by Rick Kahler
world braces for retirement crisis." This headline caught my attention because
of its tone of near-panic. It implied that the pending retirement crises was
like a hurricane or other natural disaster, striking with little warning and
beyond our control. Not so. Financial columnists like me have warned for the
past two decades that Baby Boomers are woefully unprepared for retirement.
The article itself, an AP
piece published at the end of 2013, was actually quite a good summary of the
problems looming as Boomers retire worldwide. It quotes a survey done by the
Center for Strategic and International Studies as concluding, "Most
countries are not ready to meet what is sure to be one of the defining
challenges of the 21st century."
of limiting their lifestyles and saving for retirement like their parents did,
Boomers around the world outsourced their retirement to government. Not only
did the Boomers not save, they fostered an entire culture of spending more than
they earned, a trend evident not only in their personal finances, but also in
all levels of government.
financial press often blames the Great Recession of 2008 for the coming
retirement crisis. Few reporters ever suggest that the personal and public
overindulgences of the Boomers in the decade prior to 2008 were largely the
cause of the crash. Neither the Boomers nor most of their governments have the
cash to support them in retirement. Retirees need a nest egg of 25 times their
desired annual income. Most Boomers don't
have more than three or four times that income saved in retirement plans.
to a 2010 Gallup poll, Americans are
concerned about the Social Security system but unwilling to make sacrifices in
order to fix it. A majority of respondents favored raising taxes on high
earners and limiting benefits to the wealthy. Otherwise, they didn't want to
limit benefits, raise retirement ages, or increase taxes for all workers. Given
a choice between raising taxes or reducing benefits, however, more respondents (49%
to 40%) would opt for higher taxes.
problem with this is two-fold. First, in many developed countries facing this
problem, including the US, tax rates already exceed 50% on upper income
earners, leaving little room for extra revenues. Secondly, the AP articles
notes that birth rates in most developed countries are declining "just as
the bulge of people born in developed countries after World War II retires."
This means the younger taxpayers just will not be able to foot the bill.
possible solution has three components:
- Lower taxes to spur economic activity, thus creating more jobs and ultimately increasing revenues to government.
- Increase the Social Security retirement age. When Social Security was created, average Americans lived only a few years beyond age 65. Now we live into our 80s. Increasing the retirement age to 75 or 80 would be keeping with the original intent of the program.
- Create incentives for young Americans to save. Australia is already doing this. Allow taxpayers to save up to $75,000 a year, tax-free, and allow distributions to be tax-free.
now, if you are a Boomer who has woefully underfunded your retirement plan,
putting more money away now won't make much difference unless you can save 30%
to 50% of your income. Declining birth rates, however, mean fewer available
skilled workers, so many Boomers will be able to work longer.
best retirement plan, then, might be to invest in improving your workplace
skills, shedding weight, starting an exercise program, and eating healthier.
The biggest assets Boomers may have for retirement are the skills and health to
stay in the workforce.
Rick Kahler, Certified Financial Planner®, MS, ChFC, CCIM, founded Kahler Financial Group, and became South Dakota’s first fee-only financial planner in 1983. In 2009, Wealth Manager named Kahler Financial Group as the largest financial planning firm in a seven-state area. A pioneer in the evolution of integrating financial psychology with traditional financial planning profession, Rick is co-founder and co-facilitator of the five-day intensive Healing Money Issues Workshop offered by Onsite Workshops of Nashville, Tennessee. He is one of only a handful of planners nationwide who partner with professional coaches and financial therapists to deliver financial coaching and therapy to his clients. Visit KahlerFinancial.com today!