Sunday, March 24, 2013

The American Retirement Crisis Is Real ... Doing Nothing Is Not an Option

We know about the problems with Social Security funding. We also know about the shortfalls of public employee pension funding. And we know too about the lack of adequate funds in our 401(k) accounts. In other words, we know we have a problem with retirement funding.

Add in the aging of our society and the picture is a disturbing one indeed. Providing for our oldsters and providing solid opportunities for a sound education and a prosperous future for our youngsters seems to be an impossible situation. But it's not. Not if we take the time to educate ourselves and prepare properly for our financial futures, both individually and collectively as a self governing society.

That said, the head in the sand approach now being followed by the government knows best gang and too many of our fellow Americans is a sad commentary on our current dysfunctional American system of self governance.

So let's discuss this retirement crisis problem in a straightforward way instead of running away from it or even worse than that, pretending that it doesn't exist.

3 ways to solve the retirement crisis in the U.S. helps the cause of DIY investing and financial self education, so let's take a look at what it has to say:

"You might think it’s impossible to avoid a retirement crisis in this country, especially in the wake of a report this week that shows Americans are not very confident about their prospects for having a comfortable retirement.

But Matt Greenwald, the president Matthew Greenwald & Associates, the firm which conducted the research for the 23rd annual Retirement Confidence Survey for the Employee Benefit Research Institute, thinks otherwise. Read Survey: Retirement confidence still lags.

In an interview, Greenwald outlined what it will take for the U.S. to avert a retirement crisis.

Watch Powell’s interview with Greenwald here.

Calculate how much you need

If you want to avert a personal or national retirement crisis, there’s one surefire way to do that: Calculate how much you need to save for retirement, and get others to do the very same. . . .
“Doing a retirement plan helps,” said Greenwald. “People make more accurate assessments of what they need. Most people don’t do any retirement planning and that’s something that’s very important. The people less prepared (for retirement) are the people who do less retirement planning.”. . .

How much will you need above and beyond your Social Security benefit is, of course, somewhat tricky. But Greenwald said 20 times (your salary) is a safe bet.

“When making a decision about how much to save and even how much to spend you are really making a decision about giving up some spending now to get a better lifestyle later,” he said. “And it’s the trade off that people really have to (assess).”. . .

Greenwald said studies suggest that if people make better decisions about managing their money in retirement they could get 29% more income. “That’s free money,” said Greenwald. “If we get people to be more educated about how to manage their assets, they will have more financial security…without costing the taxpayer anything.”"


Summing Up

Getting ourselves educated about retirement planning and thereby increasing our income by 29% at no cost sounds pretty good to me. {NOTE: My guess is that we can in fact do much better than the 29% of 'free income' estimated by Greenwald, but let's not quibble. The key is to spend the time to take care of our future selves while there's plenty of time to do so.}

It also seems eminently doable, especially the younger we are when we get the education. Watching the Greenwald interview take 9 minutes. So take the time and invest 9 minutes in learning more about the need for personal retirement planning and how simple and easy it can be.

Unfortunately, when we're young, we all too often think and act as if we'll never get old. Thus, we don't prepare for retirement properly and perhaps not at all. This must change.

The formula for a comfortable retirement is simple. Start saving early, invest with the long term in view, be prepared to work into your older years and don't take on unnecessary debt at an early age.

Then keep learning why too much debt can be harmful, and saving and investing for the long run will be very beneficial to the health and well being of your future self.

By doing those things, you'll understand the dangers of time inconsistent behaviors and instead use time to your advantage.

That's my take.

Thanks. Bob.

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