Analysis: The Perfect Storm

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The Perfect Storm
Now taking into consideration all the biases stated above, there are even more concerns that affect people going into retirement. The Perfect Storm describes five forces that are converging into what could be an economical disaster for many. Strategic planning is crucial to be able to provide for yourself if you live past your expected life.
The rate of return for Social Security will be much lower than ever before for people now entering retirement. This is especially true for people taxed at maximum levels. These high contributors will only receive a rate of about 4% compared to 2.8% for people with low earnings. This is extremely important because, for some people this is the only income they have post retirement. The …show more content…
Pension plans “peaked at 175,000 in 1983, and has since declined to less than 25,000”, while 401k DC plans “increased from around 17,000 to over 450,000.” DC plans do not guarantee money until death, so for many DC plans alone are not enough. People who are less financially literate have to endure the financial risk of retirement that once was endured by the employer. Things will only get worse as the baby boomers enter retirement. As the largest generation in America leaves the work force, it will put even more strain on SS. It will be up to generations X and Y to support the needs of the boomers, while at the same time providing for themselves. The biggest problem with this lies in the fact that the ratio of adults 18-65 to adults over 65 is expected to drop from 7.2 to 3.7. This means there is a lot less people contributing into SS, but a lot more depending on it. As the graph below shows the number of persons over 65 per persons 18-65 will nearly double over the next few …show more content…
They should also invest in stocks and fixed incomes to complement the annuities. Extraordinary expenses will need to be covered. Institutional care can be paid for through supplemental health insurance or annuities that escalate benefits over time. Bequest motives also need to be considered, but the amount left to heirs will take away from their ability to live above their minimum standard. Also, if the retiree has a high financial risk tolerance, they can place a higher amount of excess assets into risky
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