Retirement Crisis: Causes and Solutions

Hey welcome to this segment on the retirement crisis, causes and solutions. Well we might as well start with some of the causes of this retirement crisis. It’s not going to be a bucket of joy, but we’re just going to throw it out there. So what’s the first one? People are not, workers are not saving enough for retirement. The second thing is that they’re drawing down their nest egg too quickly. Pensions have become increasingly rare. There’s problems with Social Security on the horizon as to you know, the ability for Social Security to pay out and keep those incomes at the same level. At the end of this decade, there’s going to be 73 million people that are ages 65 and older. That’s the Baby Boomers generation. People are living longer. Health care costs are rising rapidly. How are we going to pay for all of that stuff that they need? Markets, obviously are in turmoil and have a lot of volatility. They can be awesome. They can be terrible. But that fluctuation creates a lot of fear in people that are retiring. And then finally, I think the biggest crisis of all is that there’s like an education gap. What happens is people you know, they want to have strong opinion and sometimes people with strong opinion, low information are the most dangerous people. And when I watch retirees come in, they’ll be listening to all of the different information that they have available. And then they take all of this data in and they might latch on to somebody that has a super strong opinion, but actually after you dig deep, they really don’t have a lot of information. You know, it might not be somebody that you want to trust. And so just finding somebody to trust to educate you on your plan and your solutions and being able to teach you to the point to where you can make a decision. That’s when this job as a Financial Planner and Financial Advisor is done right is when you can teach the point of a decision, educate that far. So let’s look at some solutions. Okay, the first one is that currently 40% of workers are not saving enough for retirement. That’s obviously a large amount of workers. And so what the government is doing and they’re trying to pass some legislation and they’re really trying to make this a little bit automatic on the savings side, as people try to address is this retirement crisis. So what they’re doing through like maybe Secure Act and some different legislations, is they’re trying to make it easier for employers with 401K plans or 403 plans to auto enroll their employees. They’re also making it available to where they can auto escalate their savings, like maybe on like a 2% increase each year. Just set it and forget it kind of plan. They’re also using these target date funds that say hey, when do you think you’re going to retire? This is what plan you’re going to go into. And it’s kind of a set it and forget it kind of plan. But all of that is to try to save up these bigger nest eggs, so when people retire, they have some options. Simple IRAs is another, smaller employer plan that could be available to help people save more. Okay, the next thing is the biggest fear is like running out of money, spending too much money. Well the way to conquer that fear and avoid that is to figure out your withdrawal rate. Here’s how simple the withdrawal rate can be. Let’s do a little bit of homework on what you think your income is going to be in retirement. What you want to spend in retirement. And you take income minus spending and that’s what you’re going to be taking from your nest egg. So, let’s say that you had $40K of contractual income. You want to spend $65K. That means you have a $25K need income gap. Take that number. $25K, divide it by your portfolio. That will be your withdrawal rate. So if you had $25K a year, you had a $500K portfolio, that would be a withdrawal rate of 5%. Whatever the withdrawal rate is, you should figure that out. That’s a number that you want to know. The next thing would be for income and Social Security. You know the government has different deadlines as to when Social Security is not going to become solvent. And it might be a decade or less away. So what they’re working on are where are the potential solutions for that. Because you know obviously as you get into retirement and you have this dependable, contractural life time income, you want to know how much you can trust that. And if that were to be either level off or decrease, that’s going to impact you know, your spending and withdrawal rate and compromise your retirement planning. And so there is a really cool website called “the committee for responsible federal budget.” And what they do, is they give you the ability to pick some different variable on what would make Social Security solvent and how Legislators could change just a couple of policies and then make that a much more predictable pay-out, not only for the current Baby Boomers, but also the future generations. And then finally, just closing that income gap. That’s something that we get to specialize in. And you know, we have a lot of tools here at Centennial Wealth, where we can take your individualized numbers. We can put into this program, we can boil all the way down to one number. And it’s the rate of return that you would need to have in order to never run out of money. And it’s incredible. To be able to take all of these different variables, boil it down to one little thing and then say okay, cool. That’s going to help me make a lot of decisions because I know what I need to do to make a plan that lasts. And if you’re ever wondering or worried about something, please give us a call. That’s why we’re here. We love to educate. Have a great day.