Meet retirement goals by establishing realistic objectives

July 1, 2010

That state of affairs that we call "retirement" in this country is now entering what I call Phase III. In Phase I, retirement for most people meant simply that they no longer were able to work due to age or illness. The fortunate ones who accumulated enough money to support themselves comfortably when they grew too old to work were in the minority. Back then, in our largely agrarian economy, the best that many Americans could look forward to was living out old age in the homes of their children.

That state of affairs that we call “retirement” in this country is now entering what I call Phase III. In Phase I, retirement for most people meant simply that they no longer were able to work due to age or illness. The fortunate ones who accumulated enough money to support themselves comfortably when they grew too old to work were in the minority. Back then, in our largely agrarian economy, the best that many Americans could look forward to was living out old age in the homes of their children.

Phase II was ushered in with the introduction of defined benefit retirement plans, followed by Social Security. In the years of that Golden Age of Retirement, the majority of Americans could look forward to financially comfortable years after age 65, free of dependency on the kids and no need to continue working.

Now, we’re entering Phase III, and the rules are changing again.

Outliving nest eggs
Social Security is still with us, but defined-benefit corporate retirement plans have given way to IRAs and 401(k)s. Once again, responsibility for a financially comfortable retirement is back in our own hands.

For millions of Americans approaching conventional retirement age, the economic meltdown of 2008 has sent a wake-up call. With shrunken IRAs and 401(k)s, inflated values of housing falling back into reality and a growing uncertainty about our economic future, many workers - especially those in their 50s and 60s - are taking another look at their plans for retirement. And for good reason: According to a study published in April 2009 by the Employee Benefit Research Institute (EBRI) in Washington, less than one-quarter of workers age 55 and older have accumulated savings and investments totaling $250,000 or more. About 60 percent have less than $100,000.

With today’s longer life spans resulting in retirements spanning 20, 30 or even more years, nest eggs of that size are likely to die long before the retiree. That’s the reality dawning on the oldest members of the baby boomer generation.

Insurance statistician Charles Henderson, age 58, had long planned to take “early” retirement at age 62. “I don’t see that happening now,” he says. “Even with luck, I may have to work another 10 years.”

More delay retirement
And he’s not alone. Delaying retirement is an obvious choice for those who are worried about outliving their nest eggs. A recent survey by mutual fund giant Vanguard found that 45 percent of American investors see delaying retirement as one way to cope with the effects of today’s economic uncertainty.

According to the EBRI report, workers who say they are very confident about having enough money for a comfortable retirement this year hit the lowest level in 2009 (13 percent) since the Retirement Confidence Survey started asking the question in 1993, continuing a two-year decline.

Delayed retirements offer a triple benefit: Every year that a worker continues in the job beyond normal retirement age allows more time to rebuild retirement accounts, increases the eventual Social Security benefit, and reduces the number of years of dependency on retirement savings.

Writing in the Wall Street Journal, Kelley Greene reported, “The average retirement age in the U.S. is 63 - but most investors don't recognize the benefits from working even just two or three additional years, financial advisers say. According to research by T. Rowe Price, the Baltimore-based mutual-funds company, a 62-year-old with a $100,000 salary and a $500,000 nest egg will see his annual retirement income from investments and Social Security rise by 6 percent for every additional year he remains in the work force.”

Modifying plans
For some, a “modified” retirement is proving to be the answer. Working, either full-time or part-time, after retirement is the expectation of 77 percent of today’s workers, according to a study by the Pew Research Center.

But not everyone who plans to work after retirement will do so because of need. By a two-to-one margin, those who expect to work after retirement say they will do so mostly because they’ll want to rather than because they’ll have to, the report says. Those with more education and more income are the most likely to say they’ll work after retirement because they want to. Also, younger workers (ages 18 to 29) and the self-employed are more likely than others to say they’ll work after retirement out of desire rather than necessity.

Whatever the reason, working after retirement from a career job is a clearly accelerating trend. Longer life spans, today’s economic uncertainties and the relentless pressures of inflation are combining to complicate one of life’s toughest new challenges: how to make your money last longer than you do.

Achievable goals
Whether your planned retirement is years away or just over the horizon, one thing is clear: The more you put aside for savings each month, the more you will benefit on the road ahead. And the more realistic you are in your retirement objectives and planning, the more likely you are to meet your goals.

“If you hope to enjoy a comfortable retirement, you’ll have to arrange for it yourself,” says Certified Financial Planner Carl J. Kunhardt. “No one else is going to worry about your financial health in retirement. If you don’t take care of it yourself, it won’t happen.”

If you’d like to participate in my informal survey of how the current economy is affecting the retirement plans and objectives of individuals, you can e-mail me at lynott@verizon.net for details.