6 Challenges to Achieving Retirement Security

Here's a great article regarding the challenges facing workers ability to plan for retirement. As with any retirement plan, the earlier you start anticipating the more prepared you will be for the execution of it. - Melinda 

By Steve Vernon MoneyWatch June 24, 2016, 5:00 AM

Americans from all walks of life face several overarching challenges to their retirement security and personal savings. More specifically, they have to deal with six primary obstacles that make it harder for them to put away enough money to have a secure retirement.

The Bipartisan Policy Center (BPC), a Washington, D.C., nonprofit organization that researches solutions to the nation's key challenges, boiled it down to this number in a comprehensive, 152-page report that provides thorough analyses of these challenges. And it offers thoughtful recommendations for policies that governments, employers and financial institutions can adopt to address these challenges.

Since it might take years for any such policies to actually take affect, let's look at the six challenges and see what action steps you can take now to address each one.

Challenge 1: A lack of access to workplace retirement savings plans
Only 49 percent of all American workers participate in a workplace retirement plan. Of the rest, just more than one-third have no savings plan at work, and 17 percent are eligible to participate but don't contribute to their plan. Many are part-time or low-income workers and are particularly vulnerable.
Here's just one compelling example of the power of these plans: The Employee Benefit Research Institute (EBRI) projects that more than half (56 percent) of all moderate-income Gen-Xers who don't participate in a savings plan at work will run out of money in retirement. By contrast, the EBRI projects that among workers who save for at least 20 years in a work-based plan, only 12 percent will experience that fate.

If you're eligible for a work-based savings plan but don't contribute, sign up as soon as you can. If that's a stretch, sign up for a low contribution rate, such as 1 percent of your salary, and increase your savings in future years. If you're not eligible to participate, you can start contributing to a myRA or an IRA at a financial institution such as a bank, mutual fund company or insurance company.
If you spend all of your paycheck on current needs, see if your employer or financial institution offers a financial wellness program that can help you squeeze some savings out of your daily budget.

Challenge 2: Lacking income or resources to save for short-term needs, many Americans raid their retirement accounts.
Building an emergency fund to protect against unexpected shocks can be just as important as saving for retirement. Unprepared individuals who experience accidents, health problems, car repairs or job losses are more likely to take on debt or tap their retirement savings. More than half of all Americans are unable to meet a $2,000 emergency without selling personal assets or taking out payday loans.
In part, weak earnings are to blame because many individuals simply spend all their income to meet current needs. Rising costs for college and health care also leave little room to cover other needs.
If possible, you should make it a priority to set aside emergency funds in addition to retirement savings. Start with a target of $500, and over time see if you can build up to $2,000 for your emergency cushion. Once again, a financial wellness program can be a good source of ideas for finding some money in your regular budget.

Amid today's low interest rates, it's pointless to try to earn significant amounts of interest income. Still, it's OK to settle for a low-interest passbook savings account or a money market fund.

Challenge 3: Americans are increasingly at risk of outliving their savings
As Americans live longer lives, it's possible that retirement can last for 20 to 30 years, or more. Supporting lengthy retirements takes not only a lot of savings. You'll also need a thoughtful strategy to generate retirement income that you can't outlive. If you're in your 50s or older, you'll want to learn how to optimize your Social Security benefits and find out more about the pros and cons of lifetime annuities from insurance companies and prudent drawdown strategies using invested assets.

Many people who do a good job of assessing their savings and estimating their retirement income may find that they need to work longer or spend less money in retirement. Both can be effective ways to avoid outliving your savings.

Challenge 4: Home equity is underutilized in retirement -- if it lasts until then.
The BPC report noted that half of all Americans age 62 and older are "home rich, cash poor," meaning at least half of their net worth is in their home equity. If this describes you, you'll want to explore ways to leverage your home equity in retirement. Possibilities include downsizing, taking out a reverse mortgage, renting out a room or simply planning to pay off the mortgage before you reach retirement age so you can live rent-free.

Challenge 5: Lack of basic knowledge to manage personal finances and prepare for retirement.
The BPC report documents many ways that Americans often lack in their basic understanding of financial issues and appropriate solutions. But they have many sources at their disposal to learn about investing and insurance protections. Workers who participate in work-based savings plans can often enroll in retirement education and financial wellness programs. And a plethora of websites and books can help you grasp basic financial and retirement planning concepts.

Challenge 6: Social Security is at a crossroads.
The BPC report highlights the importance of Social Security: It provides the foundation upon which most Americans build their financial plans. The report summarizes the financial challenges with Social Security and recommends a combination of changes in benefits and taxes to shore up the system. While individuals can't make policy changes to Social Security, they can support leaders who have the courage to suggest necessary repairs to the system.

You can also learn how to optimize your Social Security benefits, which is just one part of your program to learn about basic retirement planning concepts.

Find the time to make a difference
Many people complain they don't have the time to spend on financial and retirement planning. But that's hard to reconcile with the fact that the average American spends three to four hours per day watching TV.

So here's a suggestion: Stop watching your two or three least favorite shows. By doing so, you might free several hours per week. Then spend half of that new-found time learning about financial and retirement planning issues. Devote the other half to doing something enjoyable, such as going for a walk, taking up a hobby or talking with your spouse or friends.

Of course, taking the action steps outlined above won't guarantee a secure retirement. But they're a good start. Let the BPC report serve as a personal wake-up call and checklist for you to improve your future security.

• Steve Vernon

  View all articles by Steve Vernon on CBS MoneyWatch»
  Steve Vernon helped large employers design and manage their retirement programs for more than 35 years as a consulting actuary. Now he's a research scholar for the Stanford Center on Longevity, where he helps collect, direct and disseminate research that will improve the financial security of seniors. He's also president of Rest-of-Life Communications, delivers retirement planning workshops and authored Money for Life: Turn Your IRA and 401(k) Into a Lifetime Retirement Paycheck and Recession-Proof Your Retirement Years.

Could the tide be turning on reverse mortgages?

More and more we are hearing from leading wealth management and retirement advisors about the advantages the reverse mortgage product offers. Capitalizing on your largest asset and accessing that equity can make a tremendous difference as life expectancy continues to rise. 

Please take a moment and read this great article regarding the recent trends regarding individual savings for retirement and health care cost as they relate to home equity as a retirement asset. - Melinda


MarketWatch
Published: June 15, 2016 
By AliciaH. Munnell

After decades of skepticism and reports of scandals, the tide appears to be turning on reverse mortgages. The New York Times Business section recently led with a story on the revival of the reverse mortgage. Even more significant, for the first time a commission examining the state of retirement in the United States emphasized the importance of home equity as a retirement asset and identified the reverse mortgage as one of the major ways to tap that equity in retirement.

A reverse mortgage is a mortgage: a loan with the borrower’s home as collateral. But unlike a conventional mortgage, it is designed as a way for homeowners age 62 and over, with substantial home equity, to tap that equity as a source of funds to pay off their existing mortgage, cover bills or health care expenses, or to provide additional retirement income. Unlike conventional mortgages, borrowers are not required to make monthly payments. The loan must be repaid only when the borrower moves or dies. This feature is the key advantage for retirees who need more income: so long as they live in the house, a reverse mortgage does not add a claim on the income they already have.

Accessing home equity will become increasingly important in a world where retirement needs are expanding – people are living longer and face rapidly rising health care costs – and the retirement system is contracting – Social Security replacement rates (benefits as a percentage of pre-retirement earnings) are declining and employer-provided pensions have shifted from defined benefit plans to 401(k)s, which require individuals to bear all of the risks. Reverse mortgages offer a mechanism for tapping home equity for those who want to stay in their home. And for most low- and middle-income households, home equity is their major asset (see Figure)

 Center for Retirement Research

Ron Lieber in the New York Times article noted that reverse mortgages have moved from a product sold on late-night TV by Pat Boone and Henry Winkler to one offered by community bankers across Pennsylvania (and probably many other states). Dollar Bank, which was established in 1855 and makes loans in the Pittsburgh area, has a loan officer dedicated to reverse mortgages and makes about 100 reverse mortgage loans a year. Fulton Bank in Lancaster also signs up 100 customers a year. Both banks try to get customers to come in with their families so everyone knows what it means to tap the equity in the home. The customers who end up taking out the loan appear to be pleased with the product. And the fact that community bankers are offering reverse mortgages is lending respectability to this “much–maligned” but increasingly necessary product.

The necessity of tapping home equity was also recognized by the Commission on Retirement Security and Personal Savings, a panel of experts convened by the Bipartisan Policy Center and chaired by Kent Conrad, a former Democratic U.S. Senator from North Dakota, and Jim Lockhart III, a Republican who had served as Director of the Federal Housing Finance Agency, Principal Deputy Director of Social Security, and Executive Director of the Pension Benefit Guaranty Corporation. The Commission acknowledged that people are not going to have enough money to retire comfortably and that the $12.5 trillion in home equity rivals the $14 trillion in retirement assets. The Commission stated that reverse mortgages can be a good option for some older Americans, proposed ways to strengthen programs that advise consumers on reverse mortgages, and also suggested establishing a small-dollar reverse mortgage that could reduce fees for consumers and risks for taxpayers.

It does seem, at long last, that reverse mortgages are entering mainstream consciousness. And it may be happening just in time to help millions of Americans who will retire with grossly inadequate 401(k) balances to have a decent standard of living when they stop working.