Can You Afford to Retire ??

"I think this is a crisis in the making," says Alicia Munnell, director of the Boston College Center for Retirement Research. "I think 10 or 15 years from now, people who approach their early 60s are simply not going to have enough money to retire on."

"I would say, unless you're fortunate to be in the upper-income quartiles, that you're probably going to be in for a very rough ride," adds Jack VanDerhei of the Employee Benefit Research Institute (EBRI). "You're not going to have sufficient monies to pay the predictable expenses -- your housing, your utilities, your food -- plus the potential catastrophic medical care costs."

Half of America's private sector workforce has no employer-sponsored retirement plan; among the half that does, twice as many workers have contribution plans like 401(k)s than have lifetime pensions, a complete reversal from 25 years ago. The move from lifetime pensions to 401(k) plans has meant that employees now bear much more of the cost -- and risk -- for saving for retirement. According to the U.S. Department of Labor, in 1978 workers put in only 11 percent of total contributions to retirement plans, while corporations put in 89 percent; by 2000, the employee share had leapt to 51 percent and the company share had fallen to 49 percent.

A major driver behind this shift is a corporate bankruptcy strategy that enables companies to terminate lifetime pension plans through Chapter 11 bankruptcy. "Chapter 11 has become an effective tool for reorganizing a business," says Elizabeth Warren, a Harvard Law School professor and specialist in bankruptcy law. "It's like a knife on the surgeon's table. Bankruptcy is the official, federal, formal way to take legal promises and just slice them off."

FRONTLINE takes viewers inside the Chapter 11 bankruptcy of United Airlines. United dumped its pension plans, which were underfunded by nearly $10 billion, on the Pension Benefit Guaranty Corporation (PBGC), the federal agency insuring pensions that is running a $23 billion deficit. Because the PBGC only insures pensions up to a certain amount, many United employees and retirees saw their pensions slashed dramatically.

Robin Gilinger, a 42 year-old United flight attendant, has seen her pension drop by nearly 30 percent and her other benefits cut. Gilinger says she now expects to have to work five to 10 years longer than she originally planned. "I feel very uneasy about where I'm going to be in 20 years," Gilinger says, "And I'm afraid that I'm going to end up having to work my golden years doing things that I didn't necessarily want to be doing."
With their lifetime pensions gone, the current workers of United have joined the millions of Americans trying to save for retirement in 401(k) plans. "Most people we interviewed have no idea what it costs to replace a lifetime pension," says Hedrick Smith. "And they don't realize that as they're living longer, there is an impact on their nest egg."

To maintain their standard of living, experts say Americans will need to save ten times their annual pay in their 401(k)s by the time they retire. That means saving 15-18 percent of their salaries, every year, over an entire career.
By this standard, most Americans are simply not saving enough. According to VanDerhei of the EBRI, the typical baby boomer is approaching retirement with only three times annual salary -- enough to last seven or eight years. But with life expectancies after age 65 approaching 18 years, many retirees may be living on nothing but Social Security for a decade or more.

"The nightmare I have," says pension expert Brooks Hamilton, "is the vision of people … outliving their retirement income and being down to Social Security." And the shock waves may reverberate through the entire economy. "What holds up our economy," says Hamilton, "is consumer spending. When retirees are 20 percent of the population and run out of money, then 'poof,' there goes the economy."

The change is already happening, as retirees find they are having to go back to work to make ends meet. Pat O'Neill, a retired United Airlines mechanic, is now driving a truck after his pension and benefits were cut. Winson Crabb and Gil Thibeau, two National Semiconductor retirees with widely different financial results from their company's 401(k) plan, are both still working in retirement.

"What is the meaning of retirement if the only way you can live is to work?" asks Notre Dame professor Teresa Ghilarducci "The answer is there is no meaning to retirement anymore. We are now shifting from lifetime pensions to lifetime work. It's the end of retirement."

Please click below for full program online
http://www.pbs.org/wgbh/pages/frontline/retirement/view/

Retirement

Hello!

Before you lose the financial enthusiasm that often comes this time of year (due to New Year's, tax season, year-end investment account statements, or other reasons), I'd like to encourage you to give some attention to retirement. No matter what your age, it's never too early and never too late to work on retirement savings.

Some examples:
Young adults investing for the long term can make tremendous progress. A 22-year-old who invests $2,000/year every year through age 66 will invest a total of $90,000.
Since they're investing for the long term, they can invest more aggressively - suppose their investment earns an average annual return of 10%.
The result of $90,000 investment? -- *** $1,581,591 ***

What if that young adult had waited till age 32 to start? That would mean they would invest for 35 years - a total of $70,000.
Their result would be $596,254. Still a valuable contribution to retirement. But when you compare the two examples, it's clear that starting as early as possible does make a big difference.

Okay fine, you say - but I am way past 22 and even 32.

Suppose you're 52. You may choose less aggressive investments, since your time frame is shorter - let's estimate a 7% average annual investment return.
$2,000/year, earning 7%, for 15 years will yield over $50,000. That's not enough to fund your entire retirement, but it sure would be a nice chunk of extra money
If you invest it at 6% after retirement, that $50,000 could add $300/month to your retirement income for 30 years! Or it could be set aside for major expenses: necessities like a new roof, or luxuries like a special trip.

Even if you have only 5 years till retirement, it's definitely worth saving. Suppose you save $2,000/year, and invest more conservatively - we'll estimate a 6% return. Your result would be $11,274. If you could save $3,000/year in those last five years, you would accumulate $16,911. Either way, it will be extra money you'll be thankful for later on.

It's never too early and it's never too late to save for retirement!
Taking Control of Your Money is the way to find money to save - Keep moving through the web course to find ways to make sure your money is going to your top priorities - including retirement, I hope!

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Barb Wollan
ISU Extension Family Resource Management Specialist
311 Bank St, Webster City IA 50595
ph: 515-832-9597; fax: 515-832-9599
bwollan@iastate.edu