by Philip Moeller
It's impossible to know what tomorrow may bring. We don't know how much gasoline prices will rise, how the various Mideast peoples' movements will turn out, or whether Donald Trump will turn his presidential polling numbers into a new reality show. Wait — we may know how that last one turns out. But for the most part, we turn the page on each new day and wait to see what the sunrise brings.
Life is different in Retirement Land. Here, there is a lot more certainty in sniffing out the major issues that will confront retirees and people getting ready to retire. Regularly, a common group of core issues is studied, reported, blogged, and tweeted about — day in and day out, week in and week out, year in and, well, you get the picture.
Here are 10 of the most commonly aired retirement issues. Beyond getting a jump on tomorrow's news, it can be to your advantage to consider these issues in your own retirement plans. Regardless of whether you're 20 years into retirement or 20 years away from it, being on the right side of these long-term concerns is the best place to be.
1. Boomers turn 65 unprepared for retirement. Hope springs eternal and so do our best wishes for aging baby boomers. Every year, the Employee Benefit Research Institute and other think tanks issue research documenting how poorly Americans are prepared for retirement. We haven't saved enough money. We don't do a good job of investing the meager retirement funds we have scraped together. We don't know how much it will cost us to live in retirement. There is much informed moaning and gnashing of teeth. Then we repeat the exercise the following year, and the next, and the next. Seriously, are you prepared for retirement? Think about what this means for you and your family. Make a plan and carry it out.
2. Americans don't understand finances and investments. Instead of studies about how unprepared we are for retirement, maybe we should spend the research money on financial literacy education. Without signing up for a Ph.D. curriculum, there are countless strong sources of financial education online as well as at a nearby college or community center. I recently did a primer on retirement planning that included links to lots of great investor education sites. Check them out.
3. Huge federal deficits threaten our way of life. Everyone is waiting for the shoe to fall on this one, but the joke may be on us. The shoe has already begun falling. The plummeting value of the dollar, which has worsened the oil-price hike, is directly linked to falling international confidence that the U.S. government will find the will or the way to seriously tackle our deficits. Deficits are also partly to blame for the preference of many companies to increase jobs overseas while U.S. employment languishes. How much more proof do we need? Our energy and economic futures are already being sapped a little bit every day. For many retirees, deficits will mean lower growth and a reduced quality of life for the rest of their lives.
4. Social Security is broke and broken. I have seen this story a gazillion times, and we don't even have a serious reform proposal on the table yet. Social Security needs to be mended, but it's hardly broken. The Social Security Administration calculates that the program can pay all promised benefits until the year 2037. Then, its reserves will be exhausted and ongoing Social Security payroll taxes will cover only 78 percent of benefits. Now, if it's judged that promised Social Security benefits are not affordable, I suppose they can be cut. But because the program is funded with payroll taxes, workers deserve a say in how much they're willing to spend to secure their future benefits.
5. When should I begin taking Social Security? In the meantime, the decision about when to begin taking Social Security tops the hit parade of financial issues that confront nearly all Americans approaching retirement. For people who are not in poor health or have family histories of early deaths, the best answer is usually to wait. Taking benefits as soon as possible at age 62 locks in payments that are only 75 percent of what they would be at age 66, which is defined as the full retirement age for the current wave of retirees. Delaying benefits at age 66 will raise them by 8 percent a year until age 70, after which benefits do not increase with age. The Center for Retirement Research at Boston College has useful guides to Social Security claiming strategies and to proposals for restoring the program to financial health.
6. Get ready for inflation. We have been seeing inflation around every corner for so many years that we've just about run out of corners. Core rates of inflation have been very low, and that's still the case despite the current run-up in food and energy prices. However, if the recovery gathers any steam — and we'd all better hope it does — we can expect inflation to become more than the specter it's been in past years. Retirees must plan for inflation. This means that the buying power of fixed incomes will erode over time. It means the real return of investments, after inflationary factors are considered, may decline.
7. Look carefully at retirement fund fees. It can be very hard to determine how much you actually pay the firms that manage your retirement accounts and mutual funds. Often, the firm with a higher fee does not do a better job of managing your money. Because fees are charged year in and year out, they can have a big impact on long-term investment returns. The funds' prospectuses provide some information and federal disclosure rules are being strengthened. Morningstar has solid information as well, although some of its best tools are reserved for people with paid subscriptions.
8. Medicare cuts would ruin seniors' futures. Seniors will face healthcare challenges for the rest of their lives. Access to care will become harder to find as the nation's growing physician shortage runs smack into rising numbers of aging baby boomers looking for more care as they get older. In addition, Medicare costs will be under relentless pressure. The health reform law aims to cut Medicare expenses over time. Proposals to cut federal deficits must include Medicare to be credible. House Republicans would replace Medicare with a voucher program in 10 years for future retirees. But even less dramatic changes would probably raise the share of medical expenses paid by seniors, particularly well-off seniors.
9. Retirees are worried about outliving their money. Just when we should be happy about regular gains in longevity, we're instead bummed out by fears that we won't have enough money if we survive to old age. Remember those annual surveys showing how ill-prepared we are for retirement? They're often linked with polling questions showing how fearful we are of outliving our money. Think there's a relationship?
10. Low interest rates hurt retiree incomes. Who'd have thought we'd be quoting interest rates on U.S. Treasury securities in thousandths of a percent? Welcome to low interest rates — the savior of economic recovery (maybe) and the scourge of fixed-income seniors. The Federal Reserve's free-money policy has destroyed meaningful returns in bonds, CDs, and other holdings with returns tied to interest rates.
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