How Should We Plan For Retirement?

By: Mary Claire Allvine and Christine Larson

When it comes to imagining our retirement, most of us are in uncharted territory. People in their twenties and thirties today will live longer than any generation in history. If they retire around age sixty-five they'll need to keep supporting themselves for two or three more decades -- longer than any other generation has ever gone without working.

Who decided we should retire at sixty-five anyway? The lawmakers who passed the Social Security Act, which allows people to collect Social Security benefits at that supposedly "golden" age, expected most people to die before age sixty. (The average life expectancy of someone born in 1935, the year the Social Security Act passed, was fifty-nine.) But by 2000 the average life expectancy was nearly seventy-seven -- some twenty years longer.

The upshot is, retirement in twenty or thirty years will probably look very different than our traditional ideas of retirement. We may work longer, launch second (or third) careers later in life, reduce our expected standard of living, or make other changes in order to support ourselves after sixty-five. Along the way we should place ever more emphasis on saving and investing for retirement.

"OK," you say. "We're convinced. How much should we save for retirement?" We can't tell you. Nobody can. The truth is, there's no way to know for sure how much you'll need or how much you should save each year. The future is simply too uncertain. It's like the question of how much to save for college: you need to make so many assumptions about the future that all estimates are suspect. If you ask financial planners for a monthly or yearly savings target that will guarantee you a comfortable retirement, they will typically come up with a number so high you'll never be able to save it.

But that doesn't mean you can't plan.

One way that companies prepare for an uncertain future is by investing in research and development (R&D). Pharmaceutical companies, for instance, are always searching for the next miracle drug. It's a matter of survival: if they have a current blockbuster drug bringing in big profits, the patent on that drug will eventually expire. They'll need to find and develop another product to keep their revenues up. R&D is a risky endeavor that might not produce the desired rewards -- but it's riskier to not invest at all. By the time drug companies reach the date when their patent expires, their R&D efforts have typically yielded one of four results: success, partial success, a delay of the goal, or missing the goal.

Families approaching retirement find themselves in the same four situations. Some have saved enough to remain financially stable for the rest of their lives, but many fall into the "partial success" category and are forced to dramatically lower their spending once they retire. Meanwhile, many families end up postponing retirement for a few years, or even indefinitely. You can boost your chances of retiring successfully by making savings a priority. You might not save up as much as you'd like, but you'll be a lot better off than if you didn't save at all.

Reprinted from: The Family CFO: The Couple's Business Plan for Love and Money by Mary Claire Allvine, C.F.P., and Christine Larson © 2004 by Mary Claire Allvine and Christine Larson. Permission granted by Rodale, Inc., Emmaus, PA 18098. Available wherever books are sold or directly from the publisher by calling (800) 848-4735 or visit their website at

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