The financial crisis has been cited as one of the reasons why Americans are so unready for retirement. But, let's face it: As we have stated in these pages before, there was a retirement crisis well before the lost decade supposedly upset the Baby Boom generation's grand retirement plans. (Of course, the financial crisis didn't help.) The reasons are well known: Public debt is soaring; GDP growth looks modest; long-term yields are historically low; people are living longer; fewer people are working; and, well, defined benefit plans are few. And where they exist, they are under-funded. This is the case in most of the industrialized world.

Social Security? Heh, that will begin going into the red in only a handful of years, according to many prognosticators. So what to do about it? Work until you die (or until you can't anymore)? That looks more and more likely. Consider these stats. The average American retiree today, according to Allianz:

  • is retiring at age 62;
  • will spend 18 years in retirement;
  • has an average income of $50,000;
  • receives 43 percent of his income from Social Security;
  • spends about 10 percent of his retirement income in healthcare premiums;
  • is $50,000 in debt.

Pensions, interest and dividends cover the rest, Allianz notes, but those income streams are affected by the market. In short, a “comfortable” retirement is looking less and less of a sure thing for all but the most dedicated savers. Allianz, in a survey this May, asked Americans the question: “Which do you fear most: Death or outliving your money in retirement?” Not surprisingly, 61 percent of the respondents said they feared outliving their money more than they feared death.

What's the answer? Allianz and other insurance companies will tell you annuities are the answer, since they guarantee income for life. But there will also have to be changes made on a macro or public policy level. The welfare states of the Western world cannot keep the promises they are making and will likely need to cut spending — or turn their citizens into tax slaves. It's going to be tough to run on a platform of promising citizens less in entitlements (especially when the population is graying) and get elected. But clearly something is going to have to be done. People are going to have to start getting serious about creating financial plans — which makes the financial services industry quite literally a growth industry, even if returns on financial assets are lackluster for the immediate future. The one cohort that understands that Social Security won't be around is the Gen Y generation; many are just out of college and have little in assets (and in some cases lots of school debt), but they will make some money. And they do understand that saving for retirement is a personal responsibility. Please turn to page 28 for why you need to court the dude on the cover of this month's issue.

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