The Five Enemies to Your Retirement 

In my youth, my father gave me advice back in 1969. His advice was to get a job with a good company and stay there until you retire. Then when you do retire, you leave with a good company pension and a solid social security check. 

That worked well for him and his parent’s generation but not for this era. Nowadays, competition for higher corporate earnings is forcing management to re-think employee benefits. Also, our president and congress are struggling with the growing concern of a bankrupt social security system. 

So for those authority figures who told us to “work hard for 40 years” and “build up your pension plan” and “pay into social security”… times have changed. The promise of “when you turn 62 years old you’ll have more than enough to live well for the rest of your life” may not apply anymore. Now with 78 million baby boomers approaching retirement age, those promises are beginning to look like a cheap hustle.  

As you are contemplating your retirement, you need to be aware of some road blocks to a quality retirement. There are five powerful trends threatening you now. Below are the five enemies to your retirement. 

Retirement Enemy #1 - Your Company Pension Plan 

For the past two decades, US companies have been gradually and quietly cutting back on pensions. Most companies have simply been stopping or dissolving their pensions in favor of a much cheaper option: the popular 401k plan.  

While 401k plans are good, they are no match for the fully funded pension plan. A 401k plan generally costs a matched contribution of about 3-5% of an employee’s salary. Whereas the old pension plans generally would cost a company 10-15% of the salary. A huge savings for the employer! 

If you are currently receiving a pension or expect to get one when you retire, watch out. US companies have been skimping on pension fund contributions. They claimed truly outrageous returns. Some companies shamelessly cooked their books. Currently US corporations owe retirees a record $450 billion more than they can pay out. 

How did these companies fall so far behind in funding the pensions? Try the stock market crash of 2000-2002. This along with tough global competition shrank corporate. 

Anyone counting on their company pension should check the information and brace for a surprise. 

Retirement Enemy #2 - Social Security 

The news about the failing social security system has been debated for years with the same prediction - Bankruptcy. Although the US government won’t file for bankruptcy, the final results may be dire. 

So why is social security in such grave danger? How did we get to this point? To start with, social security wasn’t designed as a savings plan where each individual worker had their own pot of money to last them through retirement. Now social security has become an entitlement program. American workers have their employer withhold money from their paycheck and then match it dollar-for-dollar for a total of 15.3% of their wages. Only 12.4% goes to old age and disability while the remaining 2.9% goes to cover Medicare. 

This may seem sufficient to provide a good income for retirement. However, with total mismanagement and incompetence, our once dependable retirement source is circling down the drain.  

One action our government took years ago is to make sure that the social security benefit check remained as low as possible. They accomplished this by attaching cost-of-living increases to the Consumer Price Index (CPI). By making adjustments with core-inflation number and utilizing a deflater factor, our government has been able to convince America that inflation runs at only 2-3% per year instead of the actual inflation increases. 

Retirement Enemy #3 - Taxes 

When I began working in the financial planning field about 15 years ago, conventional wisdom was that a retiree’s tax bracket will naturally slide down to a lower bracket. That seemed to make sense until I started seeing the reality. 

What was really happening was workers needed to build their next egg to a point to have a comfortable retirement. This concerted effort now is pushing retirees up to a higher tax bracket.  

Seniors are often surprised when they quit working, begin collecting retirement income and find that their tax burden isn’t less than previously. 

Another aspect is seniors are responsible for estimates tax payments. In the past their employer was responsible for withholding taxes and making tax payments.  

Along with federal and state income taxes, there are numerous other taxes seniors must pay. To list just a few:  sales tax, gas tax, property tax, auto license tax. 

Retirement Enemy #4 - Inflation 

Inflation is the silent killer for retirement. Everyone knows that things cost more now than in the past. What they don’t realize is at what rate and the long-term effects of inflation. 

In recent years, our federal government has been telling us that our annual inflation is only 2-3%. As stated in Retirement Enemy #2, our government has a vested interest to keep inflation low to help salvage our social security system. This is what the Consumer Price Index (C.P.I.) is designed for. However, when a curious person looks back and calculates the rate of increase, he would get a much different number - generally twice as much as our government would have you believe. 

So, besides the point that inflation runs anywhere between 4-6% (or higher), why are we concerned about it? Let’s look at the dynamics of retirement. If a retiree is lucky and receives a fixed income from pensions, social security, teacher’s retirement, etc., their benefit will not increase as fast as the true price increase. 

Later into retirement, the cost to live ends up being substantially more while the pension benefits do not keep up since either they did not grow or they grew minimally. Retirees aren’t aware of this phenomenon until it’s too late. 

Retirement Enemy #5 - Longevity 

There is some good news and some bad news! 

First, here is the good news. Americans are living longer. In fact, the average life span recently increased another year. Back in 1990, the average life span was only 47 years old. Now more than a century later, our average life span is pushing close to 8 years old. 

Another aspect of the good news is we are also healthier in our later years than were our ancestors. Seniors are more active in numerous parts of their lives. Activities such as golf, tennis, racquetball, even hiking and skiing are just a few of senior’s pastimes. Seniors are also quite involved in altruistic activities in their local community. Volunteering has become a lifestyle for many.  

Now let’s discuss the bad news. Americans are living longer. “Wait a minute,” you say - “Wasn’t that the good news?” Yes, they are both. 

What’s wrong with living longer? The longer you live, the more money you will need to live on through retirement. Years ago we would run retirement planning calculations for our clients to ago 80. Now we are running calculations to ages 90 to 95. 

You might think this is extreme, but right now we have many clients in their 90’s. If they had failed to save enough, they would run out of money to carry them through old age. 

We are hearing some stories of seniors running out of their retirement nest egg. Now that you know the many obstacles to a quality retirement, you can plan ahead and work on being well informed so you can be more proactive and less reactive.