Retirees face changing times

The change in our society over the past 40 years has been astonishing by any standard. Nowhere has this been truer than in the world of personal and business finance.

What's more, many financial observers feel the changes in the world of finance are picking up steam.

The trouble is that many of the retirement planning guidelines call for an annual stock market return that uses performance over the past 40 or 50 years as a guide for predicting returns over the years until your retirement. I've seen many planners that call for a predicted return of 10 or even 12 percent annually.

Wrong, says Paul McCulley, author of the new book, Your Financial Edge. McCulley, a highly respected economist with a long track record of accurate predictions, describes the last 25 years as "a long journey of disinflation, irrelevant to the next quarter century."

He forecasts a rate of annual growth in the 6 percent to 8 percent range. "Remember," he says, "that it could wind up in the bottom of that range."

If McCulley is correct, any retirement plan based on a predicted return of 10 percent or better will wind up in deep trouble. Some investment pros challenge McCulley's "pessimistic" view, perhaps because it casts a shadow over their own planning models.

"You can't simply plan to get a 10 percent return because that's the number you need," he says. "You must plan based on what you expect to happen, and what you should expect is that the next 25 years won't be like the last 25."

For some people, retirement in the traditional sense is not in the cards. With better health and more energy, growing numbers of post-65 "retirees" are opting for second careers. Retired optician Jim Larkin has recently passed his real estate broker exam.

"I tried gardening and golf," he says, "but I needed something more challenging to do with my time. I like people and I feel that selling real estate will keep me in the swim of things."

Of course, not everyone working past the traditional retirement age is doing so voluntarily.

"I can't get by on my small pension and Social Security," says Sam Golden, now working as a salesclerk at Sears.

"The times they are a-changin."

Next, consider the changing world of credit. It was only a couple of generations ago that - except for home mortgages and auto purchases - credit played a minor role in the life of the average consumer.

Today, largely through the reckless use of credit cards, millions of Americans are trapped in a spiral of oppressive personal debt. In 2005, according to the Nilson report, Americans held 1.7 billion credit cards. That's an average of about seven for everyone over the age of 15.

The average credit card balance per American household is now over $8,000 and growing. For those millions of Americans who are paying the "minimum amount due" each month instead of the full balance, the road to financial oblivion is beckoning.