Welcome to the New American Retirement

Physician's Money Digest, August 2005, Volume 12, Issue 12

As the national debate over SocialSecurity illustrates, retirement inthe 21st century won't look likeour parents'or grandparents'retirement.New rules are coming into play. Followingis a list of those new rules and what youcan expect when you do retire:

•You'll live longer. Longevity, theaverage number of years of life expectancybased on your current age, is increasing.According to the National Center forHealth Statistics, a 65-year-old Americancan expect to live another 18 years to age83 (20 years for women, 17 for men). Andeach year you live beyond age 65,longevity stretches a little bit more.

•It's a new stage of life. Not thatlong ago, people worked late into theirlife, retired to a rocking chair for a fewyears, and died. Today, people aren't onlyliving longer, they're also retiring earlier.Retirement has become a stage of lifethat can last 20 to 30 years. What youenvision for your retirement is somethingfor which you must plan and work.

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•Retirement is on your dime. Like itor not, most of us will have to fund anever-increasing portion of our retirement.Employer-paid pension plans that pay outdefined monthly benefits based on salaryand years of service are going the way ofthe dodo bird. Of the 112,000 corporatepension plans in 1985, only 32,000 are lefttoday, according to a article. Most of those pensionplans have been replaced by retirementplans such as 401(k)s, which are fundedprimarily by employees.

•Social Security won't be the same.Social Security is not likely to go away,but it is very likely to change. Most plannershave been advising their clients forsome time not to base much of theirretirement plans on income from SocialSecurity, which was never designed tobe anything more than a safety net. Yetfor 22% of people over aged 65 today,Social Security is their sole source ofretirement income, according to theSocial Security Administration. And itprovides over 50% of income for twothirds of the elderly.

•You'll need to work in retirement.Working in retirement may sound like anoxymoron, but even current retirees arereturning to the workforce. Sometimesit's for the money, but often it's becauseretirees are looking for emotional andintellectual stimulation they're not findingin retirement. A good approach is tophase into retirement by reducing full-timework to part-time or seasonal work.Another option is to change careers.

•Stretched funds last longer. Becausepeople live longer in retirement, theyneed to be more careful when it comes tohow they keep their retirement portfolioinvested and at what rate they withdrawfunds from it. Research in the financialplanning profession suggests limitingannual withdrawals to between 4% and5% of a retirement portfolio's value—perhaps a bit more if you follow certainrules and review your portfolio regularly.

•Health care costs could kill you. TheEmployee Benefits Research Institute saysthat medical costs for retirees are 5 timeshigher than what near-retirees believethey will be. Meanwhile, employer-fundedretiree health plans are disappearingor raising costs, and Medicare pays only55% of the average retiree's health carecosts. Future retirees need to think aboutmedical insurance and save more for out-of-pocket expenses.

•Prepare for long-term care. Withpeople living longer, there is a goodchance that you'll need long-term careat some point. That takes a lot of moneyyou may not have. Your retirement planshould therefore make long-term careinsurance a top priority.

This article has been produced by the Financial

Planning Association (www.fpanet.org), which is

the membership organization for the financial

planning community.