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Layin’ It on the Line: Why retiring in today’s economy isn’t what your parents faced — and what you can do about it

By Lyle Boss - Special to the Standard-Examiner | Oct 9, 2024

Photo supplied

Lyle Boss

Remember when retirement meant a gold watch, a pension and a permanent spot on the golf course? Your parents likely followed a straightforward path: work hard for 40 years, retire with a pension, and live out their golden years without too much financial worry. Unfortunately, things look a little different for Baby Boomers and today’s retirees.

The economic landscape has shifted dramatically since your parents’ retirement. The cost of living is higher, pensions are rare and Social Security benefits may not stretch as far as they once did. Add in inflation, market volatility and the rising costs of healthcare, and you’ve got a retirement environment that can feel downright overwhelming. But don’t worry — while retiring today presents new challenges, it also brings new opportunities. Here’s a look at what’s changed and, more importantly, what you can do about it.

  1. The decline of pensions and rise of 401(k)s

One of the biggest differences between your retirement and your parents’ is the lack of pensions. Back in the day, many companies offered defined-benefit pensions that guaranteed a lifetime income. It was a safety net that allowed retirees to live comfortably without worrying too much about the stock market or managing investments.

Today, pensions are a rarity. Instead, most of us have had to rely on 401(k)s or IRAs to save for retirement. While these accounts offer more flexibility and control over your investments, they also shift the burden of planning and managing your retirement income onto you. Your parents didn’t have to worry about how much to withdraw each year or whether their money would last — these are uniquely modern concerns.

What you can do

If you haven’t already, now’s the time to develop a clear strategy for withdrawing from your retirement accounts. The 4% rule — where you withdraw 4% of your savings each year — used to be a popular guideline. However, with today’s market volatility and longer life expectancies, you may need to be more flexible. Consider working with a financial advisor to create a sustainable withdrawal plan that factors in market conditions, inflation and your unique lifestyle needs.

  1. Longevity: We’re living longer, and that costs more

Here’s some good news: We’re living longer, healthier lives than previous generations. The not-so-good news? Longer lives mean more years to fund in retirement. Your parents may have retired expecting to live another 10-15 years, but for Baby Boomers, retirement could last 20, 30, or even 40 years.

Longer lifespans mean that your retirement savings need to last longer, and the cost of healthcare — especially long-term care — is much higher today than it was for your parents. This puts extra pressure on your nest egg and makes careful financial planning even more critical.

What you can do

Start by making sure your retirement savings are invested in a way that balances growth and safety. Yes, you want to avoid unnecessary risk, but keeping all your money in low-yield investments like bonds or cash might not keep up with inflation, especially over a 30-year retirement.

Fixed index annuities can be a great tool here, offering the potential for growth while protecting your principal from market downturns. These annuities can also provide a guaranteed income stream, helping to ensure you won’t outlive your savings. Additionally, consider long-term care insurance, which can help cover future health care costs without draining your savings.

  1. Inflation and the rising cost of living

Inflation is a silent wealth killer. Your parents likely retired in a world where inflation was relatively stable and their pension kept pace with the cost of living. In today’s world, however, retirees face the potential for high inflation that erodes purchasing power over time. This means that your savings may not stretch as far in the future as they do today.

The cost of healthcare, housing and daily necessities continues to rise, and this hits retirees on fixed incomes especially hard. You may have enough to cover your expenses now, but what happens in 10 or 20 years?

What you can do

To counteract inflation, make sure a portion of your retirement portfolio is positioned for growth. Equities (stocks) tend to outpace inflation over time, so consider keeping some of your investments in the stock market even during retirement. Diversifying into inflation-resistant assets like real estate investment trusts (REITs) or Treasury Inflation-Protected Securities (TIPS) can also help protect your purchasing power.

Additionally, it’s essential to revisit your budget regularly. Keep an eye on your spending and look for areas where inflation has crept in. Adjusting early can help avoid financial strain later.

  1. Social Security: Not the safety net it once was

Social Security used to be a cornerstone of retirement income, but for many retirees today, it’s only a piece of the puzzle. For your parents, Social Security might have been enough to cover most, if not all, of their living expenses. However, with the rising cost of living and the fact that Social Security benefits haven’t kept up with inflation, today’s retirees often find that it covers only a fraction of their expenses.

While Social Security benefits are adjusted for inflation through cost-of-living adjustments (COLAs), these increases often lag behind real-world price hikes in healthcare and other essentials.

What you can do

If possible, consider delaying taking Social Security benefits. Each year you delay past your full retirement age (up to age 70), your benefits increase by approximately 8%. This can make a significant difference in your monthly income, especially in the later years of retirement.

Also, don’t rely solely on Social Security. Make sure you have other income sources, whether it’s from a part-time job, rental income or dividends from your investments. The more diversified your income, the better prepared you’ll be to handle the ups and downs of today’s economy.

  1. The role of debt: A modern retirement dilemma

Many of today’s retirees are entering retirement with more debt than their parents ever did. Whether it’s a mortgage, credit card debt or even lingering student loans for children or grandchildren, debt can significantly impact your ability to enjoy a comfortable retirement.

Your parents likely paid off their homes before retiring and avoided taking on new debt. For today’s retirees, the reality is often different, with many still paying off mortgages or other debts well into retirement.

What you can do

If you’re carrying debt into retirement, make paying it off a priority. High-interest debt, like credit cards, can quickly drain your resources. Work with a financial planner to create a plan for reducing or eliminating your debt while balancing your retirement income needs.

Conclusion

While retiring today may be more complex than it was for your parents, you also have more tools at your disposal to navigate the changing landscape. By staying proactive, managing your investments wisely and planning for the long term, you can still enjoy a financially secure retirement.

The key is flexibility. The world is changing, and your retirement plan should change with it. But with the right strategies in place, you can face these challenges head-on — and make your golden years truly shine.

Lyle Boss, endorsed by Glenn Beck as the premier retirement advisor for Utah and the Mountain West States. Boss Financial, 955 Chambers St. Suite 250, Ogden, UT 84403. Telephone: 801-475-9400.