Uncertainty makes planning for retirement difficult. By understanding and preparing for uncertainty, however, we can still look forward to a future where anything is possible. Everyone has to make assumptions when planning for retirement. What will our living expenses be? How much income will we have? What numbers should we use for inflation and investment return? After all that, some things can — and will — change the most well-thought-out plan.

A recent study, The Future Shock of Retirement, by Jonathan Cohen, Matthew H. Scanlon and Matthew O’Hara of Barclay Global Investors, explores “future shocks” to retirees and what they mean to the post-retirement living standards for Americans on the doorstep of retirement.

Social Security and Medicare. According to the study, the ratio of workers to retirees will decrease markedly. The U.S. Congressional Research Service expects that during the 75-year period ending in 2025, the percentage of retirement age individuals will more than double — from 8.1 percent to 18.2 percent. Further, by 2010, longevity will have increased by almost 15 years since 1940. Life expectancy is projected to grow by one year each decade through 2050. This will hurt the stability of Social Security and Medicare.

At current rates — assuming no changes to current benefits and given expected demographics — the present value of our fiscal imbalance is estimated at $68.5 trillion. That number will continue to rise in the years ahead. U.S. fiscal policy has yet to respond to these changes, placing Social Security and Medicare in jeopardy. Currently, 6.9 percent of federal income taxes go toward these two programs. By 2020, as much as 26.6 percent of all federal income taxes will be required to sustain current Social Security and Medicare benefits for the greatly expanded retirement population. My conclusion for the survival of Social Security and Medicare? Either taxes must rise or benefits must be reduced, or both.

Home Equity. We have seen during the last two years how the appreciation in our homes can vanish. Most mechanisms for capitalizing on part of one’s housing equity, such as reverse mortgages, are fraught with waste because of structural inefficiencies. Don’t count on your home equity. Your home is for housing.

So, what should you be doing now to prepare for such changes?

1. If you have consumer debt, get rid of it as soon as possible.

2. If you are not saving fully in a 401(k) retirement plan, start immediately. Make sure that you are not in risk-adverse types of investments.

3. It is almost certain that capital gains rates will be higher in the future. Whatever investment you’re in, make sure it is tax efficient.

The facts are clear: The country has huge retirement issues ahead. Tough decisions will be required. Some of the assumptions you made when planning your retirement are likely to change. Plan on it.

Notable Quote: “Retirement ... is when you stop living at work and begin working at living.” — Unknown

Contact Tom at 1030 Seminary St. Ste D, Napa CA 94559, 254-0155, fax 254-0158 or e-mail suntrm@aol.com