4 common retirement blind spots

The trouble is that, between rising Medicare premiums and taxes on benefits, those of us retiring in, say, 25 or 30 years will see a drastic cut in the after-tax value of Social Security benefits, according to a study by the CRR.

Right now, accounting for taxes and Medicare, Social Security benefits replace about 39% of the average wage earner's salary, says Sass. By 2030, that will drop to about 29%. "That's a huge, huge cut."

Moment of clarity: Financial planner Sharon Rich is among those who take a strong stand against including Social Security benefits in your retirement calculations at all. She recommends leaving them out entirely. "That way, if you get anything, it's gravy."

I'm saving for a better future

One of the biggest flaws in most people's plans -- my own included -- is the vague notion that somehow retirement includes a lifestyle upgrade. Sorry.

I realized this terrible misconception after we'd calculated the nest egg for two or three of the WIR, and each was predicted to yield something less than the woman's current income. That's not what most of us are hoping for, yet financially it's where we're headed.

Meaning: Unless you're starting very young, or saving more than 15% of your income, you'll be doing well to have more or less the same income, purchasing power and standard of living in retirement that you have right now.

So if you can't afford Caribbean cruises and trips to Europe now, don't expect the Retirement Fairy to buy your tickets when you're 65.

Lyndsey and Stephanie, as the young 'uns, are in the best shape to be able to increase their nest eggs because they have not yet reached their peak earning years.

They could end up saving far more than what we projected based on their current incomes of about $50,000 each.

Jill also has the potential to enjoy a better standard of living in retirement because she is a) very ambitious and b) works in a field that can provide high six-figure incomes -- which she's working hard to attain.

As for me (a writer), Beth (working toward a degree as a massage therapist), Anna (who works for a non-profit) and Tricia (a secretary who just opened a consignment shop) -- the Magic 8 Ball has this to say: "Reply hazy. Ask again later."

Moment of clarity: Unless you know your income will rise substantially, you have some reckoning to do -- and additional savings to sock away -- if you dream of a better quality of life in your golden years than you have now.

Thank goodness for my inheritance

More than a few people saw dollar signs when the news of "the greatest intergenerational wealth transfer" was bandied about in recent years. Economists have estimated that anywhere from $10 trillion to $136 trillion will be bequeathed as older generations pass away.

If you were like me, you looked hard at your own parents and said, "Not bloody likely!"

But even those of us not waiting for a fat inheritance might be tempted to hope that Mom or Dad's life insurance, condominium or secret hoard of gold might one day be added to our own coffers. And that's a temptation to be avoided.

In an article published by the Federal Reserve Board of Cleveland, "The Baby Boomers' Mega-Inheritance -- Myth or Reality?" economists Jagadeesh Gokhale and Laurence Kotlikoff list a few reasons why, Boomer or Gen-Xer, you shouldn't count on family money:

• Your parents don't care. According to their data, "only 22% of households headed by someone over 65 expect to leave a sizeable bequest."

• Your parents are spendthrifts. "Recent research shows that elderly Americans' propensity to consume out of their resources has risen dramatically since 1960."

• Your parents may remarry. Wealthy parents might remarry late in life and dash your plans to inherit. In case your brain needs jogging, I have three words for you: Anna Nicole Smith.

• The odds are against you. According to the authors' calculations, only 1.6% of heirs will get $100,000 or more.

Moment of clarity: You're on your own, kid.

These are just a few of the blind spots that can sideswipe your retirement plans. I'm sure there are many others. I'd like to hear from those of you who have stumbled upon blind spots of your own. It will be a great discussion on the Women in Red message board.

Updated Dec. 14, 2007

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