Retirement planning

I came across this article today:

Most Middle Class Retirees Will Outlive Retirement Savings

The study was done by Ernst and Young, and basically says that anyone retiring now will outlive their retirement savings if they try to maintain their pre-retirement lifestyle.  If someone who retires today wants to “minimize the likelihood of outliving their financial assets,” he or she will have to lower their standard of living by about 24%.  For someone who is still seven years from retirement, the standard of living will have to be reduced by 37% so that they won’t run out of savings.

Here is the full report of the study.

The report also gives the relevant numbers for each state.  For Floridians, 75% of those who are 7 years from retirement can expect to outlive their savings if they try to maintain their pre-retirement standard of living.  Of these “near-retirees” without a pension plan, 90% can expect to outlive their savings.

Here’s a little good news, at least for me:  “Retirees with these guaranteed sources of retirement income are dramatically less likely to outlive their savings in retirement.”  For “near-retirement” Floridians with a defined benefit pension, only a 21% reduction in standard of living will be necessary to keep them from running out of money before they die.

Here is the link to the state by state analysis.

I’m not technically a state employee.  However, as an employee of a public institution of higher education, my salary is funded by a combination of tuition and state taxes.  That makes me eligible to participate in the Florida Retirement System, the defined-benefit pension plan for state employees.  FRS is one of the best-managed pension programs in the country.  Although anything can happen, all of us in the plan feel pretty secure about our FRS benefit.

I’m not technically a “near-retiree” either.  I’m going to retire in exactly 16 years and 25 days (not that I’m counting or anything – 🙂 – I really do love my job!).  I have a couple of other things going for me.  First, as an FRS participant, I’ll be eligible for something called DROP, which stands for Deferred Retirement Option Plan.  It’s kind of lengthy to explain, but basically it’s an extra savings account building up during the last five years of employment.  Second, my house will be paid off 3 1/2 years before I retire.  Who knows what housing will be like in 16 years, but I should be able to sell my current house and move inland to a no-maintenance townhouse, either paying cash for it or carrying a very low mortgage payment.  That alone should reduce my “standard of living” by about 20%, and that doesn’t even include not having to drive to work, or maintain a work wardrobe, or pay for conferences and continuing education and professional association memberships.

I also have a traditional IRA that I fund with the maximum amount allowed every year.  It’s a combination of mutual funds of all sorts (blue chip, small cap, tech stocks, etc.).  It goes up and down pretty much with the stock market.  I’m not counting on it as a primary source of income, but it should be enough for me to pay for any Medicare supplemental health insurance I need.

Who knows what the future holds?  I suppose any of the above could mysteriously evaporate somehow, or I could get hit by a bus tomorrow.  However, barring unforeseen circumstances, that’s the plan.  Keeping my standard of living lower than “normal” now will hopefully allow me to save enough so that my savings live longer than I do.  Especially since most of the women in my family have lived well into their 90s!

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