Of all the personal financial matters competing for your attention, planning for retirement might seem low on your list of priorities. Shorter-term goals like financing your child’s education, buying a second home or taking a dream vacation may seem far more pressing than retirement planning.
But retirement planning has entered a new age. It’s no longer something you can take for granted or continually relegate to tomorrow’s to-do list. You simply cannot presume that without any long-term, active effort on your part, you’ll manage to grow enough of a nest egg to live the good life you dream of in retirement.
Here are the modern-day realities of retirement planning:
1. You have to assume responsibility for your own financial security in retirement.
In days past, Americans could rely on the federal government and employers to provide all but a small portion of income needed during retirement. Today, it’s a different story:
- The long-term outlook for Social Security is hazy, and although most of today’s active employees will probably end up getting something from Social Security, benefits may be reduced from current levels.
- Traditional defined-benefit pension plans, which provide employer-funded retirement income based on pay and years of service, are on the decline. According to the federal Pension Benefit Guaranty Corporation, the number of private-sector defined benefit plans dropped from 112,000 in the mid-1980s to about 30,000 today. In many cases, defined benefit plans are being replaced by plans that require employees to fund all or a significant percentage of their own retirement income.
- Employers are backing away from health coverage for retirees. The percentage of large employers (those with 200 or more employees) offering retiree health coverage declined from 66 percent in 1988 to 35 percent in 2006.
- The future security of Medicare is also in question. As the Baby Boom generation swells the ranks of Medicare beneficiaries, there will be substantially fewer workers per retiree to fund benefits.
2. Your retirement may last as long as your active, full-time career.
Americans are living longer lives, thanks mostly to better health care. As a result of this increasing longevity, Americans are spending more years in retirement. At age 65, average life expectancy in the U.S. is about 19 years, up from 14 years in 1953. Your own life expectancy depends on factors like your health, your medical history, and your family’s medical history, but many people today are spending 30 to 40 years or more in retirement. Understand the possibility that you’ll be retired considerably longer than your parents were – and plan for the cost implications.
3. You have an opportunity to create your own “best life” in retirement – but only if you plan.
With rising life expectancies and advances in health care, the possibilities for a long and fulfilling retirement are endless. But to clearly see these possibilities and bring them within your reach, you need to be proactive.
Start by learning about effective strategies for retirement planning. There are stacks of books in libraries and stores to aid you in this effort. One book we recommend is The Number: A Completely Different Way to Think About the Rest of Your Life by Lee Eisenberg.
For anyone thinking about retirement, The Number offers an insightful and humorous perspective on the topic. The “Number” is the amount of money and resources people will need to be confident that their postretirement lifestyle will meet their expectations. Rather than being a “how-to” for calculating that dollar amount, The Number explores the psychology of preparing (or not preparing) for the financial realities of retirement. As Eisenberg says, “This book is about money, but ultimately it’s about the life you want, the life you don’t want, and the costs of each.” There’s a banquet of food for thought in The Number, and no matter where you are in the retirement planning timeline, we believe you’ll find the book helpful and enjoyable.
Once you’ve acquired basic knowledge of how to plan effectively, it’s time to do a little math. To calculate retirement projections, you can use financial planning software like Microsoft Money or Quicken. You can also crunch numbers on the web; one site worth visiting is Choose to Save® (http://www.choosetosave.org/). This is the online home of a national public education program dedicated to raising awareness about the need to plan and save for long-term financial security. The site offers the “Ballpark Estimator,” a tool that helps you quickly and easily determine approximately how much you need to save to fund a comfortable retirement. You may also want to work with a professional advisor such as Grand Wealth Management for comprehensive retirement planning and investment management services.