Retirement Crisis

Investing and Financial Planning

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Retirement Crisis


The 21st Annual Employee Benefit Research Institute's (EBRI) 2011 Retirement Confidence Survey was recently released.  This survey is one of the most read retirement surveys in the country and I look forward to reading it annually to gain more insight about what people are doing and thinking regarding retirement. 


I believe we have a retirement crisis in this country and it isn't because of the recent market meltdown and recession.  This crisis didn't just appear; it has been manifesting itself for many years. 


One of the biggest obstacles to people realizing their retirement goals is a fear of the unknown.  I define the "unknown" as people not understanding how to plan properly for their eventual retirement.  I thought I would highlight a few key statistics from this year's EBRI Survey:


  • The people who are not confident about retirement are the ones who are saving the least toward retirement.
  • A sizeable percentage of workers report they have no savings or investments.  In fact, nearly 30% of those surveyed said they have saved less than $1,000.
  • Most workers expect to retire beyond age 65 and expect to work beyond age 65 too.
  • Many workers believe they can save more than they are currently saving for retirement.
  • Many workers continue to be unaware of how much they need to save for retirement, which goes back to the unknown issue. 
  • Most retirees are more confident about their situation than current workers are about retirement.
  • Both workers and retirees that have gone through a retirement needs analysis improved their outlook for retirement. 


What's very interesting is that retirees (or those who are officially retired) feel better about their retirement than those currently working.  Of course, much of the fear workers are currently experiencing relates to the recent recession, particularly about the entitlement programs like Social Security and Medicare.  A higher percentage of workers fear these benefits are going to be changed dramatically and not for the better.  Whether those fears have merit or not is an article unto itself.  I happen to believe that fear of substantial changes to our entitlement programs for those approaching retirement are unwarranted.  Workers should be more concerned about running out of money well before they reach their 80's and 90's.  To me, surveys like the EBRI are valuable in that they shed light on how and what workers and retirees are thinking and experiencing in regards to retirement.  You can view and download the full report at  Despite the numerous retirement surveys out there, the bottom line is people are still not saving enough. 


As for retirees, their biggest fears relate to medical costs and running out of money during retirement.  The two sort of go hand in hand.  If your out-of-pocket medical costs skyrocket, then that alone could drain your savings faster than planned.  I believe that spending within one's needs is as important in retirement as it is in one's working years.  At Bloom Asset Management, I provide guidance to many clients on the importance of keeping withdrawals from being too high, which I generally define as an amount above 5%.  A high withdrawal rate (calculated by taking the annual withdrawal and dividing it by the value of the total portfolio) can be detrimental.  There is no magic withdrawal rate formula.  It basically comes down to retirement lifestyle or more simply, retirement spending.  


Not all the findings in the EBRI Survey were negative.  I thought one statistic was very encouraging:  Workers who had gone through a retirement needs analysis felt more confident about their prospects, but more importantly, were more likely to make the necessary changes to alleviate their fears of retirement.  In addition, those who have gone through a retirement needs analysis tend to have a higher level of savings.  To me, this is one of the big problems with retirement preparedness.  If workers, and for that matter, even recent retirees, do not know if their current situation is sufficient to have a comfortable retirement, then they are just guessing. 


The four most dangerous words in investing are: "This time is different."  Well, this time is different for retirement.  People have to take control of their retirement, and if that means hiring a professional to help them through the maze of retirement planning, then by all means, they should not hesitate.  Most people above the age of 45 tend to have annual medical physicals.  Why not also plan to have an annual financial physical?  It might be as life saving as the medical checkup. 


In the end, I don't blame people these days for their retirement uncertainty. In addition to the fear of not knowing how to plan, there are numerous articles and advice from sources in just about every newspaper and magazine these days that write something different, which leads to confusion and stress.  There is no one solution to achieving retirement goals.  It's hard work that takes time, and patience.  Everyone's situation is different and applying the same formula to everyone might not be the best practice.  Retirement has changed so dramatically from just twenty years ago, but it doesn't have to be so stressful.  You still have time to make changes that can make a difference. 


Jack Riashi has been with Bloom Asset Management since 2002 and has been a member of the firm's Investment Committee since 2003, which is responsible for setting investment strategies and selecting approved securities for client portfolios. Jack has been featured as a financial expert for the Detroit News' Money Makeover series, and is frequently interviewed on WXYZ-TV Channel 7 Action News providing financial advice and observations.  He has also contributed numerous articles for the firm's web site, MoneyTalk and MoneyWatch newsletters.

  Jack has been serving clients in the financial service industry since 1987, holds the designation of Certified Financial Planner (CFP®) and is a member of the Financial Planning Association. He is a graduate of Wayne State University with a bachelor's degree in finance and has been a featured speaker at many Bloom Asset Management seminars.



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