Confidence Comes from Security

Although I know the joke about X-percent of statistics being made up on the spot,

I like them… statistics, that is. And my business is full of them. Like many things, the information displayed to us through the use of numbers with percentage signs after them should be taken in context, and the source should always be considered, so I see them often as a place to start to dig for more information.

Each year, the Employee Benefit Research Institute (ERBI) conducts research and produces that year's Retirement Confidence Survey. I like to compare its results to what I see in my own practice and those of other advisors with whom I meet to compare notes. The 2018 survey shows no real surprises – only 17 percent of current workers and 32 percent of current retirees are “very confident” they will have enough money to live comfortably throughout the duration of their retirement. (Only 13-percent even know how much they'll need!) In my parents' generation, my bet is that that confidence level was much, much higher. Why? Social Security would likely have played a part, as would the fact that they didn't expect to live as long in retirement as we do today. But I would venture to say the biggest reason was that they had pensions… guarantees. There's just an undeniable sense of security with knowing that a steady “paycheck” is coming, even if you live – like my mother – to 98 years (so far!).

Today, however, with few pensions left, and even fewer in existence for new workers, people just don't have that built-in security of knowing that if they stick with it to the magic retirement years, they'll be secure. Creating that security for oneself is more and more important. Even for employees of the Mississippi Public Employees Retirement System, more commonly known as PERS, without saving outside that system, the guaranteed income provided by PERS is not likely to be enough for a large number of people. (PERS, for all intents and purposes, behaves like a pension, thus the parallel.)

I worked on the Mississippi State campus for many years, and I know there are great disparities in income levels of employees, much more so than for city or county employees, generally speaking. For those who have earned a very high income and who are able to remain in their positions long past the “can retire” point, the income PERS provides might very well be sufficient, especially when the cost of living adjustment comes into play. However, for many low-to-average-pay employees, cutting their income by 40-percent or more is typically a hardship, even if that remaining income is coming for life.

What I see is the snowball effect for those who earned average-or-lower wages in PERS while working. Those are the people who typically begin drawing their Social Security benefit at age 62 because they desperately need the added income. While Social Security is another forlife benefit that comes with cost-of-living adjustments, the payment we receive at 62 is a greatly-reduced payment from what we would have received at our full retirement age. (That's currently 66-67 depending on year of birth.)

What's a solution? I maintain that the wise person begins early to craft for himself a plan that will allow him (or her) to create a third (at least) source of lifetime income in retirement. During the working years, build that nest egg through participation in company retirement plans. Always, always take advantage of a company's willingness to match your contributions. Then when you leave that company, roll that money into an IRA that you can manage with your advisor. Also, be absolutely certain that you and your spouse are maximizing opportunities to self-fund retirement plans such as IRAS or Roth IRAS. If you are currently a member of PERS, you have no choice in what is contributed to your employer retirement, but you have options outside of that. Meet with an advisor and learn about those.

Then, as you are reaching your retirement years, you will have options. Do I begin drawing from PERS? From Social Security? From my individual accounts? Should I roll my money into an annuity that will pay me an income for life? These are all questions your advisor can help you answer, but without good planning more than a few months out from retirement, the choices fade to few or nothing. And the only guarantee you have is that your retirement will be stressful not only for you, but for your family. Retirement years are meant to be enjoyed. Work hard while you're working, to be sure you can play later!

Barbara Runnels Coats*, FICF, RICP, Modern Woodmen of America Financial Representative.

(Photo by Briana Rucker, SDN)