Predicting the future is a rough sort of business to find yourself in, particularly with a world that’s begun changing more and more rapidly with every passing day. Unfortunately a lot of people on all sides of retirement find themselves having to do this very thing, having to try and figure out what directions the world will be taking them in once they’re ready to stop working. Luckily you’re not alone, and most of us are trying to maximize our options for our post-career years. Here are just a few of the ways in which retirement is changing in the next decades, to help you stay ahead of the curve:
A: Retirees are living longer than ever before.
Advancements in medical technology have increased the average life expectancy of individuals in developing nations; retirement planning is becoming more and more troublesome for both actuaries and future retirees (Smart Money, 2012). This increased longevity comes with a need to set up a matching retirement plan, particularly when some retirements are expected to last longer than the amount of time the retirees spent working. Rather than trying to predict how long your retirement is slated to last, be prepared for the longer estimate in response to these treatments and technologies.
B: Children are staying with their families longer, even after college.
According to a new study released by Oregon State University, young adults in the 18-30 age bracket are having a harder time than ever becoming financially independent from their parents (Journal of Aging Studies, 2012). This greatly affects those looking to retire while their children are still young adults, and can cause a domino effect that starts to influence generations to come. There’s no guarantee of the job market recovering or this trend changing in the next few years, so when looking at your retirement make sure to factor in all of your current familial expenses.
C: Social Security may not be around in the future.
Social Security has always been a problem politically since it has a foreseeable end; between longer life expectancies and the large baby boomer population, social security is anticipated to “face funding shortfalls in about two decades if nothing changes” (CNBC 2012). While it’s quite possible that the government will come to a viable solution to salvage social security benefits, it’s a good idea to plan for the ‘what ifs’ regardless. Plan for social security as less of a guarantee and more as a pleasant possibility so there are no unpleasant surprises down the road. Don’t have your retirement plan hinge on social security as it may crumble within the next few decades.
Retirement is changing, but that doesn’t mean you can’t still build a healthy, strong retirement plan even with a moderately uncertain future. Your retirement is something that needs to be made to last a long time and you’re allowed to take your time putting the right amount of money into it. As long as you avoid the unnecessary risks in relying on social security, plan for a slightly longer nesting period for your children and plan for your own longevity, you can avoid a few of the major pitfalls that your retirement plans may otherwise succumb to.
The first thing that every person who has a retirement plan should understand is that all retirement plans go to a named beneficiary. In other words, whoever you put on that document when you first set that plan up is solely entitled to receive those funds. Sound like a big decision? It is.
For starters, if you have a 401K you should go to your HR department and make sure that your beneficiary is current and up to date with all the proper information. If your IRA is held at a brokerage company, you should call them and make sure that their beneficiary form is suitable to you.
The more important question we want to focus on though is exactly what happens to your retirement funds if, (knock on wood), you’ve “kicked the bucket?” That is, if you “expire” before you retire, what happens to the person as they receive that money?
It is much easier to understand with an example:
Let’s say, you are married but you have recently passed away; leaving your wife a widow as well as the beneficiary to all of your retirement funds. Well, your wife is going to be faced with the find that she has the same restrictions on that retirement money as you do. In other words, those funds are not available to her until she reaches the qualifying age of fifty nine and a half. Unfortunately, if you have deceased way before expected, relying on those retirement funds as a source of income for your wife will not be applicable.
The good news is that here at Barber & Associates, we help people with a variety of different retirement plans that are not burned with the tax rules other types of plans out there enforce. Many of these plans offer the option of transferring all of your retirement monies, completely tax free! These same plans grant you with death benefits that are unrestricted, so that your beneficiaries have immediate access and control of that money. One of the things we specialize here at Barber & Associates Financial Group is determining what the most effective retirement plan is for you and for your loved ones.
Running out of money remains a big fear of the currently retired as well as the millions of Baby Boomers close to retirement. This fear seems to have little bearing on how much money someone has. The wealthier seem to fear running out as much as those who truly do have a reason to be concerned. Uncertainty about the future has never been more real.
The biggest cause of this fear is uncertainty about how to invest and the unknown about future returns on investments. The past decade of market volatility has robbed the 401ks, IRAs and personal savings of the much needed funding for a secure retirement. Many have come to face the harsh reality that what they believed to be true about investing has turned out not to be true. That is, the old “buy and hold” approach has turned out to disappoint many who found little or no growth on their money over the past decade.
The issue at hand is more than just adequate account balances. Financial security must be considered from an emotional viewpoint before and after retirement. While working, the sense of financial security comes from having a job and a paycheck. Once retired, that sense of security changes dramatically. It now becomes the reality that your financial security comes from how much money you have saved.
Resolving this fear of running out of money starts with selecting an advisor who understands both the practical and emotional risks of retirement. This advisor must be experienced in working with retirees. Most financial advisors have a focus in helping their clients accumulate their money. The expertise in managing a client’s savings once retired is distinctly different. All too often, a trusted advisor who helped a client accumulate their retirement funds does not have the training or expertise to make the appropriate changes in strategy to protect those funds against the risk of longevity.
Just as in the area of medicine and your health, getting a second opinion before making an important decision is always beneficial. That opinion may confirm that you are on the right track and thus your peace of mind is secured. Or, you may need to face the reality that what worked to get you to this point, will not be the same plan for your future. Either way, a second opinion is usually well worth the time and effort.