REVISING THE FORMULA.

• Author: Kern, Merilee
• Position: LIFE AN AMERICA - Retirement planning

Findings by the Employment Benefit Research Institute reveal that far too many may not be poised for a financially secure retirement. The study found that 82% are not very confident in their ability to retire comfortably; 33% fear they will not be able to cover basic living expenses; and nearly 50% worry that they will not be able to pay for their medical costs.

"For many years, financial planners have espoused general formulas for determining the amount of income retirees will need, the most popular being the 70% rule that suggests that retirees will need to replace 70% of their pre-retirement income to provide for their living needs in retirement," notes Ray LeVitre, author of 20 Retirement Decisions You Need to Make Right Now and founder and managing partner at Net Worth Advisory Group.

"That may have been an effective guideline a few decades ago when the rule was established; however, for many retirees, relying upon it today may be fraught with financial peril. It's a very different world now, and old guidelines based on conditions that existed 30 years ago don't necessarily reflect real costs of aging today. Compounding the complexity is that many retirement decisions you make today are irrevocable, profoundly affecting one's financial security and lifestyle for decades beyond."

According to LeVitre, modern-day aging cost considerations include: A male turning 65 years old today can be expected to live another 19 years vs. 11 years in 1970; for women, they can expect to live another 23 years.

* The chances of retirees or an elder family member requiring some form of long-term care is seven in 10.

* Many retirees are carrying some form of debt into retirement, including mortgages, student loans, and consumer debt.

* Although inflation has moderated somewhat since the 1970s, lifestyle costs, such as housing, food, and transportation, consume a larger portion of a retiree's budget today.

* While health care cost increases have slowed, the rate of these increases continues to be well above the general rate of inflation.

For many retirees, the 70% income replacement rule might be an acceptable baseline for planning. However, with the risk of inflation compounded by increased longevity now confronting retirees, income planning should be based on today's realities of aging. It is not inconceivable that, for some retirees, income replacement needs could be as high as 100%.

What baseline, foundational steps can be taken by those...