27Dec2011
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SOA Blog
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Retirement
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Top retirement stories of 2011

Many Americans reached retirement age in 2011, but that did not stop them from continuing to work. Market volatility, combined with a general lack of savings, hurt the retirement plans of many this year. Hopefully, we can learn from the “best laid plan” moments of this year and mitigate the risks inherent with our personal roadmaps to retirement. Here are some of the top stories in retirement news from this past year.

Retirement: An Evolving Concept
Call it news or just plain reality: the volatile stock market and uncertain economy has required many to postpone their retirements and remain in the workforce. Life expectancies are rising. Portfolio values are decreasing. As a result, the traditional retirement age of 65 is getting extended and the “golden years” are further from our reach. As reported by The New York TimesEdward Glaeser, “Today nearly 450,000 Americans 65 and older are unemployed and looking to work.” In the last four years, the number of unemployed elderly job seekers has more than doubled. The New York Times went on to say that “nearly 40 percent of 55- to 64-year-old Americans don’t have retirement accounts.” Those who are investing in 401(k)s and making sensible investments along the way may not be much better off than their counterparts without retirement accounts, given the market volatility and risks associated with such investments. The question that remains unanswered is: how do we ensure a lifetime of savings is not undermined by forces beyond one’s control?  Alicia Munnell, director of the Center for Retirement Research at Boston College, has proposed a new type of savings account – supplemental to 401(k)s and Social Security – that would spread such risks among workers, retirees and government.

Health Care and Retirement Concerns Converge
As life expectancy continues to increase, seniors cite paying for health care as their number one concern as they plan for their senior years, according to a survey of 1,000 older adults by AARP. Essentially, seniors are asking the question – how will I pay or out-of-pocket health care costs during my 60s, 70s and beyond? The question is a profound one as academics forecast that these out-of-pocket costs can reach anywhere between $200,000 and $300,000 after retirement. Besides saving to pay these costs, individuals should be aware of the financial implications of preventative care. Putting healthy habits “in the bank” will help bring down the costs of care during retirement.

The Life Expectancy of Social Security
The solvency of Social Security has been a political hot potato for years, but has recently received front page billing as Congress debates tax reform.  As of this writing, the Senate and the House were still at odds on whether to extend a cut in the payroll taxes that fund Social Security. While most politicians agree the tax cuts would help the economic recovery, according to ABC News, many politicians are wary about the long-term ramifications on the retirement system. When it was created in 1935, the fundamental principle behind Social Security was that the feds would take a few dollars from everyone’s paycheck, promising to pay it back once you reached retirement age – a “forced” retirement savings plan of sorts. At that point, the workforce was big and the number of older workers was small, so everyone assumed the program could continue indefinitely. However, the Social Security trustees issued a warning early in 2011 that “on its current course, the retirement fund would be empty by 2037.”

The NewYork Times recently published an interesting graphic timeline explaining the finances behind U.S. Social Security. The debate will certainly continue into 2012, especially with the presidential election in full swing, but for now the important matter is educating our family and friends on the economics of retirement and alternative ways to save.

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