As reported at large in recent years, saving enough money for retirement is a critical and often scary issue facing Americans today. Why? These three articles shed some light on the concerns.
Wealthy Americans Terrified of Health Care Costs in Retirement
Nearly half of soon-to-be-retired, high-net-worth Americans say they are “terrified” of what health care costs may do to their retirement plans
Thirty-eight percent of those nearing retirement say they have not discussed their retirement at all with a financial adviser. Of those who have, only one in five discussed health care costs in retirement not covered by Medicare.
“Americans—even those who have diligently saved for their golden years—are not prepared for the reality of health care costs in retirement and don’t really understand how Medicare works,” said John Carter, president of Nationwide Financial Distributors, Inc. “Too many assume their employers will continue to pay their premiums during retirement or Medicare will cover all health care expenses.”
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PSNC 2012: How Much is Enough?
Retirement readiness means participants have accumulated enough wealth to retire with dignity and “retire on their own terms,” said Erica Stebe, assistant vice president, client communication consulting at MassMutual Retirement Services, a panelist at the 2012 PLANSPONSOR National Conference.
Some participants may want to retire at age 55, while others may want to continue working. It is not just about having adequate income, but also about asking, “Are you healthy enough to retire? Are you mentally prepared to retire?” Stebe added.
Retirement readiness must be measured on an individual level rather than just a plan level because the definition varies from person to person, said David Roberts, benefits manager at Intersil Corp.
So how can participants achieve retirement readiness? And how can plan sponsors and advisers help them achieve it? For starters, Stebe said plan design and communication must go hand in hand.
A plan design with automatic enrollment at 3%, Stebe cited as an example, gives participants a false sense of security and may cause them to continue contributing the same amount throughout the years.
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For retirement, is 67 the new 65?
As life expectancies worldwide keep rising, countries around the globe may want to consider lifting the retirement age so they can continue to pay for national pension plans, the Organization for Economic Cooperation and Development said in a report.
Life expectancy at birth is expected to rise by more than seven years in developed economies over the next 50 years, the OECD says. The long-term retirement age in half of all OECD countries will be 65, while in 14 countries it is expected to range from 67 to 69. Increases in retirement ages are under way or planned in 28 of the 34 OECD countries, says the group’s Pensions Outlook 2012, published on June 11.
“Breaking down the barriers that stop older people from working beyond traditional retirement ages will be a necessity to ensure that our children and grandchildren can enjoy an adequate pension at the end of their working life,” said OECD Secretary-General Angel Gurría in a statement. “Though these reforms can sometimes be unpopular and painful, at this time of tight public finances and limited scope for fiscal and monetary policy, these reforms can also serve to boost much needed growth in aging economies.”
Headquartered in Paris, the OECD provides a forum for countries around the world to compare policies and identify best practices.
Eurozone countries are already coming face to face with the stark realities of retirement ages versus life expectancy, writes Financial Times columnist Gideon Rachman as he considers a proposal for a Europe-wide bank deposit insurance scheme. “As a senior Dutch politician who shares the German view, puts it: ‘We cannot push through a banking union when the French have just cut their retirement age to 60 and we have raised ours to 67,’” Rachman writes.
In countries including the U.S., Germany, Ireland, South Korea and Japan, large segments of the population can expect a major drop in income upon retirement because public pensions are relatively low and private pensions voluntary.
The OECD urges governments to formally link retirement ages to life expectancy, as Denmark and Italy have done, and to make greater efforts to promote private pensions.
“However, making private pensions compulsory is not necessarily the answer for every country,” the OECD says. According to the report, such action could unfairly affect low earners and be perceived as an additional tax. It views auto-enrollment schemes, such as those used in U.S. 401(k) plans, as a suitable alternative.