Aging Population Changes Retirement Planning

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This column started with a reader of something I wrote earlier asking, "Why would you include a question about parents on a form designed to collect information to begin retirement planning? Aren't most parents gone by the time someone retires?"

Actually, thousands of retired people now have at least 1 living parent. In fact, according to the U.S. Census Bureau, more than 70,000 people in the United States have lived beyond the age of 100, and that number is expected to multiply at least 6 -fold over the next 30 years. Ken Dychtwald, PhD, an expert on aging, reports that two-thirds of all the people in the history of the world who have lived to age 65 are alive today.

The growing number of elderly signals a vast change in America and in retirement. Many of those who have made it beyond age 100 have outlived their money. They depend on Social Security, public assistance, and their families to make ends meet. In other words, more and more families face a dependent parent as one facet of retirement.

You probably learned about retirement from your own parents and grandparents, but their knowledge has little relevance to today's world. According to a National Institute on Aging (NIA) study, in 1960 the typical worker worked 46 years before retiring and lived 1 year after retirement, and by 1995 worked only 37 years and lived another 12 in retirement. Today, the average worker lives 18 years after retirement.

It's difficult to overstate the impact of the aging population. The same NIA study finds that, for the first time, there are more adults over 65 than children under 5. That means the next social revolution could be about aging issues. French workers rioted earlier this year when their government wanted to raise the national retirement age.

How does this matter to you? Changing demographics affect our financial behavior in 4 major areas:

* Income: Today's retiree in the United States reports that 39% of his or her annual income comes from Social Security. Life-long pensions are a relic of the past, so where will you get the income you need?

* Retirement plan distributions: The typical pension has been replaced by a 401(k) plan. How will you invest a lump-sum retirement distribution? …