Looming retirement crisis: Part 2 [Financial Perspectives]

In my last column, I wrote about how there is a retirement crisis looming. Time.com posted an article  today about this very topic. The article starts off by saying that Americans have underfunded their retirement by $6.6 trillion. The article also quotes research from the Employee Benefit Research Institute that indicates that 57 percent of adults have accumulated less than $25,000 in savings and investments. It also said that less than 60 percent of workers are saving anything at all.

The other interesting aspect of the article was a review of some research that said that those of who are saving significantly for retirement may be saving more than they will need. Fred Vettese, chief actuary at Morneau Shepell, which is a Canadian consulting firm, said that the needed retirement replace income may be as little as 35 percent. This is dramatically lower than the 75 percent suggested level that has been commonplace for years.

These issues, coupled with the rising cost of health care, are putting the prospect of a traditional retirement out of reach for many Americans. The disruption of the traditional cycle of older folks retiring at a normal retirement age could be partly to blame for the high unemployment rate for 18- to 25-year-olds. The terrible part of all of this is that many people are oblivious to the problem. Those that lost their jobs as a result of the financial crisis are certainly more aware as many have had to take distributions from their 401ks or IRAs to make ends meet.

In the past few weeks, several large companies have announced that they are discontinuing their retiree health care plans. Some will continue to provide their retirees with subsidies to help with the cost of Medigap policies. It is quite possible that these subsidies will be phased out over time. Companies will be able to save millions of dollars with such a move but it will come at the expense of employees who thought they would have health care for life.

With all that is happening with the implementation of the Affordable Care Act and the budget impasse (and shutdown), I hope it is becoming very clear to everyone that you have to make plans to take care of yourself. Reliance on the government is not going to be a viable strategy moving forward.

Good luck with your planning!

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