12/05/2014 05:03 pm ET Updated Feb 04, 2015

5 Reasons a Comfortable Retirement Is More Uncertain Than Ever

The City of Detroit recently resolved its bankruptcy case and residents and businesses in the city are looking forward to better days. Retirees, however, will have to learn to make do with less, as the Detroit Free Press reports that those covered by the general retirement system will see "a 4.5 [percent] cut to their monthly pension checks, as well as seeing the elimination of cost-of-living adjustments and a complex clawback involving an annuity savings plan."

The challenges faced by municipal retirees in Detroit are not all that different than those today's employees across the nation face, albeit much nearer term as this reduction will hit their budgets now, not in 10, 20 or 30 years.

For all but the wealthiest, a guarantee to a comfortable retirement does not exist, and changes in the law, business practices and the economy are making it all the more elusive.

The U.S. Bureau of Labor Statistics states that in the 30 years between 1977 and 2007, the number of workers over the age of 65 increased 101 percent while total employment across all age groups grew by only 59 percent. People are living longer than ever before so that explains some of the increase in older workers. But many older Americans work because they need to; without income from work, many would not be able to make ends meet.

Here are five reasons that a comfortable retirement is less certain now than ever before:

  1. The old-fashioned, company "defined benefit" pension plan is nearly extinct, and it is not coming back. The majority of companies have migrated to a "defined contribution" plan, such as a 401(k), which limits and controls the company's investment while requiring employees to set aside retirement funds from their paycheck. While in many cases the company will match contributions up to a certain percent, they no longer have the responsibility of writing checks to retirees for the remainder of their lives. For the employee, the pension plan was passive, as the company paid it on their behalf, while the defined contribution plan requires the employee to proactively set aside funds for their retirement. And then, the funds must be invested and a plan for long term distribution put in place.
  2. We want and demand more from our retirement. Previous generations of retirees were content to enjoy the leisure that retirement affords in their own home, eating meals they prepared at home, and living a somewhat frugal existence to make their retirement savings last. Today's baby boomer retirees want the same life they had before retirement. They want to dine out, travel and play sports that come with expensive equipment, lift tickets, dues, greens fees, etc. There is nothing wrong with wanting and expecting more out of retirement, we just need to be honest with ourselves about the related cost.
  3. Child expenses do not stop with tuition checks. Elderly parents are spending heavily to provide for adult children, either because the child has hit a rough patch and become unemployed, gone through a divorce or needs money to send their child (a grandchild) to college. We love our children and will do anything to support them, but this trend is sapping the elderly and near-elderly. There comes a time when every parent has to say, "I can't afford this any longer."
  4. Educational debt is a drag on retirement savings. Students who graduate today with six figures worth of student loans will be making payments for much of their working life, and that is money that will never hit the retirement account. Parents paying what are commonly $50,000 annual payments for tuition, room, board and fees for children in college are confronted by the same challenge. On this latter point, once again, we all want the very best for our children, but at some point -- perhaps barring a situation where a child is admitted to the most elite of universities -- a parent has to simply say, "you can do just as well at State U. as you can anywhere else, and that is all that we can afford."
  5. You can't count on government retirement and health programs to be there for you. As the age of the average worker increases and more workers retire, we are left with fewer employees to support a much larger number of longer-living retirees. The government will ultimately have to find ways to do more with less, and there will be no sacred cows: Social Security payment amounts, cost of living increases and Medicare-covered benefits will all be on the table.

Despite this doom and gloom, however, there are things that employees can begin doing today to assure a better future and even a sooner retirement.

Top of the list is taking steps to protect one's health. A healthy retiree will generally have fewer medical costs and a better quality of life.

It is important as well to determine how much money will be needed if you live to 100 years old and then to create savings vehicles to meet that target. For those without IRAs, now is a good time and those over 50 can take advantage of catch-up contributions. An annuity or a high cash value life insurance policy, as long as the premium payments are kept current, can help provide for a senior in the out years when other revenue sources have been depleted.

One very important caution is that once money is in a defined contribution plan, taking an early loan or distribution must be avoided if at all possible. Experience shows that young investors tend to use plans such as 401(k) as a source for purchases such as cars or vacations. This not only hampers retirement capital accumulation, it takes away the greatest opportunity for growth, compounding yields on investments.

If your analysis of how much money you will need to live to 100 shows that you will need to work longer, beyond traditional retirement age, then the timing is right to determine what a good "retirement career" might be. If you always wanted to teach math, now is the time to get your certification. The nation needs math teachers; you could serve a national purpose and also do something gratifying.

It takes a proactive effort to keep some gold in the golden years, particularly as costs are rising fast on key consumer staples. Get ahead of the game now by dedicating time and attention to saving for retirement. In so doing, you will end up without the struggles faced by Detroit, and, unfortunately, its retirees.

Barry Koslow, JD, is president and CEO of MKA Executive Planners, a Woburn, Mass.-based executive benefit and retirement planning firm. He can be reached at

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