After reading “The Retirement Confidence Survey 2008” (RCS) the longest running study of attitudes and behaviors of American workers and retirees towards retirement, I’ve come to the conclusion that Americans lack a realistic understanding of why to save for retirement. You can read the RCS at www.ebri.org/surveys/rcs/2008/. The concept is simple enough, you need to accumulate substantial savings before retirement and then gradually draw down those savings after retirement. It is a simple concept but it is not easy. And here are my three reasons why you need professional help.
- People are not planning for the future they are projecting the present.
The number of people surveyed who say they are going to work in retirement is going up. However over half (54%) of those polled who left the workforce early, did so due to health-related problems or disabilities, in other words factors beyond their control.
Retirement planning should include the possibilities that retirement will begin before it is expected and that earned income will not be available for support in retirement. Work for pay during retirement is rising,but it is unlikely that all of the workers who would like to work will do so. Planning for possibilities is what a financial professional does.
We are moving towards an “Ownership Society”
The Ownership society is a slogan promoted by President George W. Bush promoting personal responsibility, economic liberty, and the owning of property. As I see it, it also means, you are now on your “own” in terms of being responsible for your retirement. We have moved away from Defined Benefit plans where the employer saved for you towards Defined contribution plans, where you save for yourself. Social Security full benefits age is creeping up. If you were born after 1960 full benefits arrive at age 67.
Knowledge about the choices in planning for retirement is becoming much more important. Unfortunately, many people have an incomplete or misleading picture of how much they need to save, how to invest such savings effectively, and how to make their money last as long as they live.
Many Americans have not even tried to estimate how much money they will need for retirement. The RCS showed only 47% say they have tried to calculate how much they need for a comfortable retirement. Many of those who have tried may be using formulas that are underestimating the amount needed. If you don’t know where you are going, you probably won’t get there. A Financial professional can help.
- Retirement can be a long time
Quoted life expectancy is just an average and that about half of retirees will live beyond their life expectancy. There is some evidence that many people underestimate their life expectancy. Also, the notion that life expectancy constantly changes as one grows older is not well understood; For example, a 65-year old male who survives to his life expectancy of age 81 will then have a life expectancy of another 8.5 years. If he survives to age 89, he will then have a life expectancy of another five years, and so on. Based on The Human Mortality Database, of University of California, Berkeley www.mortality.org states there is an 82 percent chance that one member of a 65-year old couple will survive to or beyond the male’s life expectancy of age 81 and a 71 percent chance of outliving the female’s life expectancy of age 84.
With people living longer, they will experience more chronic health conditions; the need for long-term health care is on the rise. Unfortunately, private health insurance, employer-provided retiree health care, or Medicare does not often cover the cost of this care. Medicaid covers long-term care costs but only for individuals with very little financial means or for those that have spent down their assets to qualifying levels. Family members often provide long-term care. For those needing a lot of care, however, providing it is a great burden that many families are either unable or unwilling to bear. A growing number of people will not have family members available to provide this assistance.
Long-term care insurance (LTCI) offers a method to privately finance care. However, the percent of older Americans and those approaching retirement age owning LTCI is low,16 as is the percent of the population whose financial resources could pay for an extended period of long-term care out of pocket. These facts alone are making a growing number of people believe the United States is facing an impending long-term care crisis. The low levels of LTCI ownership are probably related to issues of affordability and understanding. That is where a financial professional can help.
For the majority of married couples, one spouse is going to die before the other. A spouse’s death typically reduces the income of the survivor, at least from Social Security. Most often the wife is the survivor since, on average, women outlive men by about four years and marry men who are two years older. Indeed, women should be saving more money than men because they live longer and need this additional money to support themselves for about four more years than men, on average. However, most couples fail to plan for this. A financial Professional can help.
- You need professional help.
Planning for your retirement is too important; and there are too many variables, to go it alone. An Investment Professional can help you with your overall financial goals. They can help you determine the correct asset allocation to make sure you are taking full advantages of all the vehicles you have like (401(k), IRAs, investments, and insurance) based on your specific situation. They can explain how each product works, the potential risks and rewards, and how each type of investment would fit into your long-term strategy.
