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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.
1. 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.
2. 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.
3. 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.
This material has been prepared using sources of information generally believed to be reliable. No representation can be made as to its
accuracy. The forecasts and opinions in this piece are not necessarily those of Van Kampen, and may not actually come to pass. Information
in this report does not pertain to any Van Kampen product and is not a solicitation for any product.
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