It feels like a scene from Monty Hall's Let's Make a Deal, only the consequences are far greater than leaving a game show with 50 goats or even nothing at all.
Let's start with an easy Door Number One. If you are not yet 65, it is very likely that your "retirement years" -- whatever that means -- will be longer than your working years. When Social Security was adopted three-quarters of a century ago, life expectancy was not much beyond age 65 -- "normal" retirement age.
Now, while mathematical life expectancy is creeping up, actual life seems to be extending at a rapid rate. It is not unusual to know more than one person who is not only over age 90 but still healthy, hale and hardy -- enjoying life to its fullest. It's a safe bet that many baby boomers, members of a generation now retiring at a rapid rate, are going to be sharing adventures into their 90s and even beyond the century mark.
A more difficult Door Number Two. How are we going to do this? How many are going to run out of funds before they slow down and have a lesser need for funds?
Some damning thoughts. At a mere 3 percent inflation, the cost of living doubles in 24 years, never mind thinking about 30 years or more. And given the historic, if not hysteric, rise in health care inflation, it may end up being less than 24 years. And none of this provides anything for the next generation -- or generations.
Well, there is always government. Right. The baby boomer retiree population bubble is not going to burst and go away. The point is, what will be the cost of paying Social Security benefits to folks who might at some point outnumber the folks who are going to be paying the taxes to support the program? Will the number of "seniors" voting outweigh those who do not want the tax burden?
What about employer-sponsored retirement plans? With the overwhelming shift from defined benefit pensions to 401(k) and other tax-qualified savings plans, the experience has been underwhelming.
It is amazing to see how many do not take maximum advantage of the programs, even to the extent of giving up employer matches rather than making their own contributions. Even worse, there is some data that show younger people, especially when changing jobs, cash in their plans, paying not only income taxes, but a penalty for early distribution as well. The loss of the early years of compounding causes permanent damage to the ability to accumulate substantial sums.
An even more difficult Door Number Three. The burden is on us. We need more capital to retire like our parents did than they needed. Not only because we don't have the outside help from employer plans and maybe less in the way of Social Security (as a percent of former income), but because we have the pressures of today's living expenses. And maybe we are taking care of our parents and providing college and technical educations for our children, who are staying home longer than anticipated.
Suggestions are easy, it is the doing that is the hard part, but we have to find a way to do it.
We need to maximize tax-favored savings opportunities as early as possible and for as long as possible. We need to save more and invest wisely, even if that wisdom includes taking measurable and reasonable risks, and deferring near term gratification that we really can't afford, such as that extended vacation or the living room furniture by a fine Italian designer.
We may need to work longer. Maybe age 62 or 65 is too soon. As baby boomers age and actually do retire, the workforce is going to be more strained than it is today, leading to creative opportunities for maintaining employment, perhaps part-time, job sharing or fixed-term contracts.
Barry Koslow, JD, is president and CEO of MKA Executive Planners, a Massachusetts-based executive benefit and retirement planning firm. He can be reached at bkoslow@mkaplanners.com.