The New Reality For Your Retirement

Americans are more pessimistic about their future retirement than in the past.

Due to the weak economy, high unemployment, market volatility, national debt, the underfunding of Medicare and Social Security, and the decline in the use of traditional pensions, Americans are coming to understand the new reality of retirement. “We will not have the income for the retirement dreams we hoped for!”

On December 20 2010, 401khelpcenter.com referenced a study by Hartford that indicated the primary retirement goal of “enjoying life in retirement” dropped from an all-time high in 2007 of 42% to just 13% in 2010.

Almost 70% of those 45 and older that were surveyed said “providing for daily expenses in retirement” is their number one priority. This percentage is up from 25% in 2007.

80% of those surveyed are not confident that their future combined resources of Social Security, pensions and savings will be sufficient for their retirement.

This dramatic shift in Americans’ attitude is due to a lack of “will” at the government level and at the individual level. Neither political party, has the leadership ability to stop spending (i.e. borrowing from) Social Security funds and institute the necessary changes to make Social Security sustainable into the future. While 75% of Americans over 45 believe that the responsibility for providing income in retirement rests with each individual, 80% of individuals spend too much on current lifestyle needs and wants to adequately save for their own retirement.

37% of Americans are currently unsure when they will be able to retire. 41% indicate they intend to delay retirement, continue working full-time or perhaps part-time as a way of maintaining income in later years.

Retirement savings have been impacted as a result of market volatility. Five years ago, 46% of those surveyed thought their retirement savings would last more than 20 years. Currently only 16% of those surveyed believe that.

The financial services industries (Broker Dealers and Insurance Companies) use the general lack of understanding to sell products that often have excessive fees and questionable performance, which further reduces people’s ability to properly fund retirement.

The dream about early retirement is becoming more of an illusion. In 2007, 14% of those surveyed thought they could retire before age 60. Today that number is only 7%.

Many people do not have any idea as to the amount of money that will be needed to fund their retirement. Financial planners often plan on clients living to age 95. This means that after working for 40 years (roughly age 25 to 65) one needs to save enough to fund 30 years of retirement (age 65 to 95). Planners also factor in medical costs, inflation and basic needs as well as wishes or dreams.

Recently, a young couple (both age 25) contacted my office to learn how they could retire by age 30. Their income was $60,000 a year, net worth was $2,000, and they could not reduce their spending. Their reality is that there is no way they could retire in five years and little possibility for them to retire before age 67. This lack of understanding is wide spread even with those much older.

To avoid the new reality of retirement of decreased expectations, people should:

  1. Start planning for their retirement as early as possible (in your 30s)
  2. Use the services of a fee-only Certified Financial Planning Practitioner® to assess the best ways to achieve your desired retirement.
  3. Develop and use a savings and spending plan
  4. Be prepared to work longer than currently expected

About the author

Michael Chamberlain, CFP®

Hello. My name is Michael Chamberlain CFP®, the principal of Chamberlain Financial Planning and Wealth Management. Our firm is “fee-only” with offices in Sacramento, Campbell and Santa Cruz California. “Serving clients from the mountains to the sea.”

Our mission is to help clients realize their full potential today while planning for an abundant tomorrow through comprehensive financial planning and collaborative decision-making.

As an experienced investment and planning professional, I have had the privilege of being interviewed by and contributing to hundreds of articles in such publications as Money Magazine, Financial Planning Magazine, ABC.com, Forbes.com, Nerdwallet, NASDAQ.com, Yahoo Finance and more.

I hope that you spend some time at the FiGuide site and learn more about the financial matters important to you. To learn more about our firm, visit our website www.chamberlainfp.com or give us a call at 800-347-1340.

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