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Retirement Planning > Retirement Investing

The new retirement

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OK, here’s the news of the day: No longer will Americans be able to work until a predetermined age, whether that age be 55 (yeah, right) or even 65.

There is a new world order, so to speak, and pretty much everyone will be rolling up their shirtsleeves and keeping them rolled up for a long, long time. Don’t believe me?

Check out this report that hit the SMA edit desk: These latest statistics show most Americans believe they will not be able to afford retirement anytime soon. The annual Retirement Confidence Survey, conducted by Matthew Greenwald & Associates, found that only 13 percent of respondents feel very confident that they will enjoy a comfortable retirement, the smallest percentage since the survey began in 1993.

Respondents expect to work longer due to the economic downturn, with 28 percent of workers reporting that in 2009 they pushed back their expected retirement date. Furthermore, 89 percent of those who are delaying retirement indicated they would do so for financial reasons.

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According to Robert J. Krakower, CFP, author of Redefining Retirement for a New Generation, the old model of retirement no longer applies. Krakower believes that would-be retirees must adopt new views of retirement planning if they hope to retire on time. “Forces such as increased life expectancy, the sheer size of the baby boom generation and the massive replacement of pensions with 401(k) plans, shift the risk away from the corporations, where it used to be, and onto the shoulders of individuals,” he said.

The current generation facing retirement, the baby boomers, face risks that previous generations did not, namely outliving one’s money. Today, retirees can hope to live 30 years or more in retirement. Retirees receiving Social Security constitute a much heavier burden for the workforce to bare, placing that income source at risk. This situation is aggravated by the size of the generation entering retirement, which will result in the most new retirees in American history. As a result, financial planners face increased risks in crafting retirement scenarios for their clients.

The traditional source of retirement income has also shifted, creating new challenges. Krakower notes,
“The demise of the old pension plan and the rise of the 401(k) represent a new retirement risk. Now, individuals must cope with the risk that bad investment decisions can have catastrophic consequences for their lifestyle in retirement.” In short, seniors will need to lean on advisors more than ever as they reevaluate their assets and figure out how they plan to make them last.