Five Forces Affecting Your Retirement

Imagine sitting down on the day of your retirement to plan your financial future.  You know what your annual expenses have been and you want to maintain your current standard of living.  So, you consult a recent mortality table and find that if you've made it to your 65th birthday, you can expect to live to 85 years old.  You perform a little calculation and find that, together with your Social Security monthly payments, you have just enough savings to maintain your current standard of living and spend all of your savings and future expected earnings by the time you die at the age of 85.  But, what if you live longer?   Will you be reduced to eking out an existence on Social Security alone?  Where will the additional money come from?  What if future investment returns are not what you anticipated at the start of your retirement?  These questions are increasingly urgent in America today, as forces are combining to make planning for outliving your resources more important than it has been in the past.  Old rules of thumb for spending your assets in retirement, called decumulation, need to be reconsidered.

Retirees must take strategic action in the deployment of their accumulated savings and funds as they begin retirement.  Five forces are converging upon Americans in what some have called the Perfect Storm - others the Tsunami Wave - that is about to engulf us from all sides.  The best we can do is to organize our own finances in such a way that we can provide for ourselves, because there isn't anything we can do to stop these converging forces.  These five forces are:

1. The decreasing levels and importance of Social Security benefits: Relative to the benefits provided to our parents, people currently in their working years will receive a much lower return on their Social Security contributions.
2. The demise of defined benefit (DB) pensions: Over the past 15 years, there has been only one new pension program of any size initiated in the U.S.  The number of pension plans in the U.S. peaked at 175,000 in 1983, and has since declined to less than 25,000.
3. The aging of the Baby Boom generation: Beginning last year, the first members of the largest generation in American history turned 60, leaving their jobs and entering the retirement force.
4. The emergence of post-boomers: Generations X (born between 1965-1979) and Generation Y (born between 1980-2001) will be burdened not only with the responsibility of providing for their own future retirement and health needs, but also with supporting the Social Security and Medicare costs of the boomers.
5. The increasing longevity of the American population: Since Social Security began monthly payments in 1940, the number of months we can expect to receive benefits for those of us who reach age 65 has increased by roughly 50% for men and women.  Coupled with the fact that when Social Security was instituted, the average person did not live to age 65. 

These are the facts folks, and it should be very concerning for anyone about to retire.  An analysis of your holdings can provide you with the tools you need.

Call our office at (732) 364-5462 for your complimentary consulation.

Tom