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The Honolulu Advertiser

Posted on: Thursday, May 26, 2005

Social Security battle also serves as a wake-up call

By Meg Richards
Associated Press

NEW YORK — For Robert Smith, the "Aha!" moment came about a month ago as he was watching TV. A caller to "The Suze Orman Show" laid bare her financial life, and Smith, a 31-year-old father of four with few investments and no long-term plan, saw himself.

Real-estate agent Chris Neri, 54, doubts that Social Security will be there when he retires and expects to work past the traditional retirement age. "Peace of mind may be a bit elusive, and early retirement may be a thing of the past," he said.

Photos by Charles Krupa • Associated Press

"She was my same age — I guess that's what got my attention," recalled Smith, who runs his own marketing business in Rockford, Ill. "She (Orman) said the first thing this lady needed to do was sit down with a fee-based financial planner. So that's what I did."

Smith and his wife had an emergency fund, but the one-time hourly worker turned entrepreneur knew little about investing. Now he hopes careful long-term planning will help him retire a multimillionaire.

"I want to be well past the point where I need to rely on something like Social Security," Smith said. "I realize the road to wealth is one where you just have to keep chugging along. Time is on my side."

Smith's determination is unusual, but there are some signs he and others like him are making progress. Studies show only modest improvement in the average American's retirement saving and investing habits. But with Social Security reform, long-term healthcare coverage and troubled employee pension plans making headlines, it seems epiphanies like Smith's are happening more often.

"All the talk about Social Security going bankrupt and private accounts has everybody nervous," said Bill Driscoll, a financial planner in Plymouth, Mass.

Driscoll doubts the government will allow Social Security to disappear entirely, but he's advising his clients to do all they can to avoid having to rely on it. The baby boomers he advises are often struggling to save more, while younger clients are convinced they'll have to fend for themselves in their old age.

Gina Marie Hanlon, 35, a chiropractor, sought Driscoll's advice about two years ago, shortly after she opened her own practice. Now expecting a child, she and her husband, a highway safety foreman, are saving for their retirement even as they juggle the needs of her growing business with the demands of eye-popping student loans.

Chiropractor Gina Marie Hanlon, 35, and her husband are working with a financial planner to secure a stable retirement, with the expectation that there will be no help from the government when they stop working.
Not planning ahead is not an option, since there may not be a Social Security when she retires, she said.

"I'm realistic," said Hanlon. "I'm hoping for the best, but preparing for the worst. That's the scenario."

For baby boomers between the ages of 45 and 55, saving enough to cover a potential shortfall is a challenge. If the system pays substantially less than promised, they may have no way to replace the missing funds, other than working longer.

"You can't really count on anything, and inflation is still a big part of the picture," said Chris Neri, 54, a real-estate agent. He opened an IRA 30 years ago but still plans to work as long as he can. "Peace of mind may be a bit elusive, and early retirement may be a thing of the past," he said.

Despite how well publicized the issues are, most people are only setting aside between 6 percent and 7 percent of their income in tax-deferred retirement accounts, said Dan Houston of the Principal Financial Group. Planners say a savings rate of 10 percent to 15 percent over several decades is necessary for workers to maintain their quality of life in retirement.

"We are saving roughly half of what we need and we're spending twice as much as we can afford. ... If we don't shift the dollars being used for immediate gratification to long-term savings, we are not going to be in a position to make a lot of choices about the quality of our lives at age 65 and beyond," Houston said.