21st Century

Retirement Planning in the 21st Century: The Biggest Changes (and Challenges)

In this article, we will confront some of the key issues future retirees face and how the unique challenges of the modern era have disrupted traditional retirement planning strategies.

People are living (and retiring) longer.

On average, people are living for much longer than they used to. A LOT LONGER! When Social Security was signed into law back in 1935, people didn’t usually live for more than a few years after they retired. Sadly, they were offered only a short respite from their working lives. Even then, many didn’t even survive to retirement. That means Social Security didn’t have to make payments to people for years and years. Alas, nobody could have guessed back then that people today would be receiving Social Security payments for 20 years… or longer!

Adding to the stressors on Social Security is the fact that the average retirement age is going down – conveniently, to the age of 62, the earliest age when people can start receiving Social Security payments.

This is great news… right? We are living longer and retiring younger! The bad news is that Social Security is set to run dry in 2035…

Well, we all want to live long, but, we also want to prosper. We simply can’t bet on Social Security lasting until 2035 and then be relegated to a lifetime of hard work because we didn’t plan ahead properly.

This means that we MUST depend on ourselves if we want to spend our twilight years in comfort and happiness!

Purchasing Power Weakens Over Time

We’ve all heard the stories of nickel pops and 20-cent burgers, when cars and houses (and gasoline) were cheap and plentiful. Granted, salaries were lower back then as well, but the point is, things nearly always cost less in the past. Unfortunately, our savings and salaries don’t keep pace with the growing costs of goods and services.

This invisible hand that wreaks havoc on savings and retirement accounts alike is the dreaded inflation.

The thing is, back when people only lived a few years in retirement, there wasn’t enough time for inflation’s corrosive effects to take full force. A few years’ worths of inflation won’t take that big of a bite out of your savings. But, if your savings sit there for 30 years, you’ll have lost most of your money due to your inability to purchase not nearly as much as you could have 30 years ago. You may have as much money as before, but it will be worth MUCH less.. In fact, the dollar lost 85% of its value between 1971 and 2021! If you retired in the 80s with a 1980s salary and didn’t anticipate for inflation in your retirement plan, you’re probably in bad shape.

So how can you fight inflation?

Luckily for us, there IS an investment vehicle that consistently defends your hard-earned money from inflation – one that retirees were taught to fear the most… Stocks.. Investing in the stock market is the only thing that can help retirees defeat the dragon that is inflation, as hard as it is to swallow. Financial advisors should be educating retirees on this vital retirement tool.

Slashing Lifetime Taxes

The retirement and tax environment was drastically altered in 1997 when the Taxpayer Relief Act was signed into law and the Roth IRA was born. Americans completely misunderstood this new retirement tool and it took a long time for it to gain any traction – even today, it is vastly underutilized.

To add to that, we can’t guess what taxes will be like in the future. Again, people, on average, didn’t spend much time in retirement in the past, and thus didn’t have to plan on paying taxes year after year. Can you imagine paying taxes for 20+ years all the while inflation chips away at your purchasing power?

But things are starting to change as more modern financial professionals encourage people to employ lifetime tax planning strategies as part of their retirement income plans. In fact, it may be better to pay taxes now on your retirement funds, rather than kicking the tax bucket down the long retirement road.

Advancing Technology

The recent Covid pandemic has forced the workforce to adapt to rapidly changing workplace environments. Screen-sharing technologies like Zoom are being taken advantage of to hold meetings, give presentations, and maintain digital face-to-face conversations with friends, family, and colleagues alike. This can prove to be a boon for those seeking financial advisors!

Previously, one would seek out a financial advisor that resided in their own community – this made sense before the pandemic, when it was customary to drive to an office for a one-on-one meeting. All that has changed.

Now, the financial professional that might suit you best could live anywhere and it’s extremely simple to discuss your financial situation with them over Zoom or Google Meet. At the same time, planners are beginning to specialize in niches, so you’re likely unable to find the best advisor for YOU in your hometown. Perhaps it’s time to cast a greater net?

In Conclusion

People are living longer and retiring younger, inflation is high, and prices are rising; but, we have at our disposal a greater range of tax-advantaged investment vehicles, plus there is a wide array of cutting-edge technologies that empower us to find the most suitable financial advisors, no matter where they are. Reach out to us today to find out how we can help you overcome this century’s investment and retirement hurdles. 

Choose your advisor

Dan DiLascia

Sean Koscho

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