We’ve written before about the importance of planning for your retirement. But now is an especially critical time to reevaluate your retirement goals, given changes brought about by health care reform, the ongoing debate over changes to Medicare and Social Security, the Great Recession and its impact on retirement portfolios, and continued reductions in employer-provided retirement plans. While much is unknown about the future of retirement resources offered by government and employers, knowing your needs and understanding how you can meet those needs is essential.
When it comes to retirement planning, remember:
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 27,500 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% in 1988 to 28% in 2010.
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, 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 US is about 19 years, up from about 14 years in 1951. 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.
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 (Quicken, for example). 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 E$timate,” 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.