Retirement: The BIG Picture
By Eugene A. Luciw, J.D.

Baby Boomers face unique challenges in retirement. For example, the government and most employers are forcing workers to assume more financial responsibility for their own retirement, and questions about the viability of Social Security, Medicare and Medicaid are making politicians and constituents alike uncomfortable.

All retirement planning must also consider that inflation and longer life expectancies may prematurely deplete even the most handsome of “nest eggs”. Even as the length of time that retirees depend upon pensions and savings expands dramatically, inflation deteriorates the value of the savings upon which retirement dreams are based. Retirement can become a nightmare of fear and anxiety. Dreams are often shattered.

Retirement Realities: Unprecedented numbers of Americans are entering the homestretch toward retirement. Born in 1946, the first of approximately 75 million “Baby Boomers” turned 60 last year. Even the youngest of the generation, who are “40-something”, are thinking about retirement. Although today’s boomers have accumulated more wealth than previous generations, they still wonder: Have we saved enough? How much is enough? How do I set a budget for my years as a “pensioner”.

Other reasons for concern stem from alarming issues regarding Social Security retirement pensions. Even as the government began imposing ever-increasing tax burdens upon such benefits, it also increased not only the full retirement age for many Baby Boomers and their descendants, but also the maximum income level from which FICA taxes are being extracted. And still there is no guarantee that Social Security will protect future generations. It is reasonably certain, however, that significant limitations will continue.

There can be but little doubt, therefore, that Americans must increasingly rely upon personal retirement savings and budgeting plans. There is no choice but to use those tax-deferred and tax-free retirement savings tools that the government has provided to the public: IRAs (traditional and Roth), 401(k), 403(b) tax sheltered annuities, 437 (state and local government), federal thrift and other employer sponsored pension plans, SEP and SIMPLE plans, and supplemental personal annuity policies and contracts.

Funding the dream: How much is enough?Experts generally agree that we need at least 70% of our pre-retirement income to live comfortably during retirement. Of course, everyone has a definition of comfort, so 70% may not be enough – or, in some relatively rare cases, it may be more than enough. However, it is clear that any retirement savings plan must begin with us asking ourselves: “What do I want to do with the rest of my life?” This vision, this dream, should then fuel the process.

In each case, individually tailored savings plans will be important. Your Providence agent can help you design and appropriate plan. Nevertheless, we can offer some hypothetical scenarios of couples heading into retirement. Perhaps one of these scenarios exemplifies your dream.

The calculations presented assume that the couple has a pre-retirement income of $80,000, expects a pension of $28,000 annually and will spend its entire retirement savings during their lifetimes (A couple wanting to do more by way of helping grandchildren and leaving a legacy will have to save more). The figures also assume a 6% rate of return on investments and a 3% inflation rate.

The Homebodies view retirement as a time when they can relax and enjoy each others company. They will work in the garden, do charitable works and read good books. The mortgage will be paid off and the kids will be out of college.

·         How much is enough: 70% of their pre-retirement income, or $56,000 annually.
·         Savings needed with pension: $432,000 for $28,000 annually
·         Savings needed without pension: $864,000 for $56,000 annually
The Snowbirds, like the homebodies, view retirement as one long vacation. However, rather than stay at home, they spend their winters in the Sunbelt.
·         How much is enough: 90% of income, or $72,000 annually.
·         Savings needed with pension: $679,000 for $44,000 annually
·         Savings needed without pension: $1.1 million for $72,000 annually
The Globetrotters see retirement as the beginning of a bold new chapter in their lives. They plan to travel the world – all of it: Argentina in spring; The Alps in summer; Tuscany and the Riviera in fall; and Bali in winter. Oddly enough this hectic schedule requires earnings greater than those enjoyed in pre-retirement years.
·         How much is enough: 110% of income, or $88,000 annually.
·         Savings needed with pension: $926,000 for $60,000 annually
·         Savings needed without pension: $1.36 million for $88,000 annually

The Part-Timers have enjoyed work: the thought of idle time seems depressing. They plan on working twenty hours per week, thereby giving themselves a sense of purpose and some additional income.

·         How much is enough: 50% of income, or $40,000 annually.
·         Savings needed with pension: $185,000 for $12,000 annually
·         Savings needed without pension: $617,000 for $40,000 annually

IRAs 401(k), 403(b) TSAs, 437 (state and local government), federal thrift and other employer sponsored pension plans, SEP and SIMPLE plans, and supplemental personal annuity policies and contracts.       

In a future issue of America we will show you how these self-help retirement savings tools can assist you in your planning. Meanwhile, visit our website: www.provassn.com