Retirees Face A “Pension Crisis” of Their Own

The comments below are an edited and abridged synopsis of an article by Lance Roberts

Currently, 75.4 million baby boomers in America—about 26% of the US population—have reached, or will reach, retirement age by 2030. Unfortunately, the majority of these individuals are woefully under-saved for retirement and are hoping for compounded annual rates of return to bail them out.

It isn’t going to happen, and the next bear market will wipe most of them out permanently.

Roberts’s analysis reveals the important points individuals should start giving serious consideration to:

• Lowering expectations for future returns and withdrawal rates.
• With the potential for front-loaded returns going forward unlikely, increase savings rates.
• The impact of taxation must be considered in the planned withdrawal rate.
• Future inflation expectations must be carefully considered; it’s better to overestimate.
• Drawdowns from portfolios during declining market environments accelerates the principal bleed. Plans should be made during up years to harbour capital for reduced portfolio withdrawals during adverse market conditions.
• Future income planning must be done carefully with default risk carefully considered.
• Most importantly, drop compounded annual rates of return for plans using variable rates of future returns.

In this central bank-driven world, with debt levels rising globally, interest rates rising, economic growth weak with a potential for a recession and valuations high, the uncertainty of a retirement future has risen markedly. This lends itself to the problem of individuals having to spend a bulk of their retirement continuing to work.

Of course, this could be why there are currently more individuals over 65 still in the workforce than ever before.

There’s also the fact the majority of Americans don’t have $1 million saved for retirement. For most it is less than $250,000. But that is an entirely different problem.