"Problems" with Retirement
I. People are living longer
It's a “good problem”: people are living longer – especially women! Although science and technology are extending life, they're not paying for that extension. People used to fear dying too soon. Now they (rightfully) fear living too long. Aging and becoming frail is extremely expensive.
Did you know that the fastest growing demographic in America is those age 85+? Outliving their financial savings -- or losing them to the cost of illness or frailty – is the greatest fear for these people.
II. Pensions are disappearing
Americans once depended on employers for retirement income but no longer can as voluntary savings plans, like 401(k)'s, have now replaced guaranteed pensions. Additionally, companies funded their pension plans assuming shorter life expectancies and higher returns than have been realized. Consequently, many of those plans are woefully underfunded and incapable of maintaining decades-old promises. Once unthinkable, many city and state pensions are now at risk of failing as government agencies are declaring bankruptcy -- something government employees never expected.
III. Inflation
A dollar isn't worth what it once was! Often called the "silent tax", inflation decreases the purchasing power of retirement dollars in a cruel fashion because it affects things retirees need most, such as food, medicine, and health care. To compare just how much the value of a dollar can change in a few years, see this chart of inflation rates from 1967 to 2009: What Will Inflation Do to Your Estate?
IV. Taxation*
Government spending patterns combined with the skyrocketing costs of Social Security and Medicaid cause most people to agree that income taxes will have to increase in the future.
V. Social (In)security (?)
Social Security was established on two premises: 1) that most seniors would only live a year or two after retirement, and, 2) a “trust fund” would be established to hold designated funds for future income needs – but neither premise was realized. People are living longer and no “trust fund" exists, thus leaving government to tax an ever smaller work-force for an ever-larger group of retirees. Something will have to “give” – and most informed people expect benefit reductions, benefit postponement, and increased taxation to support promises made decades ago.
VI. Savings Habits
Until the recent economic down-turn, the average savings rate for most Americans was almost nil. Whether due to lack of willpower, excessive demands, or other factors, Americans simply haven't been good savers. Consequently, "financial coaches” are becoming as popular as “personal fitness trainers.” (Have you benefited from “mutual accountability sessions” with a financial professional?)
VI. Boredom vs. Personal Significance
Many retirees are finding golf and daytime television less satisfying than expected. For personal fulfillment or social engagement, many are returning to the workforce as a matter of choice.
VIII. Women are harmed the worst!
You don't need statistical analysis to reveal that women are outliving men. Regardless of the reasons for their superior longevity, three-quarters of those over the age of 80 are now women.** Whether due to death, divorce, or choice, most of them are single and have fewer financial resources than their male peers. (Ironically, many believe this is due to wage inequities or time spent out of the work-force caring for dependent children or aged loved ones. In short, society's greatest caregivers are increasingly left at the mercy of society.) Sadly, the perceived difference between an “elegant lady” and an “old woman” is often her financial circumstances.
In short, expectations for many Americans are changing
as a new vision of “retirement” is developing.
* The views expressed on this site are those of Mark Cordner and may not represent the opinion of others with whom he, the company, its employees, or associates may affiliate.
