Income Retirement Plans The Demographic Shift
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Income Retirement Plans
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Transition to Retirement

As Boomers transition to retirement, many will be forced to finance their own 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 in order 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.✞

"Income Retirement Plans"
by Ron Meacock © 2019

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