5 top retirement stories of 2011

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It's that time of the year when we pause and reflect on the events that happened in the past 12 months. What can we learn to improve our "rest-of-life?" Plenty, so let's take a look.

1. Social Security and Medicare went on the chopping block

Due to the alarming federal deficit, Congress is examining Social Security and Medicare as possible ways to rein in federal spending. Lawmakers are looking at pushing back the retirement age, slowing cost-of-living increases, increasing taxes, tinkering with the benefit formula, and examining how cut reimbursements to health care providers. You may not think this is fair, since we all pay lots of taxes into Social Security and Medicare, but in this case, fiscal reality may trump fairness.

How the debt super committee can fix Social Security
How the debt super committee can fix Medicare

Lessons learned: Retirement programs won't be exempt from the repercussions of the runaway federal debt -- voting is an important part of our retirement planning. Also, we should look for ways to become more self-sufficient, like getting very serious about taking care of our health so we reduce the chances of needing expensive medical care, and learning how to get by if Social Security benefits are trimmed.

2. Balanced portfolios help ride out stock market volatility

Our investments experienced a dizzying ride in 2011, with a robust growth in the first half of the year, followed by sickening drops and recoveries in the second half. But a portfolio balanced between stocks and bonds helps smooth out the ride.

For example, Vanguard's Wellesley Fund -- roughly 37 percent stocks and 63 percent bonds and fixed income -- never fell below its beginning value on January 1, 2011. And it's up 7.96% through Dec. 16, 2011. Vanguard's Wellington Fund -- roughly 66% stocks and 34% bonds and fixed income -- spent most days this year above its opening value on January 1, 2011. On its worst day, it was only a little more than 5 percent down. It finished up 1.52% YTD as of December 16.

Study: 401(k) investors who stayed the course in 2008-2009 were big winners
Target date funds help you stay the course and invest successfully

Lessons learned: Investing your retirement savings in a low-cost fund balanced between stocks and bonds, and sticking with your strategy no matter what the market does, is one of the best ways to ride out volatile stock markets and help you sleep better at night.

3. More people are accepting the idea of retiring later

This year, organizations released a number of surveys that all indicated that boomers are accepting the notion that they'll need to work later in life than they previously thought. Working until 80, however, as reported by a recent Wells Fargo study, may just take this idea a little too far.

"80 is the new 65?" Get Real!
The secret that will help you afford retirement
Should you "practice" retirement?

Lessons learned: Being retired for 30 years is unrealistic for most people and a very expensive way to experience happiness. Find ways to continue working to earn money yet still enjoy life.

4. CLASS died

Earlier this year, the Obama administration announced that the federal government had decided not to implement the Community Living Assistance Services and Support (CLASS) program under health care reform. While it was admirable to try to address our nation's serious challenges regarding long-term care, the CLASS program was financially unworkable. But we can't forget this problem, so let's hope Congress goes back to the drawing board!

Obama administration cuts long-term care program
Long-term healthcare woes to worsen in U.S.
Should you buy long-term care insurance?

Lessons learned: The threat of ruinous long-term care bills still looms large over baby boomers who want to live long and prosper in their retirement years. We should all develop a strategy for minimizing the threat of long-term care bills, including getting very serious about taking care of our health. Don't wait for politicians to solve this problem.

5. Retirement programs of federal, state, and local governments went under the microscope

Pension and retiree medical programs at all levels of government have been one of the last holdouts in an era when most other employers have sent their traditional pension plans to the graveyard. Now, poor stock market performance, falling tax revenues, and shortsighted underfunding are catching up to federal, state, and local governments. Legislators are thinking the unthinkable: Increasing retirement ages, increasing employee contributions, and even moving to 401(k) delivery of retirement benefits. Welcome to the rest of the world.

Pentagon pension idea sparks worry among ranks
Rhode Island signs sweeping public pension overhaul
South Carolina legislators give initial OK to pension reform
2011: The year public pension plans get whacked

Lessons learned: There really isn't any lesson to learn from this unfortunate news, other than it's inevitable that financial reality will catch up to everybody.

Stay tuned for a future post on important retirement issues that didn't make the headlines.

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    Steve Vernon helped large employers design and manage their retirement programs for more than 35 years as a consulting actuary. Now he's a research scholar for the Stanford Center on Longevity, where he helps collect, direct and disseminate research that will improve the financial security of seniors. He's also president of Rest-of-Life Communications, delivers retirement planning workshops and authored Money for Life: Turn Your IRA and 401(k) Into a Lifetime Retirement Paycheck and Recession-Proof Your Retirement Years.