The Eliot Rose Blog
Eliot Rose Heads North To Schneider Electric Andover
Added 03/30/2017 by Jason Siperstein, CFA, CFP
Every so often we are asked to give a presentation on the importance of financial/retirement planning. This time we spoke to the folks at Schneider Electric in their Andover office. It was a great turnout! Over 80 people showed up and many more were listening online.
We started off the presentation (click here for clip) providing some background on retirement in general. What many don't know is that retirement is actually a relatively new concept! Only 150 years ago, retirement didn't really exist. Most people worked until they died or were physically incapable of doing so. Retirement didn't garner too much popularity until the 1950's. That was the first decade where more than half of people over age 65 actually retired. However, at that time, life expectancy was only 68 years old! For the lucky half that were able to retire, their retirement period was very short. Fast forward to today and retirement is something that everyone dreams about and expects. Today, about 80% of people in the U.S. over age 65 retire and average life expectancy is about 80 years old. Not only do most retire, but retirement is a huge part of one's life! This means that you need to start preparing early because it is so important to accumulate a large enough nest egg to last 15 or 30 years while you are retired!
Without going into too much detail, younger Americans need to be more diligent, disciplined, and focused than ever before when it comes to saving for retirement. There are three primary reasons for this fact.
1. Social Security benefits that many expect will most likely be reduced in some fashion in the future. In 1950, 16 people were paying into Social Security for every one retiree. In 2010, only 3 people were paying into Social Security for every one retiree. In 2010, Social Security paid out more in benefits than it received and at this rate the Fund is slated to run out in the year 2034! This means that younger Americans need to discount their expected Social Security earnings during their retirement period.
2. Employer pensions have all but gone away. If you work for the government, chances are you still have access to a pension. However, if you work in the private sphere, it is very unlikely that you will have access to a pension. The reason is simply because it became too expensive for companies to maintain pension plans and in light of that most companies terminated them.
3. Healthcare costs are increasing at unfathomably high rates of inflation. In fact, healthcare costs are expected to increase at 6.5% each year! This is much higher than your typical salary increase. Today it will cost a 65 year-old couple just shy of $500,000 in total healthcare expenses in retirement. If nothing changes to the healthcare inflation rate, you can do the math and see how much a 30 year-old couple will have to spend on healthcare in retirement!
In light of longer retirement periods, less employer and government support and high healthcare related expenses in retirement, it is more important than ever to have a financial plan and be very diligent and focused when it comes to saving and investing!
Thanks for reading and if you have any question or would like to contact us, please email us here.