A mother pushes her daughter on a tree swing

Retirement Planning

Financial Strategies For The Long-Term

The Situation

More Americans today live longer and healthier lives than ever before. While long life is a good thing, in and of itself, it does give rise to one major concern. Many people are worried about outliving their money. This is a legitimate concern. While the right retirement plan can substantially alleviate this concern, building such a plan is now a very complex process that requires specialized skills and tools.

When new clients come to Whitnell, retirement is often near the top of their priority list. But most families underestimate the complexity of retirement planning. There are numerous factors that contribute to this complexity:

  • The American economy has changed substantially in the last decade.
  • The cost of elder care requires a much larger nest egg than in the past.
  • Retirement planning has shifted from corporations to individuals, many of whom are ill-equipped to build these plans.
  • Today’s retirees want to continue an affluent lifestyle even after their income-producing years.

In the last decade, the American economy has undergone substantial changes. These changes have impacted retirement planning in ways no one could have anticipated even a decade or two ago when many retirement vehicles seemed stable and promising. Here are three important ways in which shifts in the economy have impacted retirement.

  • American families, on average, save less than do families in other countries. Much of the net worth Americans have accumulated has been through equity in their homes. Over the last several years, real estate values have plummeted, leaving many Americans with far less net worth than at the beginning of 2000. 
  • Most Americans who invested in 401k and other retirement vehicles saw a substantial reduction in the value of those plans during the crash of 2008 and the follow-on market volatility. While some of these losses have been re-gained, many individuals have not corrected their pre-crash assumptions about retirement. These assumptions impact not only the age at which someone retires but also the size of the nest egg upon retirement. Retirement planning today must reflect the realities of this changed economic environment. 
  • For years financial advisors have talked about the importance of a balanced portfolio between stocks and bonds for cash preservation and growth. However, conservative investments these days may not produce enough gains over time because of changes in interest rates. This requires younger investors to be far more aggressive in building their retirement plan. The wisdom of “set it and forget it” is really no longer applicable in this new economic landscape.

While changes to the American economy have impacted retirement planning, elder care has also become a major factor. The cost of taking care of the elderly has grown significantly faster than the cost of inflation. This creates a substantial financial risk to those who do not have enough liquidity to afford their desired level of care. This is one reason that those planning for retirement need to plan for a much larger nest egg than in the past. It is not uncommon to hear stories of people retiring with more than a million dollars and being broke before they pass away.

Another important factor in retirement is generational concerns. Many of those planning for or near retirement find themselves caught between funding their own retirement, helping their children financially and caring for their elderly parents.

Many people planning for retirement want to be financially independent so they do not negatively impact their children. But far too often these parents find they need to help their children financially even though the children are working professionals. Baby-boomers in particular feel a strong sense of obligation to their depression-era parents. If a baby-boomer helps fund elder care for their parents and continues to help their children, they often have little left over for their own retirement.

Another factor contributing to the complexity of retirement planning is who actually builds the plan. In the past, traditional pension plans offered by employers created built-in retirement programs. Most corporations employed professionals with some level of skill and experience in this area. Over the last several years, many employers have discontinued these plans. This means the burden for retirement planning has shifted to the individual. Most individuals simply do not have the skill or time to build a successful and well-thought-through retirement plan.

Many people have thought about retirement and have a picture in their mind but they really don’t have a plan for accomplishing that picture. Many people have goals. But far too few people have an actionable plan that they are executing every day that is designed to make those goals a reality. More importantly, most people have no formal means of measuring progress against their goals.

Many people are not conserving enough in their earning years, by saving and investing, to live the life they want to live in retirement. Most people do not want to decrease their lifestyle in retirement. Even those who earn an exceptionally high income are not immune from concerns for retirement. Many high-income earners have not saved and invested nearly enough for their retirement and will have to face severe lifestyle changes unless they begin planning today for their retirement.