Why You Need to Understand ‘The New Retirement’ – It Affects Everyone

Kelly O’Donnell, Executive Vice President at Financial Engines, delivered a speech to an engaged group at the Carroll School of Management at Boston College. She talked about The New Retirement and the importance of retirement planning – especially for women. The students were very interested in the topic as retirement is a subject that is close to home, with many of their parents considering their options. They also were very interested in learning more about how changes happening today will also shape their future. 

In part one, Kelly lays the foundation for understanding The New Retirement.

I plan to talk to you about my passion for helping all Americans achieve the retirement security they deserve, regardless of income or savings – with a particular focus on helping women. The challenges that confront people today when it comes to planning for their financial future, particularly when it comes to planning for retirement, are huge.

Importantly, these challenges impact women most acutely. Not only are life expectancies longer for women, but, due to lower salaries or absences from the workplace, women typically have accumulated much less when they reach retirement age.

The stark truth is that the world has changed dramatically in the past decade, and especially in the last few years, when it comes to planning for retirement.

It’s not just the fallout from “The Great Recession” after the financial meltdown in 2008.  It is more far reaching and structural, and the reality is that it is permanent.  So much so, that I believe that the United States has entered a period of what I would call “The New Retirement.”

So what do I mean by the “The New Retirement?”

In order to describe what it is, we need to take a little tour through the history of the US retirement system through the present day. Before Social Security legislation was passed and signed into law by FDR in 1935, retirement was something that only a select few wealthy people could experience.  Most people kept working, or, if they were lucky, could retire only if their family supported them.

The advent of Social Security ushered in an era of “collective social insurance,” provided by government and employers. The growth of government entitlement programs coincided with the rise of corporate defined benefit plans, with unions bargaining for and securing pensions for life from employers.

But then things began to change 

Pensions were too expensive for companies to fund in order to compete in global labor markets so they were frozen.  Today – it’s very rare to start working at an employer and have a guaranteed retirement benefit. Gradually, Americans had to assume full responsibility for their retirement – including how to fund it, choosing the right investments and then fully bearing the risks of their decisions.

In addition, our major socially-funded collective retirement program – Social Security – has become seriously underfunded and will likely not be sustainable in its current forms for future generations.

So, there is a “New Retirement,” one where the individual bears all the responsibility and risk of funding their post-career life.

And we can’t go back.

Part two where Kelly describes the forces of change that have created the landscape for The New Retirement.

© 2013 Financial Engines, Inc.

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