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The Truth About Retirement

Retirement is at risk of becoming the quaint American experiment. In reality, the concept of someone leaving the work force before death didn't exist in our culture before 1935. In less than 100 years, retirement has gone through a number of changes. The means to retire has shifted from employers and government and back to the worker himself with the 401(k) quickly becoming the only real way of leaving the work force at the end of a career. It is important to know that the dream of having a "leisure retirement" will not be achieved by Social Security benefits alone, but rather from a lifetime of self-determination and discipline. For those new to the workforce, or not yet totally engaged in retirement preparation, here is what you need to know about the realities of retirement in America.

The History of Retirement
In 1900, the average life expectancy of a worker was about 49 years. For those living beyond that, retirement meant replacing physically demanding tasks with more docile ones that benefitted the extended family.

The Social Security Act of 1935 was derived to benefit the general welfare of citizens during the great depression. In addition to the aged, it was also designed to address public health, unemployment, and to provide provisions for the disabled, their dependants and maternal and child welfare. Though not specifically created as a "retirement plan", its definition morphed over time.

Pensions became popular during World War II as a means to compensate for wage and price stabilization programs needed to control inflation. Its popularity continued through the 1980s long after the reason for its initiation had passed.

By the end of the last century, Defined Contributions Plans like the 401(k) were introduced for higher earners to harbor more retirement money while enjoying a tax advantage for doing so. For many, they have now become the main form of retirement savings. However, unlike a pension or Social Security that has mandatory enrollment, employers could choose to "opt-out" which leave employees at risk of inadequate savings when they leave the workforce. With the increasing speculation that Social Security cannot continue unless reformed, coupled with the phase out of pensions and the average life expectancy growing to almost 80 years, the concept of retirement in the United States is at a crucial crossroads.

Retirement Today
What is retirement? The dictionary defines it as leaving one's job or ceasing to work. Whether it is a leisure retirement or barely scraping by is entirely up to the individual worker. If we have learned anything over the past 80 years, it is that retirement programs will come and go and Social Security alone will never be enough. Each worker will define their own retirement experience. And the experience will be determined from the very first day they enter the workforce. Retiring in the current economic culture takes years of self-determination, discipline, and education. It also involves participation in Defined Contribution Plans.

Defined Contribution Plans
A defined-contribution plan is a plan in which an employee's retirement benefit depends on the contributions made by the employee himself. In addition to the contributions, the success of the plan also depends on the performance of the assets in the portfolio. The employee has the ability to choose how the money is invested and is given number of investment options, such as stocks or company stocks, bonds, or mutual funds to select from.

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If your employer offers a defined-contribution plan, take advantage of it. Even if you cannot fully fund it at first, aim to set aside at least what an employer offers as a match and increase the percentage each time you receive a raise.

Asset Allocation
How you invest in a 401(k) plan can make a big difference in the amount you have saved by retirement. Being too conservative at a young age can significantly alter this amount by retirement. Conversely, being too aggressively invested at the end of your career can put years of savings at risk. How you invest needs to be fluid and adjusted as you age. A professional, like a financial adviser, can help navigate the choices. If you do not currently have one, use an asset allocation calculator that takes into consideration age, risk tolerance, and years until retirement. This should help determine the blend of stocks, bonds, etc. that are recommended to have in a portfolio for your needs. A great calculator for determining asset allocation can be found at

How a Defined Contribution Plan Gets You to Retirement
There are three things a defined benefit plan provides; tax advantages, matching contributions, and compounded interest. The tax savings benefits are undeniable. Money used to fund your retirement plan is taken from pre-tax earnings. This lowers the amount of earnings that you are taxed on. For example, if you earn $30,000 a year and contribute $3000 into your defined contribution plan, your taxable income will then become $27,000. Depending on how much you contribute, you could potentially maneuver into a lower tax bracket. And your money grows tax free! Tax is not paid until you start to withdraw it after retirement, and you only pay on what is taken. Along with the tax benefits, employer contributions, or matches, are the other way your defined contribution plan can maximize your savings. These contributions provide the gift of free money that an investor would be foolhardy not to take advantage of this gift. Finally, the sooner you start the more money you will have due to years of compounding interest. A person saving a $100 a month for 45 years will have the same amount as the person saving $900 a month for twenty, given the same interest rate. That is the power of compounding interest!

Manifesting your Own Reality
Retiring in the current economic culture takes years of self-determination, discipline, and education. You are responsible for your own retirement, and preparation needs to begin from the very first paycheck and continue to the last. You have to pay a mortgage to live in a house, you have to make a car payment to own a car, and you have to participate in your company's retirement plan to retire. If you wait for someone else to define your experience, you may find yourself back in 1900. 

Cindy Diccianni is a certified long term consultant, a registered investment advisor and a registered representative with Leigh Baldwin & Company member FINRA and SIPC. She is thefounder, owner and  principal of Diccianni Financial Group, Inc., East Norriton, PA. You can contact her at Jeanne Lawson is client manager with Diccianni Financial Group Inc. is

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  Last Post: July 22, 2013 | View Comments(2)

I will turn 65 in 5 months. Entering the Medicare era of my life, I am shocked that I am unable to find Vision/Dental supplements to purchase to continue the routine care needed.
Working 25+ years with my present employer and no benefit is offered!

Mary Ann ,  RNJuly 22, 2013

Great summary. I utilized all of the ingredients in your article and am reaping the benefits. Wish I had started before I was 41. Also rental property is good too but tricky. Thanks.

alice lanford,  retired,  naJuly 20, 2013
bradenton, FL


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