Adjusting retirement thinking in tough times
The notion of a traditional, leisurely retirement is fading fast.
The precipitous drop recently
in retirement investment accounts, rising
health care costs, a dearth of traditional
pension plans, faltering Social Security and
Medicare systems and the fact that Americans
just are not saving enough have shattered
the hopes of millions of Americans who dreamed
of spending their days on a golf course or
growing a prize-winning garden.
Instead, retirement is more
likely to happen later in our lives and may
involve working at least part time. Conclusion:
Most of us probably will need a well-defined
savings strategy if we expect to retire comfortably.
Most of us have some hurdles to overcome. For starters, we don't know how much we need to save for retirement. In Bankrate's retirement poll, 37 percent of Americans admitted they don't know how much they'll need to retire, and another 15 percent said they took a wild guess at a number.
Savings are sad
Our savings are paltry, generally speaking. According to the Employee Benefit Research Institute's 2008 Retirement Confidence Survey, nearly half of Americans (49 percent) have less than $25,000 saved, not including the value of their homes or their pension plans.
But beyond the idea of simply spending less and saving more, other attitudes and outlooks are in for a change.
Take age, for example. When
the average life expectancy was 72, retiring
at age 65 meant retiring with about 10 percent
of your years left. But life expectancy keeps
going up -- today it's about 78 years -- and
if you live to age 85 but retire at 65 you
will be counting on your retirement monies
to sustain you for more than 23 percent of
your life. In other words, if you live to
age 78 and want to spend the last 10 percent
of your time in retirement, you would not
retire until you are 70. Using that 10 percent
rule of thumb, if you live to age 85, you
would not retire until age 76.
Attitudes already changing
Ironically, the good news is that American attitudes toward retirement savings may have turned a corner -- as a result of the bad news all around us. Henry "Bud" Hebeler, author of "Getting Started in a Financially Secure Retirement," says now that the national attention is focused on the credit crunch, failed mortgages and the souring economy, many of us are starting to ask more questions about saving.
"There's a wake-up call
out there right now, and I believe a lot of
people will heed it," he says. "People
are going to be much, much more dependent
on personal savings in the future."
Kevin Reardon, a CFP in Brookfield, Wis., adds that baby boomers may be ushering in a new period of austerity where ditching McMansions and SUVs for a downsized lifestyle will have "more to do with our current savings rate than anything else."
He predicts the future may hold a progression toward more federal programs and higher Social Security payments as well as a spike in households with three generations under one roof.