The Employee Benefit Research Institute has released its twenty-seventh annual Retirement Confidence Survey. The findings from this survey coupled with some other disturbing headlines in regards to the perilous condition of our nation’s pension system have laid credence to all the anecdotal evidence that I have been yelling and screaming about on the show for almost two decades. I would speak softly and carry a big stick, but that unfortunately does not work well on radio while trying to explain the dire condition of American’s finances and the death of the conventional notion of retirement. No spoonful of sugar to make the medicine go down, the facts and the statistics are dour if one sticks to the conventional notion of retirement, which in our opinion has been ill-advised for over two decades.
The Retirement Confidence Survey was actually more optimistic than some of the other polls and surveys I have reviewed of late with 41 percent of individuals stating that they have started planning about what they may need to have put away to retire. According to Craig Copeland, a senior research associate at the EBRI, the EBRI has a database of 401k plans that encapsulates approximately half of all plans. For individuals in their sixties that number climbs to thirty percent. The EBRI data shows that only ten percent of 401k plan participants have at least $200 thousand.
What is truly striking, is that 37% individuals who have decided to start thinking about their proverbial nest egg, feel that $1 million is the magic number. It is no surprise that so many people fall prey to investment scams that pitch ridiculous pie-in-the sky returns. Too many people are trying to play catch-up and that is a very dangerous game when it comes to ones savings.
We will not get into the ever-expanding crisis of imploding pensions or the dismal state of the social security system and how that will affect retirees moving forward. Rather, we will focus on something that should be thought of as a positive, that being longevity. A recent study titled Required Retirement Savings Rates Today by Morningstar’s head of retirement research, Wade Pfau and Michael Finke from the American College of Financial Services reads like a Watchdog on Wall Street Radio Show transcript. They state people need to really up the ante when it comes to socking away money if they plan on a traditional retirement. They conclude that individuals will need to save as much as forty percent in order to have a retirement that will somewhat resemble ones lifestyle while employed.
Retirement is becoming more and more costly with cash and cash equivalents yielding next to nothing. Returns on cash, CD’s, treasuries and municipal bonds have been horrific. There is a tremendous disconnect between the government’s inflation numbers which are tied to the CPI, and reality. So, while having to keep a sizable portion of one’s retirement assets in cash or cash-equivalents to be prudent (nobody wants to look at their portfolio every month to decide what stocks to sell in order to pay the bills) one is essentially losing money. The study we cited assumes that investment returns will continue to be lower in the future than have been historically and we at Markowski Investments concur. A good example of this is the recent rate increases by the Federal Reserve doing almost nothing to elevate the yield on the traditional safe-haven assets.
The other proverbial elephant in the room is longevity. According to the Society of Actuaries, longevity for men and women at age 65 has jumped more than ten percent since 2000. Men who reach the age of 65 should expect to live to an average age of 86.6 and women to the age of 88.8. These numbers are just averages, higher income individuals tend to beat these numbers. This problem has been hiding in plain sight and becomes more and more evident with every new scientific study or medical advance. To actually classify greater longevity as a problem is some pretty twisted logic when one really thinks about it. We should be looking forward and celebrating a longer healthier life, not living in fear of running out of money. Mr. logical himself, Spock from Star Trek, stated it best with his parting words, “Live long and prosper.”
Easier said than done. That is always the case. When one makes a plan and finds that the plan doesn’t correspond with the terrain, one should adjust and go with the terrain. It is necessary that the one and done job is going by the wayside. In other words individuals are more likely to have several careers within a lifetime. This has never happened in the history of the world. We believe that a great deal of thought should be put into later-in-life career that corresponds with a three-day workweek. This idea is multi-functional in that, it will help solve possible budgetary stress, but also act as a health aid. People who stay active and work longer are exercising their mind and body.
The RCS study also points out that in addition to investors lacking confidence, thirty percent of workers report that preparing for retirement causes them to feel mentally or emotionally stressed. Thirty percent also state that they spend a great deal of time at work thinking about their finances and believe they would be much more productive if they were better prepared.
Lisa Greenwald, co-author of the report stated, “I continue to be struck by the relatively small share of workers who do formal retirement planning. Use of a financial advisor increases with age and income, but just 23 percent of workers say that they have spoken with a professional advisor about retirement planning and only one in ten report they have prepared a formal plan for retirement.”
This however, does not strike us at Markowski Investments.
Almost the entire planning/brokerage industry ignores the countless individuals that are working to build wealth. Mainstream brokers/planners are only interested in working with individuals that are already wealthy. Markowski Investments finds that business model to be shameful. A true professional in our field would look to not only manage wealth, and peoples retirement, but build it as well. There are some serious challenges moving forward that individuals need to understand along with the people advising them. When it comes to financial planning, it is better to have a professional that will tell you the truth about what one needs to do to get them to their goals, rather than another sales pitch coupled with a glossy brochure containing a picture of a vineyard in Napa or the Eiffel Tower. You need to know oneself along with realties of the terrain, in order “To live long and prosper.”