Working People Need to Rethink Their Approach to Retirement Planning

By: Will Crossan

Recently, while visiting with my Mother about her retirement outlook, the changing landscape of retirement planning started to hit home. The generation retiring today is able to fall back on social security and pensions when they have been unable to accumulate an adequate amount of personal savings. But for those today, who are currently in their working years, retirement looks a lot different. Retirement used to be more predictable. You could retire comfortably on Social Security, a company pension and a modest amount of personal savings. There were higher tax rates and more tax brackets, making tax-deferral an effective retirement planning strategy. Given the new retirement landscape today, working people may need to rethink their approach to retirement planning.

Consider these facts: Without changes, by 2041 Social Security Trust Fund will be exhausted; Only 22% of today's workforce has access to a defined benefit pension plan; Fewer employers contribute to pension plans or give matching dollars for 401(k)s; The average life expectancy for a new born has increased by 10%.

Today, it is more important than ever to use tax diversification strategies that can provide tax-free income streams in retirement and guarantee an income stream for life. Using tools such as the Roth IRA, Tax-Free Muni Bonds and Cash Value Life Insurance, a tax- free income stream can be achieved, while using a Guaranteed Lifetime Income Annuity can provide a guaranteed paycheck for life.

The first step in planning is to start with a budget that allows an annual savings rate between 10 and 20 percent, depending on retirement goals and time frame. The next step is to allocate savings dollars to take advantage of the tools previously discussed.

With a little foresight and planning, working people today can still achieve a long and prosperous retirement without the aid of Social Security and company pensions.