The New Retirement Reality, Part 1

On this week’s Consuelo Mack WealthTrack: the first of a two part series on “The New Retirement Reality.” Kiplinger’s retirement guru, Mary Beth Franklin and award winning financial planner, Mark Cortazzo bring us up-to-date on what to expect and how to plan for the new retirement climate.

Here is the transcript, below.

Consuelo Mack, WealthTrack - November 5, 2010

CONSUELO MACK: This week on WealthTrack- a new vision of retirement for baby boomers. Life will be longer and healthier for most, but mean less money, less leisure and more work for many. Retirement guru Mary Beth Franklin and top ranked financial planner Mark Cortazzo fill in the details next on Consuelo Mack WealthTrack.

Hello and welcome to this edition of WealthTrack. I’m Consuelo Mack. This week on WealthTrack, we are launching a two part series on retirement planning and retirement income. In the aftermath of the worst financial crisis since the 1930s, the way Americans view retirement has changed dramatically. A number of recent polls tell the story.

According to a survey of more than 9000 employees by Towers Watson, a human resources consulting company, 40% of workers are planning to retire later than they were two years ago. What’s more, the survey reports that older workers are reducing their expectations and possibly settling for a lower standard of living in retirement. The Mercer Workplace survey tells a similar tale. “Saving enough for retirement” has become the biggest single financial worry for the employees surveyed. 65% say they are not saving enough for retirement. These workers have now lowered their income projections in retirement to 76% of their working income down from 80% or more in 2006.

Another new study- this one of leading edge baby boomers by the MetLife Mature Market Institute- reports that many of these “early boomers “are unable to retire as they had hoped because they may have debt from putting their children through college, borrowing against their homes, and in many cases second homes. In addition, these boomers say they are worrying about outliving their savings after losing money in the stock market and being severely impacted by the low interest rates that have prevailed in recent years. Family finances have also been stretched because one in four report that children are still living at home with them.

On the plus side, many more of the early boomers - those born from 1946 through 1955 - are college graduates and are working fulltime. They are healthier than the previous generation and will keep working beyond age 65 because there are white-collar jobs for them on the one hand, and on the other, they need and want to work because they are concerned about outliving their retirement assets.

With us to tell us more about the transformation in retirement thinking going on in America are two experts. Mary Beth Franklin is a senior editor at Kiplinger’s Personal Finance magazine and editor of the magazine’s annual retirement planning guide. Mark Cortazzo is a financial planner and investment adviser who heads up his own firm, Macro Consulting Group based in New Jersey. He was just named “Advisor of the Year” by Boomer Market Advisor magazine. I began by asking them for a reality check, what our new vision of retirement should be.

MARY BETH FRANKLIN: Probably reduced. It may not be buying that second home in Florida or Arizona, but you might be able to vacation there three or four weeks every February. It's rethinking what you really need and what you really want, and what you can afford.

CONSUELO MACK: How difficult is that, Mark, with your clients? And tell me what you're telling them, kind of that their new vision of retirement should be?

MARK CORTAZZO: We're having a lot more dialogues with clients about where to tighten the belt, where to pull back. Many of them have wanted to help grandchildren with education, or buy the second home. You know, and we're having more dialogues with people about having to get a part-time job, or working a little bit longer, because the rates of return in the equity markets and where fixed interest rates are right now isn't cutting it to give them the current income that they need, without either eating into principal or, you know, having a lower rate of return than they were expecting.

MARY BETH FRANKLIN: But without feeling so deprived. So many of us think that retirement at 65 is a birthright. And we think of that because social security was always at 65. But I just read a study that said, if you look back at the life expectancy in 1935, when social security was created, and you look at today's life expectancy, if you put them on a parallel track, today's normal retirement age would be 80. So--

CONSUELO MACK: Oh, fascinating.

MARY BETH FRANKLIN: You wouldn't feel so badly working another year or two.

CONSUELO MACK: So, in fact, the 65-year-old in the 1930s probably died at 67, right?

MARY BETH FRANKLIN: Right. Many of them actually died at 62 and never got it.