Middle Class Retirement Risks and Solutions

Middle class baby boomers need a lot of retirement planning help and guidance but most do not receive it. There are several reasons for this.

First, there are not many affordable sources of expert help. Second, the advice that doesn’t cost anything often cannot be trusted because it is coming from a salesperson or from friends and family. Third, middle class boomers do not have a lot of wealth that gives them room to maneuver and take risks in the investment markets. Financial advisors do not target the middle class because they don’t believe that they can make money in that market segment.

There are several organizations that provide helpful, unbiased advice that is based on logic and proper analysis. One of those organizations is the Society of Actuaries. You wouldn’t necessarily think that actuaries are interested in retirement planning but as an organization, they are.

In September, the SOA issued a report that discusses retirement risks and solutions for the middle class. Although the report is targeted at financial advisors, it contains useful information for all of us to consider. For example, the report outlines a “core flow” for the retirement planning process, consisting of the following seven steps:

1. Quantify assets and net worth. You have to know where you are before you can design a plan for where you need to be.

2. Quantify risk coverage. Retirement planning must include protecting yourself against worst case scenarios. Often, this means insuring against known risks: healthcare, disability, and long term care.

3. Compare expenditure needs against anticipated income. This means setting a retirement spending budget or plan and then assessing what guaranteed income will be available to cover those expenses.  Emergency reserves are also to be considered.

4. Compare amount needed for retirement against total assets. This step is really about a plan for converting retirement assets into income to fill the gaps left by pensions. annuities, and Social Security.

5. Categorize assets. This includes setting up different asset channels or ladders for different time periods in your retirement.

6. Relate investments to investing capabilities and portfolio size. This is a process of self-analysis to determine if you have the skills to manage your own investments.

7. Keep the plan current. A retirement plan is dynamic and may need to be changed based on major life events.

I encourage you to read the full report which can be found here: Segmenting the Middle Market: Retirement Risks and Solutions.

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