Your Money or Your Life: Getting Serious about Retirement Planning
Tiffany, Gordon, Public Management
Make Your Golden Years Golden
In the heat of day-to-day life, it is hard to step back and consider what will be happening 10, 20, or even 30 years down the road. But now is exactly when we should be planning our retirement. People who take control now will find that their retirement will not be left to chance later on. That is why we should set aside some time now to consider how to save to meet retirement dreams.
The Wake-Up Call
Why is there such a sense of urgency about retirement planning? An emphasis on the need to plan seems to be appearing everywhere, both in the popular press (USA Today recently ran a four-part series on the subject) and in the financial press. Experts are concerned because so far only four out of 10 people are taking steps to get ready. Underlying the concerns of both academics and individuals are four major trends that will make it harder for the baby boom generation to retire successfully than for prior generations. In addition, local government managers must address unique issues during their planning processes.
Social Security is in trouble. Experts agree that the demographics of the U.S. population will put a tremendous strain on the Social Security system in the near future. So for retirement planners, it is best to assume that Social Security benefits will be somewhat less generous in the future. The longer the time until the retirement date, the more at risk are the benefits. Individuals' own retirement assets may have to provide a good portion of the retirement income they will need.
The move is away from traditional pensions. These pensions typically replace 15 to 20 percent of preretirement income, based on a formula considering years of service, salary, and a multiplier. More companies and government entities are opting for defined contribution plans to meet changing worker demographics. The result? Again, more responsibility will rest with the individual employee, who must develop the discipline to save regularly and invest wisely.
Boomers are caught in a savings squeeze. No wonder demographers have coined the phrase "the sandwich generation" to describe the unique position of baby boomers, who will face the simultaneous financial strain of children's college expenses, possible care of dependent parents, and funding of a retirement plan.
We will all live longer, but with no free financial ride. Retirement experts are finding that people generally underestimate how long they will live, as well as how much of that period they might be ill. At the same time, individuals tend to overestimate how much money they will have and how much of their increasing medical expenses will be covered by Medicare. Health care costs, particularly long-term care costs, are projected to be a high proportion of retirees' expenses. And an often- overlooked fact when it comes to planning health expenses is the longer life span of today's women. In fact, because women live longer than men in general, some financial planners recommend that a woman develop not one but three financial plans, taking into account different survivor scenarios. …