5 Financial Planning challenges impacting your retirement years is a must read for Americans who are accumulating assets for their future use. In fact, these challenges may impact when you retire, how you live during retirement and your financial security late in life when you need it the most.
There are several ominous trends that will impact you. Financial planning can increase your awareness of the trends, but it will not solve many of the challenges you and millions of other Americans will be facing in the next 30 years.
Your solution is to accumulate maximum assets during your working years and take enough risk during retirement to offset distributions, inflation, and expenses.
1. The Demise of the Pension Plan
Our parents worked for companies that provided defined benefit plans. 100% of the contributions were company money and the net worth of companies guaranteed the payment of benefits for the rest of their lives. This plan has gone the way of the now extinct Dodo bird. In its place are 401k plans that are a combination of company and participant contributions. All of the risk of the plan has been transferred from companies to participants. Consequently, your financial plan cannot predict how much money you will have for retirement until you are close to your retirement date.
2. Social Security
We have all read the stories that Social Security will be bankrupt by the late 2020’s. This may or may not happen, but it is not a stable platform of benefits. Chances are weak politicians will continue to kick the problem down the road for future generations, but eventually the problem will have to be dealt with. Politicians can only defer the start of Social Security payments for so long before people become incensed about shrinking benefits as payroll taxes continue to climb. Financial planning cannot predict the solvency of this retirement benefit. It pays to be conservative so you have to accumulate even more money in your various savings accounts.
3. Rising Longevity
This may be the most onerous trend of all. People are living longer so their assets have to last longer, in some cases 30 years or more. Plus, Americans will have to take more investment risks during working and retirement years to maximize their accumulation of assets. And, they will no longer have the luxury of spending principal as they approach the latter stages of their lives because they will not know how long those latter stages will last. To be conservative their financial plans for latter stage retirement should show those years to be incredibly expensive.
4. Medical Expenses
This country already has a huge problem, but wait until millions of additional Baby Boomers, who are living longer, hit the Medicare system. Add Obamacare and you have a dysfunctional health care entitlement system that cannot absorb millions of new participants. Something will have to give before it blows up. Deferring the start of the Medicare years is unfair, but a step in the right direction. Increased co-pays by people who can afford it will also help. But, the system will eventually collapse under its own weight. Depending on age and circumstances, millions of Americas will need major health care insurance supplements to fill in the void that is created by a swamped Medicare system. You have to consider this cataclysmic event and its impact on you and your spouse.
5. National Debt
The U.S. cannot continue to accumulate debt that must be paid by future generations. It is a display of the weakness of the politicians who run this country. They will not be impacted by the debt. They have voted themselves benefit packages that really are the American Dream. It stands to reason the more money the government spends on interest payments the less money it will have available for entitlement programs. This ominous trend is already out of control and it will eventually impact every American with higher taxes and lower entitlement benefits.