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10 Retirement Concerns to Prepare For

Philip Moeller

It's impossible to know what tomorrow may bring. Another Boston. A sequester surprise. Or disasters both natural and man-made. Life is different in Retirement Land. Here, there is certainty in sniffing out the major issues that will confront retirees and people getting ready to retire. Regularly, a common group of core issues is studied, reported, blogged, and tweeted about - day in and day out, week in and week out, year in and, well, you get the picture.

Here are 10 of the most commonly aired retirement issues. Beyond getting a jump on tomorrow's news, it can be to your advantage to consider these issues in your own retirement plans. Regardless of whether you're 20 years into retirement or 20 years away from it, being on the right side of these long-term concerns is the best place to be.

1. Boomers turn 65 unprepared for retirement. Hope springs eternal and so do our best wishes for aging baby boomers. Every year, the Employee Benefit Research Institute and other think tanks issue research documenting how poorly Americans are prepared for retirement. We haven't saved enough money. We don't do a good job of investing the meager retirement funds we have scraped together. We don't know how much it will cost us to live in retirement. There is much moaning and gnashing of teeth. Then we repeat the exercise the following year, and the next, and the next. Seriously, are you prepared for retirement? Think about what this means for you and your family. Make a plan, and carry it out.

2. Americans don't understand finances and investments. Instead of more studies about how unprepared we are for retirement, maybe we should spend the research money on financial literacy education. Without signing up for a Ph.D. curriculum, there are countless strong sources of financial education online as well as at a nearby college or community center. I recently did a primer on retirement planning.

3. Federal deficits threaten our way of life. Everyone is waiting for the shoe to fall on this one, but the joke may be on us. The shoe has already begun falling. Our standard of living relative to the rest of the world has declined. China has been off-loading part of its cache of U.S. Treasury securities. Deficits contribute to such changes, and they don't send out a formal announcement in the process. For many retirees, deficits will mean lower growth and a reduced quality of life for the rest of their lives.

4. Social Security is broke and broken. I have seen this story a gazillion times, and we don't even have a serious reform proposal on the table yet. Adopting the chained CPI is a change, and a debatable one at that, but it is not reform. Social Security needs to be mended, but it's hardly broken. The Social Security Administration calculates that the program can pay all promised benefits for more than 20 years. Then, its reserves will be exhausted and ongoing Social Security payroll taxes will cover only 78 percent of benefits. Now, if it's judged that promised Social Security benefits are not affordable, I suppose they can be cut. But because the program is funded with payroll taxes, workers deserve a say in how much they're willing to spend to secure their future benefits.

5. When should I begin taking Social Security? In the meantime, the decision about when to begin taking Social Security tops the hit parade of financial issues that confront nearly all Americans approaching retirement. For people who are not in poor health or have family histories of early deaths, the best answer is usually to wait. Taking benefits as soon as possible at age 62 locks in payments that are only 75 percent of what they would be at age 66, which is defined as the full retirement age for the current wave of retirees. Delaying benefits at age 66 will raise them by 8 percent a year until age 70, after which benefits do not increase with age.

6. Get ready for inflation. We have been seeing inflation around every corner for so many years that we've just about run out of corners. Core rates of inflation have been very low, and that's still the case even as the recovery slowly gathers steam. Still, retirees must plan for inflation. This means that the buying power of fixed incomes will erode over time. It means the real return of investments, after inflationary factors are considered, may decline.

7. Look carefully at retirement fund fees. It can be very hard to determine how much you actually pay the firms that manage your retirement accounts and mutual funds. Often, the firm with a higher fee does not do a better job of managing your money. Because fees are charged year in and year out, they can have a big impact on long-term investment returns. The funds' prospectuses provide some information, and federal disclosure rules are being strengthened. Look at the new wave of disclosure statements for the funds you already own. They can tell you a lot.

8. Medicare cuts would ruin seniors' futures. Seniors will face health care challenges for the rest of their lives. Access to the care and providers you want will become harder as the nation's growing physician shortage runs smack into rising numbers of aging baby boomers looking for more care as they get older. In addition, Medicare costs will be under relentless pressure. The health reform law aims to cut Medicare expenses over time. Serious proposals to cut federal deficits must include Medicare to be credible. House Republicans would replace Medicare with a voucher program in 10 years for future retirees. But even less dramatic changes would probably raise the share of medical expenses paid by seniors, particularly well-off seniors.

9. Retirees are worried about outliving their money. Just when we should be happy about regular gains in longevity, we're instead bummed out by fears that we won't have enough money if we survive to old age. Remember those annual surveys showing how ill-prepared we are for retirement? They're often linked with polling questions showing how fearful we are of outliving our money. Think there's a relationship?

10. Low interest rates hurt retiree incomes. Who'd have thought we'd be quoting interest rates on U.S. Treasury securities in thousandths of a percent? Welcome to low interest rates, the recession-period guest who won't leave the party. The Federal Reserve's free money policy has destroyed meaningful yields on bonds, CDs and other holdings with returns tied to interest rates.

Twitter: @PhilMoeller

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