We?re achieving longevity. But at what price? A new study shows that about three out of five new retirees in Maryland will outlive their financial assets.
The Ernst & Young report shows that these retirees will have to cut back their lifestyles by about 20 percent to reduce that risk to about 5 percent. Near retirees in Maryland are even worse off. They face a 72 percent chance of outliving their savings and will have to cut back about 33 percent post-retirement to reduce their risk of outliving their assets to 5 percent.
The consulting firm conducted the study on behalf of Americans for Secure Retirement, a group supporting tax breaks for annuities ? a financial product that insures against “living too long.”
Regardless of the affiliation, the news should scare Americans, particularly women, who live longer and make less over their lifetimes than men, into cultivating the habit of saving early in life. The old adage of saving and investing 10 percent and giving 10 percent of your earnings each year from the time you start your first jobremains a good rule to live by. It puts self-control above immediate gratification and all but ensures a generous nest egg.
The news should also prompt governments to reassess their pension and health care retiree plans, which are much more generous than the vast majority of plans offered by the private sector and largely underfunded.
As the first wave of baby boomers starts to retire from government positions in the near future, that bill is going to come due ? in the form of cuts to city and county services and/or higher taxes to finance those benefits. It hardly seems fair to ask those who can barely afford their own retirement to pay for a generous post-work life for public employees whose salaries ? across the local, state and federal government spectrum ? are on average the same or better than the average private sector worker, according to the most recent statistics from the Maryland Department of Labor, Licensing and Regulation.
Neither is it fair to ask those working to apportion a higher percentage of their paychecks to someone else?s retirement in the form of taxes. We need politicians with the courage to address these huge IOUs even if it means losing an election. They can start by freezing pensions and moving public employees into self-directed 401(k)-style plans such as those 67 percent of private employers offer. It is the only fair ? and prudent ? option.
