Friday, May 19, 2006

Will you be able to retire?

A couple days ago, PBS's aired an episode of Frontline entitled "Can You Afford to Retire?" If you did not have the chance to watch this enlightening story, I will give a quick recap here of some key points that may very well encourage you to save more for your retirement.

In summary, the study of the American Workforce conclusively demonstrates that most Americans will not be able to afford retirement, regardless of whether or not they save money in 401Ks or not, since their rate of savings is grossly inadequate for them to maintain their current lifestyle and standard of living at retirement (unless they continue to work into what should be their "retirement years" - which rather defeats the purpose of calling it retirement). This lack of preparedness occurs across a broad segment of the workforce, and includes both white-collar and blue-collar workers alike. And, most individuals think they will have enough to retire, regardless of the statistics and reality they must face.

This Frontline episode focused on the shift from company pensions to 401K plans over the past couple decades, as well as how corporations have been unloading their under-funded pension plans on the American taxpayers at an alarming rate. Right now, the PBGC, or Pension Benefits Guarantee Corporation (read: yet another taxpayer funded corporate bailout corporation), is $23 Billion in the hole. This is a result of massive corporate Bankruptcy filings (like the United Airlines filing) that allow companies to drop massive amounts of pension-debt onto this government agency during their (Chapter 11) "restructurings". The most frightening fact is how much under-funding of corporate pensions still exists that has yet to be dumped on the PBGC -- total under-funding has jumped from around $100 Billion USD to nearly $450 Billon in just the past 4 or 5 years! Why should this concern you? Well, aside from the fact that you the taxpayer will be taking on even more debt for these bailouts, if you happen to rely on a corporate pension that ends up being turned over to the PBGC, be ready to see your monthly benefits drop considerable, thus jeopardizing your retirement lifestyle.

Regardless of the pension issue, Americans in general are not prepared for retirement. They nearly all underestimate what funds will be needed for retirement. You essentially need to put away 15% of your earnings per year at a minimum (some experts recommend 25%!) to maintain your standard of living into your retirement years. And, this means you must save NOW! The longer you wait, the higher that annual savings contribution must be, until you finally reach a point where it is impossible to defer enough of your income into savings to reach your goals.

Many obstacles to a secure retirement exist, but some are within your control. Get control of your discretionary spending now, not later. Saving is a tough thing to get used to: it doesn't give you that instant feeling of satisfaction like you get when making a discretionary purchase like that $4 Smoothie or Coffee-drink you like so much, or that Cell-phone plan you so desparately need in order to survive. Make smart choices now, and the pain will be a lot less than if you have to make severe lifestyle changes in the future.

You can afford to retire, but only if you control your spending and meet substantial savings targets now.

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