Sunday 1st July, 2007


Save today to bankroll retirement

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The Million Dollar Round Table (MDRT) has earmarked August 6 to 10 as Retirement Preparedness Week, and has coined the word “Boomertirement,” to signal the looming crisis in retirement that faces the US “the Baby Boomers.”

The Baby Boomers are those individuals in their late forties, fifties and early sixties, who were the beneficiaries of a favourable US economy—post war and post recession, who had the greatest opportunities to accumulate wealth off plans such as mutual funds and the stock market.

But the experts at MDRT are now seeing that poor planning and a credit driven life style have created what could be a major crisis for retiring persons. In addition, health sector ills and social security shortcomings also threaten to augment the crisis.

MDRT held a Boomertirement Industry Summit in April this year and uncovered several recommendations, which it has rolled out to some 35, 000 of its members across the globe, for use in assisting local communities and populations.

The fact of the matter is that the majority of retirees are going to have less retirement income than they will need when they quit work. The challenges stem from: greater life expectancy—people are just living longer and modern medicine is keeping sick people alive longer. Other factors are: decreased rates of personal savings, potential shortfalls of government pension programmes, and simply because a number of pension plans are being wound up or terminated.

Recognising the challenges, the prospective retiree will have to make three decisions:

1 What lifestyle he/she will want;

2 How much income will be needed monthly;

3 How much he will need to set aside for a “lifeboat.”

The critical understanding is that to take any action at present, is bound to be better than taking none.

Maintain lifestyle

Accumulating a significant amount of assets in cash, real estate, stocks, etc is only half the solution. The second half of the solution has to do with sustainability—will the wealth you accumulate have the buying power in the future. The major points are longevity, inflation and falling investment returns.

Some ways to counteract these challenges are: prepare to continue working after the traditional age of retirement, set up automatic deductions from payroll to limit your spending and consumption, own a home from which you can leverage equity.

The Boston Centre for Retirement Research in the US developed a National Risk Index, which shows that 45 per cent of working households will never be able to maintain their current lifestyles in retirement.

One of the recommendations aimed at government is to increase the incentives dramatically, to encourage workers to save for themselves in tax free deferred annuity plans, provide incentives for workers on “contract” to save immediately and to redefine social security benefits.

In addition, employers may help by redefining the compulsory retirement age.

The crisis threatens to be so great that experts are saying that you simply cannot touch the money you must save. Further, the money you save for retirement MUST guarantee income for life. This means that you must save in a plan that will guarantee you a cheque for as long as you live, never a lumpsum in hand.

It is also significant that if you save in real estate, or equity, the real value to you in retirement is in proportion to the ease with which you can convert these assets to cash at market value.

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