Outliving Your Retirement Savings
A recent study by Ernst & Young states that 60% of middle class Americans will outlive their retirement funds if they attempt to maintain their pre-retirement standard of living.
“Many Americans envision a retirement where their lifestyle continues much as before,” said Tom Neubig of Ernst & Young. “Our work shows that this is not a realistic expectation and that, with the current state of savings and potentially very long life expectancies, many retirees will have to cut back far more on expenditures than they had ever expected.”
With the current state of the Social Security system, anyone relying solely on it’s benefit payments to fund their retirement is woefully unprepared. Sooner or later the government is going to have to reform the system, which is expected to run out of money sometime in 2041 if no changes are made.
Another growing of retirees is the threat of inflation, which can significantly devalue a lifetime of savings in a relatively short period of time if not properly hedged. Although institutional investors including large pension funds have recently garnered a lot of attention for their large capital inflows to commodities markets, they would have done a disservice to their clients had they done otherwise considering the difficult position the Fed is currently in.
While mutual funds are very popular method of saving for retirement, a bear market can spring up at anytime and with retirees constantly drawing down their savings, they can’t always guarantee that they are selling when the market is up. The days of companies offering their employees attractive pension plans are long over, companies just can’t afford the cost with life expectancies rising the way they are in this day and age.
Many Americans are starting to realize the growing difficulties in saving for retirement, hence the recent explosive growth of annuity sales. The guaranteed lifetime streams of income have a lot going for them and is the simplest way to make sure you don’t outlive your savings.
