategy is suitable for you based on your own, independent research, your investment objectives, your financial and personal situation, and the advice of your financial and tax advisors. He has his own investment blog, "Show Me The Money" at www.invest-blog.com.

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