In 1988, when most baby boomers were busy starting families and building careers, Oldsmobile ran an ad campaign with the slogan “This is not your father’s Oldsmobile.” Decades later, the same generation is facing a retirement that looks very different from the one their parents had. Their parents were more likely to retire at 65 and live mostly on a pension and Social Security. Today’s retirees face a different set of challenges.
Longer retirements
The good news is that people are living longer. The challenge is that a longer life has to be funded. With fewer people receiving traditional pensions, most retirees now carry the responsibility for making their savings last 25 or 30 years or more. That takes a solid investment plan and a disciplined spending policy, and it is one reason many people choose to keep working longer.
Social (in)security
As baby boomers retire, there are fewer workers paying into Social Security for each person collecting benefits. According to the Social Security Trustees, the retirement trust fund is projected to run short around 2032, and the combined retirement and disability funds around 2034. If Congress does nothing, incoming payroll taxes would still pay about 78% of scheduled benefits.
There are many proposals to fix the shortfall, and all of them involve some combination of higher taxes on workers and lower benefits for retirees. Until Congress acts, it makes sense to plan for some uncertainty. I cover the details in Social Security Benefits and You.
Losing purchasing power
Inflation can be especially damaging for retirees, because it quietly erodes what your money can buy over a long period. Keeping most of your money in cash or fixed income can feel safe, but over a 25- or 30-year retirement you will likely need investments with the potential to grow if you want to stay ahead of rising prices.
Rising health care costs
Fewer retirees have health benefits from a former employer or union, and health care costs have generally grown faster than inflation. Fidelity estimates that a 65-year-old retiring in 2026 will need about $185,500 to cover health care costs in retirement, or $371,000 for a couple, not including long-term care. If you are still working and have a high-deductible health plan, a health savings account can be a valuable way to prepare.
The growing need for long-term care
According to the U.S. Department of Health and Human Services, slightly more than half of people turning 65 will need some form of long-term care during their lives. A private room in a nursing home now costs around $10,800 a month on average nationally, and assisted living around $6,200 a month. Having a plan to pay for that care, whether from savings, insurance, or a combination, protects both your own retirement and your family. See Considering Exchanging Your Life Insurance for LTC Insurance? for one approach.
Wherever you are in the planning process, working with a professional can help you address these challenges before they become problems. The Oldsmobile slogan didn’t last long, but these issues are not going away any time soon.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.
