Explore Your Retirement Landscape

Plan on Social Security as a supplement to retirement income rather than a primary source.

The younger you are, the less likely your sources of income in retirement will look like the typical 2010 retirement illustrated below.

What will be different? Social Security. Here's why:

  1. When Social Security was established in the 1930s, life expectancy was late 50s for men and early 60s for women. Retirement age was 65. Most people paid Social Security taxes for years while working but either died before collecting benefits or collected them for a short time. Today, retirees typically live — and collect Social Security — decades beyond retirement.
  2. Beginning in 2011, an average of 7,000 baby boomers turn 65 daily, the first of a wave of approximately 78 million boomers who will turn 65 by 2029.1 As a result, fewer workers are paying Social Security tax, while more retirees are collecting Social Security benefits.
  3. Social Security's costs are projected to exceed its income from 2010 to 2084. As a result, changes to keep the program solvent could include reduced Social Security benefits.2

    What does this mean for you? Think of Social Security as a supplement to your retirement income rather than a primary source.

1 Insured Retirement Institute, Boomer Expectations for Retirement, April 2011
2 Congressional Research Service, Social Security: The Trust Fund, August 2010

Next steps

Use the Social Security Benefits Calculator to help estimate your benefits for retirement planning.

Log on to the Social Security Administration's website at ssa.gov for information about benefits.

The shift from traditional pensions makes you much more responsible for saving enough for retirement.

While most public employees still have pensions, private-sector employers have largely shifted from traditional pensions — defined benefit (DB) plans — to defined contribution (DC) plans, such as 401(k)s,1 over the last quarter century.

How does this transition from DB to DC plans affect your retirement? You may be much more responsible for your retirement than previous generations were. Look at the differences between the two types of plans.

Traditional DB plans generally

  • Guarantee a specified monthly benefit for life when you retire.
  • Make the employer responsible for decisions about how much to contribute to the plan and how to invest the money.
  • Receive federal insurance protection through the federal Pension Benefit Guaranty Corporation (PBGC) if they are private-sector plans.

DC plans generally

  • Don't guarantee a specific benefit amount at retirement. Instead, you receive your retirement account balance, which is based on contributions plus investment gains or minus investment losses.
  • Transfer the responsibility and risk for retirement savings to you.
  • Make you responsible for decisions about contribution amount and types of investments.
  • Aren't protected by federal insurance.

Notice key concepts missing from the DC list:

  • Guaranteed benefits
  • Employer responsibility for investment decisions
  • Federal insurance protection

That means DC plans put you in charge of retirement planning, making investment decisions, managing investment risks and making sure you have enough money saved to last your lifetime — all without PBGC protection.

1 In addition to 401(k) plans, DC plans include 403(b) plans, employee stock ownership plans and profit sharing plans.

Next steps

You're in charge, but you need to take charge by:

  • Making retirement planning an ongoing, hands-on, intentional priority from the time you begin working.
  • Partnering with a financial advisor to help you avoid investment, planning and tax pitfalls that can sabotage your efforts to save enough for retirement.

Learn more about the PBGC at pbgc.gov.

Living longer means your retirement savings must last longer.

We hope for long lives for ourselves and loved ones. But today's longer life spans are a challenge when you're planning for retirement because your savings have to last longer. Look at these life expectancy numbers over the last century.

U.S. Life Expectancy Has Increased Since 1940
  Men Women
1940 61.4 65.7
2009 75.6 80.2
Increase 14.2 years 14.5 years

Source: 2010 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds

Think about the length of your retirement this way:

  • A man reaching age 65 in 2010 can expect to live to just over 82, on average.
  • A woman turning age 65 in 2010 can expect to live to almost 85, on average.
  • About one out of every four 65-year-olds in 2010 will live past age 90, and one out of 10 will live past age 95.1

1 ssa.gov

Next steps

Get an idea of how long your savings may have to last with the Life Expectancy Calculator.

Your retirement plan needs to outpace inflation to maintain your purchasing power and income.

The inflation rate measures price increases of goods and services and the resulting decrease in purchasing power over time — remember the 8-cent stamp? Although recent inflation rates have been relatively low, the unpredictability of inflation rates makes retirement planning more challenging.

Inflation also affects your income. During retirement, you'll want to replace the income you're earning when you retire, not the income you're earning now. As the graph shows, inflation could have a dramatic effect on income between now and retirement. With an inflation rate of just 4% a year, a retiree earning $50,000 today may need to more than triple his current income of $50,000 to $162,170 to maintain his present standard of living in 30 years.

Factoring inflation into your retirement planning may help your savings last for as long as you live.

Past performance cannot guarantee future results.

Next steps

Deflate inflation's effect by working with your financial advisor on strategies that may help you hedge against inflation, such as:

  • Estimating the effect of inflation on your retirement. Choose an inflation factor that fits the level of risk you're ready to assume in a worst-case scenario.
  • Planning for diversified sources of income because some sectors of the economy may do better than others.
  • Putting some of your savings into investments that have historically outpaced inflation.
  • Investing in a mix of stocks and bonds appropriate for your risk level.
  • Creating a diversified investment portfolio appropriate for your risk level.