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Aaaaahh, retirement! It’s a word that has many meanings to many people. For most contemporary middle-class Americans, including the readers of this blog, “retirement” probably conjures up visions of great enjoyment: well-earned endless leisure; extra time and money available to pursue long-deferred dreams, and the pleasure of putting one’s feet up while putting the rat race behind. For many Americans in the working class, retirement is a time of uncertainty, when the central question of life becomes whether one will have enough money and good health to enjoy life beyond work. And for those lower on the economic ladder, retirement is often an exercise in wishful thinking. Hard reality is likely to dictate that they will work for as long as their minds and bodies hold out.

Just a few generations ago, “retirement” as we know it today effectively didn’t exist. Most people worked in some capacity, whether in formal settings or as part of the family, until they either died or could work no more. Then the transition from non-working status to death was usually no-nonsense and swift. For those who were relatively fortunate and had the means and good luck to live beyond their useful lifespan, but who lacked a community to care for them after working age, the years spent isolated in infirmity and poverty may have been worse than death. Most working people had little money set aside to support themselves during their “golden years” (which, admittedly, were usually considerably fewer than we expect today). As a result, elderly people, in general, experienced steep declines in their standards of living, even if they had been gainfully employed for most of their lives. To be old was most often to be condemned to a very meager existence, or to be forced to lean on one’s children for the basics of life, or even to die before one’s time for lack of resources with which to access decent food, shelter or medical care. Life beyond working age was generally a short, steep slide towards insolvency and then the grave. For the masses, “retirement” was nothing like we hope for today.

Sadly, for a growing segment of contemporary society, the beautiful retirement scenario that we’ve come to take for granted as our right to expect these days, may be under very real threat. If a reversion to the bad old days of elderhood is in our collective future, however, it won’t be the fault of good people (like you) who are working and planning for retirement according to standard investing wisdom. Our financial system has developed several serious and fundamental problems that now stand between you – the hardworking retirement saver – and your goals. And while these problems are beyond your capacity to control, the good news is that they’re not necessarily beyond your capacity to understand and deal with.

One of the most important of these fundamental economic problems is the fact that investors have been living in an extremely – historically, even – low interest rate environment for over a decade, now. The profound decline in interest rates began after the tech bubble burst in 2000.  It became worse after the 2008 financial crisis. All the subsequent years of very low interest rates have cheated retirees and retirement investors out of tens (or even hundreds) of thousands of dollars that they expected to earn free of risk in traditional bank accounts, money market accounts, and CD’s.

The problem of low interest rates has plagued pension funds, as well. Being partially funded by bonds, pension funds have had to accept declining income as bond yields receded with declining interest rates. At the same time, most pension funds have also suffered from declining returns from their stock market investments. Although many pension funds have begun expanding into less traditional investments in a search to earn higher yields, most, if not all, large pensions have been running huge deficits for years. How long they’ll be able to continue fully paying on their obligations in a persistently low interest rate and lowering bond yield environment is anyone’s guess.

Many retirees and soon-to-be retirees are therefore looking at going into their “golden years” with less of a financial cushion than they expected to have. Unfortunately, traditional financial planning tools and perspectives have yet to be updated to reflect the realities of a very low interest rate financial world.

Between an ever-expanding Federal debt, a growing number of corporations now struggling to pay off boatloads of “cheap” debt they purchased – and then badly invested – when interest rates were pushed to the floor, and the trillions of cheaply-bought loans that investment banks have pumped into risky profit-making ventures and now can’t afford to lose, there is ample pressure to keep interest rates minimal- negative, even- for the foreseeable future. At some point down the line they will probably rise again, but the increase is likely to be very fast, very high, and in response to catastrophic inflation.

I say these things not to scare anyone, but to underscore the importance of doing one’s homework with regard to understanding how the financial system works and how it affects YOU. The things that have been happening to our economy, especially since 2000, do NOT create a long-term scenario that will reward traditional retirement planning strategies or retirement planning complacency. Retirement planning has become a sort of high stakes “sport” in which the best defense is becoming a good offense. Like it or not, you’re playing in this game, and your best bet for achieving the retirement you desire is to start learning the rules by which the umpires, referees, and big league teams (i.e. the Federal Reserve, the central banks, the investment banks, the large corporations and so on) play this most important game.

Which brings us to: What is your vision of retirement? What do you plan to do? Whom will you be doing it with?  Where will you live: a house, a condo, a cruise ship, a camper, a child’s house, a retirement community, a care facility or where?

Create a vision for your retirement. Then, build your plan for fulfilling your retirement dreams!

Guest Blogger Biography: Jennifer Christiano is a researcher, writer and instructor. She earned her Bachelors’ and Masters’ degrees in the Behavioral Sciences from The University of Chicago. During her research career, she worked on projects in biological psychiatry, health policy, and cultural conflicts in health care. She has co-authored several articles and papers published in leading journals and professional magazines. Jennifer has also enjoyed being a private pilot flight instructor and a ground instructor for a small commercial airline. For the past five years, Jennifer has been an enthusiastic economics student of Daniel Amerman, CFA. She has been strongly influenced by his unique views and perspectives, which she applies to develop her opinions and ideas as expressed in her articles.        Please note: This article is intended for general educational purposes only. Nothing herein is intended to constitute specific or professional financial advice.

Workplace: Managing the moments of our day-to-day business lives takes work. Together, let’s explore what issues and activities affect us every day (or some days) that we go to work. – Jana

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