Income Retirement Plans The Demographic Shift
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2. Income Retirement Plans

Transition to Retirement

Boomer man and womanAs Boomers transition to retirement, many will be forced to finance their healthcare and therefore need income retirement plans. For every four Boomers in retirement drawing a pension only one worker will be paying in! With these rising costs, a lifetime of savings could be wiped out with one serious illness unless preventative measures are put in place. We are seeing the removal of the former safety net when the two primary sources of retirement income was a pension plan and Social Security.

Fewer Retirement Plans

However, the number of pension plans has been declining anyway because many employers are not providing retirement plans to their employees. Also, fewer new employers adopt these plans when they startup. According to the Employee Benefit Research Institute, from 1992 to 2001, the number of family heads participating in pension plans declined from 59.3% to only 38.4%. These percentages have no doubt decline further in the last eighteen years. Meanwhile, over this same period, the number of family heads participating in defined contribution (DC) plans, such as 401(k) or RRSP plans, increased from 57.8% to 78.7%. So some workers are sensible enough to save for their future.

Income for Life

While income retirement plans are intended to provide guaranteed income for life, 401 and RRSP plans are intended to build wealth in an income retirement plan, with no guaranteed source of retirement income. Thus, Boomers and their advisors must learn how to convert savings into income that will last through retirement. The good news is Boomers have contributed more to IRAs, Roth IRAs, and RRSPs than all other generations combined. While these accounts are intended to provide savings and wealth accumulation, they can be converted into income along with pension balances.

Social Security

The other source of income, Social Security, currently replaces only about 42% of income, which is substantially lower than the 70-80% replacement rate that many financial planners believe is required to avoid a drop in standards of living during retirement. The ever-increasing drain on this pay-as-you-go system has created the real possibility that future Social Security benefits will replace an even smaller fraction of pre-retirement wages than they do today. Frighteningly, experts project that many social security funds will be exhausted by 2040. In the past, financial advisors and Baby Boomers focused their efforts on wealth accumulation now it is income for retirement.✞

Retirement Saving Income

Change in retirement, saving and income will deeply affect the Baby Boomer Generation. The vexing problem with living off of your savings is that no previous generation has ever had to perform this feat. Previous generations had income from pensions and Social Security throughout their retirement years and any savings were considered a bonus. They didn't have to "live on their savings" alone, so there is no past model to learn from when it comes to converting savings to income. The question then becomes, how much of your savings should you spend each year? If you spend too much, you may find yourself existing on meager Social Security benefits, which won't buy very much of anything.

Lifestyle Deprivation

Alternatively, if you spend too conservatively, you could deprive yourself of the lifestyle you worked for. Unfortunately, the financial experts we've relied on for so long have been trained in ways to build savings and not on the best means to access them. Therefore, converting your accumulated savings into income that you will not outlive is a challenge that you will need to face. For instance, if you become a grandparent, your financial objectives may change from a simple, guaranteed-income design, to one that will leave some of your wealth for your beneficiaries. Of course, the other factor is the value of homes. Though they may have skyrocketed in recent years we all still need somewhere to live. Hence there is a trend from city to country where cheaper accommodation may be found. A further factor is the current interest rates. When they start to rise, as they surely will, a mortgage will get too expensive to carry along with other loans, the only redeeming factor is that savings may earn a little more but probably not enough to make a difference.

Retirement Income Change

Baby Boomers 1946-1964How the retirement income change will affect the Boomer Generation. David Rando writes in "Boomers: Twisting The Retirement Mindset" that in 2007 "Change is brewing in retirement and income planning for the Baby Boomers generation due to unique factors such as a longer life expectancy and a different level of savings than any other generation to date coupled with the need for new sources of guaranteed income. How Baby Boomers in Canada and their advisors adapt to these changes in developing personal pensions will determine the type and quality of the boomers' retirement and, quite possibly, the wealth or otherwise of the generations following."Baby Boomers in Canada expected to reap the rewards of parents who sold houses whose values had increased four or five times. Unfortunately, while waiting for their rewards the price of accommodation had also increased and many Boomers are forced into smaller and smaller homes. "Tiny Homes" are becoming the norm.

Men and Women

In Canada and the United States, the Demographic Shift is profoundly changing the course of the Anglican, Roman Catholic and United Churches. Other non-mainline and smaller denominations like the Pentecostals, Baptists, Salvation Army, and Presbyterians will not be impacted in quite the same way but will still feel the ripple effect as society becomes more and more secular and anti-Christian. Church-going is not a popular thing to do anymore. These Protestant congregations typically do better in keeping the involvement of their children and teens, and this may be key to helping them survive in the coming thoroughly secular society.

"Income Retirement Plans"
by Ron Meacock © 2019

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