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Financial Planning: A Must For RetirementBy Alan Moore / L’Observateur / July 8, 1998For active, successful people, planning for retirement often conflicts with day-to-day concerns and spending needs. However, for those individualswho do want to retire at some point in the future, financial planning is a must.

Two current trends put retirement financial planning in a positive light.

First, today’s achievers comprise the first generation whose post- productive years are expected to last longer then their pre-productive years in childhood and education. It is not unreasonable to expect to livetwo decades or more in retirement.

Second, the information super-highway, healthier lifestyles and medical advances have combined to allow a vigorous pursuit of intellectual, creative and recreational activities through the post-productive years.

Quitting has been replaced by freedom as the new paradigm of retirement.

Retired persons have become the wise elders of our tribe, bringing their talents and energies to public service and self-realization.

Such retirement would be utopian if it were available to all. The hardtruth is that it simply won’t be because the ability of the Social Security system to provide benefits at current levels seems to be dissipating.

Already, many retired people have stepped from employment into a new underclass characterized by poverty and isolation because the payments they relied upon in retirement simply aren’t enough to make ends meet.

The following statistics from the Employee Benefit Research Institute (EBRI) and several other sources may help define why this is happening: * Current life expectancy figures exhibit an ever-increasing average lifespan: for the average male born in 1995, the life expectancy is 72.5years, at age 65 it jumps to 80.5 years. For the average female born in1995, the life expectancy is 79.3 years, at age 65 a woman can expect tolive to age 84.2. Based on these figures and the current rate of medicaladvances which are lengthening our lives, several assumptions can be made: the costs of Social Security and Medicare are increasing, more individuals are faced with lower retirement incomes, and more individuals face a greater probability of outliving their assets.

* Sixty-six percent of the retired population gets over half of all their income from Social Security and 30 percent rely on Social Security for over 90 percent of their income.

* Many people do not have a basic understanding of the following: 75 percent don’t know the inflation rate range, 78 percent don’t know the age 65 life expectancy rates, and 81 percent want to retire at age 65 or earlier. (EBRI-Greenwald-ASEC Retirement Confidence Survey)* Twenty-nine percent of lump sum distributions from qualified plans are rolled to an IRA – 71 percent are not; 57 percent of lump sum distributed dollars are rolled to an IRA – 43 percent are not; the average rollover amount is $23,000.

* The majority of people have not tried to figure out how much money they would need to have saved to live comfortably in retirement. Of the non-retired population, 32.5 percent have done these calculations, 66 percenthave not, and 2 percent don’t know. Among retirees, 24 percent have donethe calculations, 74 percent have not, and 2 percent don’t know. (EBRI-Greenwald-ASEC Retirement Confidence Survey) * The first wave of America’s 76 million baby boomers turned 50 in 1995.

From 1995 on, 10,000 boomers will turn 50 each day for the next ten years. (Fortune Magazine, December 1995)* By the year 2030, Americans aged 65 and over will have more than doubled to 65 million, and 10 percent of the population will be older than 75. The fastest growing age group is the 85+ population. Their numberwill almost quadruple over the next 50 years, to more than 12 million.

There are now 3.4 workers for each Social Security beneficiary. By 2035,the ratio will drop to 1.9 to 1. (Oppenheimer Research) Because of statistics like these, productive retirement will require the same commitment and sense of responsibility that characterizes successful careers. The only difference in retirement is that theindividual becomes his or her own employer – whose first obligation is to meet the payroll. This can be achieved with an effective retirementfinancial planning strategy.

Various asset classes may be represented both in tax-advantaged retirement plans and in personal programs that are most appropriate for you. These asset classes include cash and cash equivalents such as T-billsand CDs; fixed-income investments such as bonds, mortgage backed securities and guaranteed investment contracts; and equities, shares of ownership in the form of stocks or mutual funds.

For instance, if you are an individual planning to retire soon, it is wise not to turn completely to income producing assets. Growth continues to benecessary to overcome the effects of future inflation and maintain the buying power of your income. Therefore, even if you choose to make fixed-income investments the majority of your portfolio, it is recommended that you continue to hold equities that can offer the possibility of a good total return of dividend income and growth in value.

You should also consider increasing the amount of cash instruments in your portfolio if current returns are attractive and cash needs are more imminent. Of course the development of successful strategies for meetingfinancial objectives such as retirement must always accommodate reasonable investment assumptions and individual needs. Professionalfinancial advisors can help.

In a complex world of conflicting demands, investments for retirement can be seriously questioned in relation to other important needs such as children’s education, care of aging parents and other priorities. Theprudent individual will summarize all likely financial contingencies, then create discrete funding programs to satisfy each major anticipated need.

Past generations equipped themselves with insurance to meet family needs when life ended. Now retirement financial planning has the morearduous – and joyful – job of supporting life’s continuation.

(Alan S. Moore is a financial advisor in the New Orleans office of LeggMason Wood Walker, Inc., a diversified financial services and securitiesbrokerage firm that is a member of the New York Stock Exchange and SIPC.)

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