The New Way to Plan For Retirement

Why It Matters:

  • The way your retirement savings are funded is changing.
  • People are living longer and need more money to cover extended retirement.
  • Being prepared for the new reality of retirement is the best path to a secure future.

Kastle Waserman tkc.profilePicture Written by: Kastle Waserman | Transamerica
July 18, 2018

2-3 Min readClock Icon

If you haven’t put much thought into your retirement savings other than planning to collect social security or making some small contributions to your 401k, it may be time to take a look at the new reality you’re facing.

People entering retirement have long looked to three financial sources — social security, employer-sponsored benefits such as pensions, and their own retirement savings — often referred to as the “three-legged stool.” Traditionally, most of the funding has come from the first two. But over the past few decades, the stool has lost its stability.

As two of those three legs start to give way under the shifting elements of retirement, securing your retirement is becoming more about self-funding than collecting government and employer benefits. Additionally, as life expectancies continue to increase, people will need to save more money for longer retirements.

A new study by the Aegon Center for Longevity and Retirement, looked at global perceptions of retirement and new realities in longevity, workplace trends, and healthcare. The study, “The New Social Contract: a blueprint for retirement in the 21 st century,” surveyed workers globally to offer a detailed description of top concerns about retirement. It found that today’s generation of workers is losing faith in the current system’s ability to provide retirement income security.

These shifting perspectives on retirement are based on some key factors and global trends:

  • Reductions in government retirement benefits.
  • Reductions in employer-sponsored retirement benefits.
  • Increased life expectancy.
  • Volatility in financial markets.
  • Changes in labor markets.

Government and Employer Benefits Are In Doubt

The study expands on how “experts have expressed concerns about the sustainability of pay-as-you-go social security systems.” And people are concerned about the future of their benefits, especially with current increases in longevity and lower fertility rates leaving fewer workers paying into the system. Are you still counting on that social security?

At the same time, employer benefits and changes in labor markets are taking place. The job-for-life model of previous generations no longer exists. The study notes how “it is increasingly common for workers to change jobs several times over their careers and possibly become self-employed at one time or another.” In addition, employers are changing the retirement benefits they offer. According to the survey, “only 43 percent of workers globally say their employer offers a retirement plan that includes employer contributions and just 27 percent have access to a retirement plan without employer contribution.” What does your current employment situation offer in terms of retirement benefits?

If all this increased pressure to self-fund your retirement savings is giving you a sense of insecurity about your retirement, you’re not alone. In fact, 52 percent of Americans surveyed list running out of money as a top concern about retirement.

Life Spans Are Increasing While Healthcare Costs Are Rising

With the improvements in modern medicine and growing awareness of good nutrition and exercise, life expectancies are increasing around the world. This is great news, as the study shows most people have a positive outlook about retirement. They see it as an active stage in life to be more social with friends and family, get involved in their community, and continue working part time or launch encore careers.

However, the study also paints a darker picture as potential health-related issues rank as a major concern, especially with the rising cost of healthcare that could upend retirement savings and plans. Few people are factoring in healthcare costs as part of their retirement plan.

Things to Consider to Help Secure Your Retirement

While fixing the old stool to provide the support it should would be ideal, that is looking less and less of a realistic option. Your best move is to take active steps now to prepare for these new realities of retirement and help protect and secure your future. Laying the groundwork for a vibrant life in your retirement years starts with building your Wealth + Health today.

Things to Consider:

  • Take a proactive role in your retirement planning by prioritizing saving and investing.
  • Improve your financial literacy by taking classes, reading books and articles like the ones featured on Knowledge Place, or consult a financial professional for expert advice.
  • Diversify your retirement investments to cover yourself in case of market volatility that can put a surprise dent in your long-term plans.
  • Prepare for changes in the job market by keeping skills up to date through lifelong learning, remaining flexible, and preparing to be an independent contract worker if you lose or leave full-time employment.
  • Embrace healthy lifestyle habits to stave off health issues that could come with costly medical bills that may cause you to pull from your retirement savings.

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