Is It Me?

Or does it seem that just about everyone in America is planning to retire in the next few years? If you watch television or read magazines of almost any kind, you will see constant stories about impending retirement: Are people ready for retirement; What can they do now to get ready; etc.

Of course, not everyone is retiring during the next decade. After all, there are still law firm associates. But the large cohort called the Baby Boomer Generation is approaching retirement and, just as in other times in the history of that generation, it will treat the circumstances it is facing as the most important in the nation’s history.

There are varying views as to what retirement will be like for the Baby Boomers and what effect it will have on the rest of society. Many reports in the popular media suggest a need for more saving and investing. But there have been scholarly studies suggesting that those about to retire are well prepared for it. Are they both right, or both wrong?

A study, to be published later this year in The Journal of Investing, was recently concluded by three individuals connected with Barclays Global Investors, and it provides some valuable insights on the status of retirement preparation and on the effects of changes in elements of that preparation.

The authors describe several ways of measuring the state of retirement preparation, including income replacement rates and comprehensive wealth analysis. They note several disturbing trends: the disappearance of defined benefit pension plans, the decline in personal saving rates and the large proportion of wealth represented by home equity. Not surprisingly, the result is to reduce the stability of retirement security for many people.

Given the long-term insecurity of government transfer programs and the importance of reducing dependence on home equity, the authors suggest several techniques for improving preparation for retirement. These include finding ways, such as automatic enrollment and default contribution rates in retirement plans to increase retirement saving and improving the investment choices made for retirement funds through lifecycle and targeted retirement strategies. Finally, the authors stress the importance of individuals taking a more active role in improving their retirement security. This is certainly the key point: Retirement security is the individual’s responsibility and problem. It is not a societal problem, as to which the individual can expect a societal solution. It’s up to the individual to ensure a comfortable retirement, even in the face of cutbacks in government programs.

Robert H. Louis
Saul Ewing
http://www.saul.com/

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