An interview on the changing face of retirement with Susan Garland, editor of Kiplinger’s Retirement Report

The Indexed Annuity Leadership Council recently sat down with editor of Kiplinger’s Retirement Report @KiplingerRetire, Susan Garland @susanbgarland, to get her perspective on the changing landscape of retirement and what consumers should know and do to prepare.

With the announcement of myRA and the discussion around pension cuts, do you think the landscape of retirement, as we know it, is changing?

Policymakers are beginning to acknowledge that large numbers of people are entering retirement without adequate savings to last a lifetime. Social Security was supposed to be just one leg of the “three-legged stool” of retirement income, along with income from defined benefit pension plans and from savings. With employers pulling out of pension plans, personal savings will become more important than ever. Unfortunately, many people are not building up enough savings to carry them through a long retirement.

The federal government is now struggling to find a middle ground—by encouraging the creation of a pension-like system for some workers without imposing new requirements on business. MyRA is recognition, although on a small scale, that new incentives must be put in place to encourage more personal savings. There is also a proposal by Senator Tom Harkin (D-Iowa) that would automatically enroll workers in a pension-like, professionally managed plan funded by worker income. Other lawmakers are drawing up legislation, as well.

How will the way people prepare for retirement change in the next 10 years?

The economy is changing. Median income is still below the levels of December 2007, before the recession. The Census Bureau reports that income for the top fifth of people has increased, while income for those in the middle has declined and income for those in the bottom has stagnated. That means that the vast middle will have a harder time setting aside the money that they will need for retirement, which will include health care expenses. While many people ten years ago may have had at least some pension income, people who prepare for retirement in the next ten years will need to set aside additional money from an ever-shrinking paycheck. That will be a real challenge. Many people will need to cut back on discretionary spending. They also are likely to need to work longer than people before them—if they remain healthy enough to work, and if they can find work.

For millenials starting in the workforce, where should they get started in saving for their retirement?

This generation is entering an economy when high-paying jobs are tougher to find. Many also are saddled with huge college loans. Still, young people should try their best to find jobs with a 401(k) or another other tax-favored retirement plan. They also should understand how pre-tax contributions work—just knowing about the tax break could provide some incentive. They also should set aside at least enough money to get any employer match, and understand that they are leaving money on the table if they don’t. And, they need to know how important it is not to cash out their 401(k) when they leave a job. Many do not know the mechanics of rolling the money into an IRA. Nor are many aware that they pay both income tax and a penalty if they cash out. 

What’s the best way a person can decide what their retirement portfolio should consist of?

Many people who do not understand the markets would be best off simply investing in a target date retirement plan. These plans invest in a diversified portfolio of stock and bond mutual funds. You choose a fund with your likely retirement year—say, 2050. As the investor gets older, the allocation in bonds gets larger while the allocation in stocks, considered a riskier investment, declines. The investor could set up automatic monthly contributions to the fund.

Investors who want to be more hands-on should consider a diversified portfolio of index funds, which are low cost and track certain benchmarks, such the Standard and Poor’s 500 Index. They should be sure that the funds are diversified among domestic and foreign securities, and among large and small companies. And they should figure out their risk tolerance—someone who is terrified of market volatility should hold a smaller allocation of stocks than those who are willing to ride out roller coaster times.