The days of a former corporate employer paying a life-time pension to you and your partner are dwindling. If your retirement looms, you need to account for ever-rising prices and how long you'll need to pay them.
My father worked very successfully for 30-plus years at one company - MetLife Insurance - as was common for many of his generation. My mother now receives a monthly pension check from MetLife. She will receive a pension check for the rest of her life; mom's in the vast minority.
Your eventually former employer no longer provides your retirement income. Once, companies routinely offered pensions, aka defined benefit ( DB ) plans, under which employers calculated retirement income based such factors as a worker's years of service, age and pay.
Gone are the days: Only about one in 10 private-sector companies now provide DB plans, according to the U.S. Bureau of Labor Statistics , roughly a quarter of the companies that offered pensions just a generation ago. Pensions covered 28% of all retirees in 1979 but only 3% in 2011, the Employee Benefit Research Institute adds.
Introduction of the 401(k) plan and individual retirement accountssome 40 years ago put the burden of retirement saving squarely on you. This new paradigm shifts a potentially complex - yet vital - financial responsibility to individuals, some of whom may have no clue how to handle investments or create a dependable stream of retirement income.
With this change, two realities came to light: longer lifespans and spiraling costs of living.
Today's men who live to 65 can expect to remain alive an average of 17.6 more years ; women can expect another 20.3 years. Compare these spans with 12.3 more years for men and 14.7 for women just three-quarters of a century ago.
A married non-smoking couple retiring at 62 (the average U.S. retirement age) must now plan for - and fund - 30 or more years of retirement. This eludes people who still project life expectancy similarly to that of their parents' generation.
The second reality: Increased longevity decreases your overall purchasing power through the years. Costs of what a couple need to maintain their lifestyle will increase continually over three decades, if history is any guide; food doubled in price in the past 30 years, for instance, medical care about tripled and tuition jumped more than five-fold. The first-class postage stamp, one of the most common price barometers, increased from 22 cents in 1985 to 49 cents today.
Do we really expect these upward trends to stop? If prices rise to follow the average Consumer Price Index jumps over the past 80-plus years, today's dollar must increase to $2.18 at the end of your retirement just to keep the same buying power. Your nest egg investments need to compensate for this inflation risk.
Seek a competent financial planner to help map out your retirement money and modify your investment behavior to make sure you can live the lifestyle you want for all those years to come.
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Dan Crimminsis the co-founder of Crimmins Wealth Management LLC in Woodcliff Lake, N.J. His blog is Roots of Wealth.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
