Are you concerned that your retirement savings won't last? You're certainly not alone. A 2013…
It seems every generation has claimed not to understand the generation that comes after it. Certainly there are marked differences between Traditionalists, Baby Boomers, and Gen Xers. When it comes to retirement, people reaching their golden years today will definitely face a different future than retirees in years past. Here are some reasons why that’s both bad and good.
1. Less Social Security benefits. Many of today’s retirees depend on Social Security retirement benefits for income. Among seniors, 53% of couples and 74% of singles depend on Social Security for at least of half of their income; Social Security makes up 90% or more of retirement income for 22% of couples and 47% of couples. But Social Security is paying out less for future retirees.
The full retirement age is 65 for retirees born in 1937 or earlier, 66 for those born between 1943 and 1954, and 67 for those born in 1960 or later. Raising the full retirement age results in a smaller payout. Additionally, the latest budget agreement eliminates the file-and-suspend strategy which was a popular way for earlier retiree couples to increase their benefits. In future decades, while Social Security will probably still be there in some form, benefits will likely be reduced even further.
2. Fewer corporate pensions. Employer pensions were relatively common among earlier generations of retirees. But only about 20 percent of people retiring today have the luxury of a lifelong pension, and the majority of those are government workers. The majority of workers have a 401(k) or other self-managed retirement plan, which shifts the responsibility to the worker.
Additionally, most 401(k) plans are not insured, and even pensions and retiree healthcare benefits aren’t guaranteed; many retirees have seen their pensions and benefits cut as companies and state governments struggle to meet their obligations. Today’s retirees are forced to be more financially self-reliant, since they will have to depend more on their savings.
Today’s retirees will have to make their savings last throughout their retirement, which may last decades. You will have to walk a tricky balance between producing enough current income to meet expenses while ensuring your money lasts. You will have to periodically rebudget and rebalance your investments based on spending, investment returns and market conditions.
3. Rising taxes and costs. Managing taxes is a crucial part of effective retirement planning. You will have to make sure to follow ever-changing tax rules to minimize the tax bite from your retirement savings and income. Taking required minimum distributions at the right times can make a significant difference in your tax bill next April. With many states and districts facing financial shortfalls, along with the federal government, taxes are likely to rise in the future. Also, inflation has been at a historically low rate for the last few years, but is projected to increase in the next few years.
It’s not all bad news, however.
4. People are living longer. In times past, retirement normally consisted of a couple years of rest after a long working life. Today’s retirees, however, can count on a retirement that may last decades. A 65-year-old man today will live on average to age 84, and a 65-year-old woman until age 86. While this means your retirement savings and income must last that long, it also means you have many years to watch your retirement plans unfold, and even to chart a new retirement course if your first one doesn’t work out.
5. Working retirements are more common. People are not only living longer than before, they’re staying relatively healthy and active, thanks to advances in medicine, nutrition, and exercise. This means the conventional retirement picture of sitting in front of the TV or on the front porch is largely outdated. Nearly half of retirees today are working part-time or plan to work, according to a 2014 survey by Merrill Lynch. And it’s not just for the money: 62% of retirees who work say they want to stay mentally active; 42% for social connections, and 36% to maintain a sense of identity and self-worth.
6. Greater opportunities. For retirees who want to work, there are more opportunities than ever before. The global economy and the Internet provide opportunities that previous generations could only imagine. Even with modest computer abilities, today’s retirees can find income opportunities without even leaving their homes. Whereas previous retirees were mostly limited to employment prospects in their immediate areas, today’s retirees can retrain over the Internet and work for employers on the other side of the country or the world.
7. More relocating. While the majority of people choose to stay in their homes after retirement, an increasing number are opting to move to another part of the country. Retirees are seeking new challenges and a change of scenery. Some adventurous types are making their retirement homes abroad. Countries like Ecuador and Costa Rica are host to thousands of American retired expats. Businesses catering to U.S. citizens retiring abroad are part of a rapidly growing industry.