Tough times complicate retirement
6/9/2008PITTSBURGH - Despite their best efforts to save, sacrifice, and limit their living expenses, retirees often live out their golden years with a fear of running out of money.
Falling interest rates and fierce markets have caused more anxiety among senior citizens and near-retirees hoping to live off the interest earned by their savings and investment portfolios.
"There's no doubt these market conditions are weighing on retirees," said Tim Buggy, a retirement planning specialist at AXA Advisors in Pittsburgh. "One of their biggest fears is outliving their assets."
Many people who have left the work force have probably realized their fixed income investments aren't yielding as much income as they expected, and if they need to close that gap by selling other investments at lower prices they will damage their long-term wealth and worsen the problem.
"Retirees today are different than in prior years," Mr. Buggy said. "Today, we get 401(k)s while our parents are living on pensions guaranteed for life."
Thomas J. Mackell, Jr., chairman of the board of directors of the Federal Reserve Bank of Richmond, recently wrote the book When the Good Pensions Go Away, which examines the wide-ranging consequences of shifting the retirement risk from employers to employees.
Mr. Mackell said the country witnessed over the past 25 years the deterioration of retirement income security for retirees and it has become more dramatic with the onset of the Baby Boom generation, which consists of some 77 million people who face retirement during the next 10 to 15 years or so.
"You lay on top of that the health-care crisis in this country, which is of mammoth proportions, and whatever savings retirees have will ultimately be emasculated by the need to pay for health coverage in their aging and potentially ailing years," Mr. Mackell said.
"Historically, every generation has prided itself on leaving behind a better condition than they inherited when they were born," he said. "This will not be the case for the next generation, largely because of the loss of pensions."
People are living longer, and because many people do not know how to determine if their money will carry them through old age and chronic illness, financial worries can hinder their ability to enjoy the carefree retirement they hoped to achieve.
According to the Society of Actuaries, a single female has a 62 percent chance of living to age 85. A single male has a 49 percent chance of making it to age 85.
A husband and wife have an 80 percent chance that one of them will live to age 85 and a 58 percent chance one of them will reach 90.
Many retirees mistakenly believe most of their assets need to be in income-producing assets such as bonds, CDs, and money market accounts, said Michael Kresh, author of You Can Afford to Retire.
"Very rarely is the income from any safe investments by itself enough to support retirement and cover inflation," Mr. Kresh said.
"The only way an investor or retiree will have any chance of generating enough retirement income is to remember they must be investors until the day they die."
The Block News Alliance consists of The Blade and the Pittsburgh Post-Gazette. Tim Grant is a reporter with the Post-Gazette.