Retirement: Then and Now
Know the Facts. Prepare to Act!
Retirement. It's a happy eventuality for every working American.That's as true now as it was decades ago...but the similarities more or less stop there.
Know the Facts, Prepare to Act
The changing face of retirement means today's workers need to approach their golden years differently, and arguably with greater diligence, than generations prior. Consider this:
FACT: Longer lives = longer retirements.
Increasing life expectancies means members of the baby boom generation can expect to spend 20 to 25 years in retirement. This is up from 13.6 years for retirees in 1980.¹ Younger generations have the once inconceivable prospect of living to age 100—35 years beyond the traditional retirement age. Your money needs to work harder, and last longer, than ever before.
ACT: Does your retirement portfolio have a proper balance of traditional retirement investments (bonds and cash) and growth-oriented assets with greater inflation-fighting prowess (stocks and alternatives)? See related article for specific investing ideas for all of life's stages.
FACT: More retirees = a stressed Social Security system.
10,000 baby boomers celebrate a 65th birthday every day. As the retired population grows, the ratio of workers to retirees is shrinking. In 1945, there were 42 workers to each retiree. That ratio stood at 2.9 to 1 in 2010 and is expected to continue declining.² The already-stressed Social Security system will struggle to pay benefits as the number of collectors grows and the number feeding the system through payroll tax declines. In 2012, the Social Security Trustees estimated their fund reserves would be exhausted by 2033. Thereafter, they estimate payroll taxes would be sufficient to pay only about three-quarters of scheduled benefits through 2086.
ACT: Even under the best circumstances, Social Security should not be your sole retirement income source. Have you established personal retirement-saving vehicles (e.g., 401(k), IRA, annuities) to supplement your income stream?
FACT: Fewer pensions = greater individual responsibility for retirement funding.
Defined benefit (DB) pensions and Social Security are being replaced by defined contribution (DC) plans and individual investments as the primary sources of retirement income. Whereas 82% of current retirees report having income from DB plans, only 53% of current workers are enrolled in a DB plan and just 37% of 25- to 34-year-olds expect to have income from DB plans when they retire.3
ACT: It's important to invest early and often to build the retirement you desire. Are you making maximum use of your DC plan, particularly any employer-match option? After all, that's free money.
FACT: The dreams are big and the savings small.
The current gap in retirement savings in the US—the difference between what people have saved and what they need to save for retirement—is estimated at $6.6 trillion.4 That means the average American family is on course to have less than two-thirds of the savings needed for retirement expenses.5 Americans may be woefully unprepared to meet their desired retirement lifestyle.
ACT: Have you talked retirement with your financial professional lately? He or she can help you develop a saving and investing program specific to your goals.
1 BlackRock's 2010 Defined Contribution Advisor Study. 2 Ratio of Social Security Covered Workers to Beneficiaries according to the Social Security Administration, socialsecurity.gov. 3 BlackRock's Annual Retirement Survey, May 2012. 4 Center for Retirement Resource at Boston College. 5 McKinsey's study on retirement security; "Restoring Americans' Retirement Security," McKinsey, p. 2, based on 2009 data. 6 National Institute on Retirement Security, "Who Has a Pension?" fact sheet.
Investment involves risks. Stock and bond values fluctuate in price so the value of your investment can go down depending on market conditions. The two main risks related to fixed income investing are interest-rate risk and credit risk. Typically, when interest rates rise, there is a corresponding decline in the market value of bonds. Credit risk refers to the possibility that the issuer of the bond will not be able to make principal and interest payments. There may be less information available on the financial condition of issuers of municipal securities than for public corporations. The market for municipal bonds may be less liquid than for taxable bonds. A portion of the income may be taxable. Some investors may be subject to Alternative Minimum Tax (AMT). Capital gains distributions, if any, are taxable. Investments in non-investment-grade debt securities (high yield or "junk" bonds) may be subject to greater market fluctuations and risk of default or loss of income and principal than securities in higher rating categories.
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