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How to Fight Back in the War on Retirement

If you want to retire rich in today's tough investing environment, you need to use every advantage you can get. Unfortunately, many workers are finding it increasingly difficult to hang onto the advantages they once had.

While pining for the good old days doesn't do anyone any good, it's instructive to look back at some disappearing resources that retirement savers used to have working for them. Even though their absence may make saving for retirement harder, you can still overcome the additional challenges this raises if you work hard and follow a smart financial strategy.

Losing your crutches
In the past, workers had a more extensive support mechanism to provide for their post-career years. With Social Security and Medicare, as well as employer pensions and other retiree benefits, whatever savings retirees were able to put aside was just gravy. Moreover, what money you did save often provided huge returns that greatly enhanced your retirement lifestyle.

Now, though, those assets are under assault. Consider:

  • Traditional pension plans are disappearing quickly, with employers increasingly freezing existing plans and closing their doors to new employees. Bank of America (NYSE: BAC  ) and General Motors (NYSE: GM  ) are just two of the many companies that have announced plans so far this year to implement pension freezes. Over the years, other benefits have also gone away, with 3M (NYSE: MMM  ) among the companies dropping retiree health insurance coverage back in 2010.
  • The latest trustees reports from Social Security and Medicare show that the trust funds for paying benefits will run out of money in 2033 and 2024, respectively. The resulting cuts in payouts could be devastating for many retirees.
  • For years, workers counted on a 10% return on stocks. But the lost decade showed that relying on big returns that don't materialize can throw your retirement planning into turmoil.

Moreover, even some of the contingency plans that people have been making may not be viable. For instance, more people than ever now expect to work past retirement age, either by hanging onto their existing jobs longer or by getting part-time work in retirement. But with jobs already hard to come by and corporate layoffs still common, you can't afford to count on being able to stay in your job as long as you want -- even if you stay healthy enough to work into your late 60s and early 70s.

The benefits of doing it yourself
All these uncertainties increase the value of having money of your own set aside for your retirement. The longer you can go without relying on outside sources of income, the more autonomy you have to define your own standard of living in retirement.

For instance, one option you have with your retirement savings is to buy an annuity. Essentially a do-it-yourself pension, annuities turn a lump sum of money into a stream of monthly income. And while guarantees provided by certain Hartford Financial (NYSE: HIG  ) and Manulife Financial (NYSE: MFC  ) products have put stress on the insurance companies that provide them, they can still give you some peace of mind -- albeit at a cost that you may not find affordable.

Moreover, being financially independent can actually increase your resources. For instance, by waiting to take Social Security until age 70, rather than taking early monthly payments at age 62, you can boost your monthly benefit by more than 75% for the rest of your life.

Count on yourself
In the end, the best retirement resource you have is yourself. If you set up your own finances, you can ensure that anything you get from other outside sources is merely icing on your retirement cake that will let you enjoy your golden years that much more. Meanwhile, if the worst happens, you'll still be prepared -- and you'll be in the best position you can to have the comfortable retirement you want.

Investing wisely for retirement has never been more important. Get the help you need from The Motley Fool's special report on retirement investing. Inside we reveal three stock picks designed to help you reach your financial goals. It's free, so get your free report today and start preparing for a richer retirement.

Fool contributor Dan Caplinger fights to win. He doesn't own shares of the companies mentioned in this article. The Motley Fool owns shares of Bank of America. Motley Fool newsletter services have recommended buying shares of General Motors and 3M, as well as creating a diagonal call position on 3M. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy fights for you.


Read/Post Comments (5) | Recommend This Article (18)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 24, 2012, at 1:59 PM, Mwojnarowicz wrote:

    Dan,

    Hartford's stopped selling annuity products as of 4/27/2012.

  • Report this Comment On April 24, 2012, at 3:38 PM, TMFGalagan wrote:

    @mwojnarowicz -

    Thanks for the heads-up. Confirms some of the difficulties insurance companies have had in staying profitable with these products.

    best,

    dan (TMF Galagan)

  • Report this Comment On April 27, 2012, at 2:01 PM, MCCrockett wrote:

    Your defined-benefit retirement plan, if provided, is an annuity. If it has a lump-sum distribution option, its value will be approximately the cost of an immediate annuity that would provide the same monthly income as the defined-benefit retirement plan.

    The Pension Protection Act of 2006 requires that pension plans must restrict lump-sum distributions when funding for the plan falls below 80%. The Act requires that an annual report be sent to participants in the pension plan.

    I just received my annual reports. All of them report that the plan's funding has fallen below 70% and cite the cause as the decline in interest rates on Treasury notes and bonds.

    It wouldn't surprise me to see more companies leaving the immediate annuity market due to the increase in price that they would have to charge for a given income stream.

  • Report this Comment On April 28, 2012, at 11:49 PM, guest2 wrote:

    Having no health care in retirement and no inflation clause in the pension means retiree's won't be spending more to match inflation. They'll have to spend more on the basics - food and medicine and less or none on vacations, small luxuries and movies and the like.

    This will hurt most of the economy.

  • Report this Comment On April 29, 2012, at 10:49 PM, BachHandel wrote:

    The war on retirement has been declared, but for those looking to run to the front lines and fight for your right to your golden years, beware. We are already well under way to a new period in history whereby retirement is a thing of the past. We are, in fact, returning to the way society functioned for thousands of years prior to the uprising of the middle class. People, who do not prepare, will be working until they are physically no longer able to work, which likely means that there will be a much shorter duration of time between the end of the working years and the end of life.

    Even for those who do save, there is no guarantee that those savings will hold up. What if all of your savings happen to be in a failing currency? I do not say this to say that the sky is falling, but just to warn that we must be prepared for anything.

    Unfortunately, the safety net that humans relied upon for thousands of years is not functioning like it did at one time. That safety net was the family. When a person was no longer able to work, they had family to take care of them at the end of life. (They also did not live nearly as long). I am afraid that our culture, at this time, is not set up to embrace a return to this way of life. (At least, not in America. Japan might be another story). I do not think that Americans are ready to embrace a reality where grandpa works until he is 79 years old and lives with one of his kids or grandkids until he dies.

    As a society, we must be prepared for the fact that there are going to be millions of people who lose the war against retirement. As a culture, we will be forced to make many tough decisions. I just hope that we choose to individually support our families and those without families, rather than throwing our elders to the curb.

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Dan Caplinger
TMFGalagan

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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