Three Time Bombs that Threaten Retirement Plans

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Dan Richards

Middle-class baby boomers share one big financial concern: Can they sustain their lifestyle in retirement? (A recent study from the Employee Benefit Research Institute in Washington DC pointed out that confidence by Americans in the ability to afford a comfortable retirement is at all-time lows.) A number of factors have driven this: the housing and stock market crash of 2008, the slow recovery since then and the sense among many investors that today neither stocks nor bonds offer attractive returns.

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In fact, many boomers should be concerned about funding retirement spending, but not for those reasons. Three poorly understood developments threaten secure retirements – without wishing to be alarmist, I will call them time bombs. These developments will change the retirement dynamic for many Americans: increasing lifespans, escalating medical costs as people age and safe withdrawal rates on savings dropping from historical levels.

Time bomb One: Lifespans that continue to grow

Most people are unaware of the remarkable improvement in life expectancy that’s taken place in the developed world over the past 200 years. Based on the best available historical data, here are average life expectancies in Western Europe: