Can't Afford Retirement: Financial Advisors' Daily Digest
American Funds discusses ” five retirement realities ” on today’s SA that it recommends investors address with their advisors. These “realities” – a euphemism for bad news – included running out of money; falling markets; inflation; the high costs of the retirement lifestyle; and the double-whammy of rising healthcare costs, an essential expenditure and one that is growing at an accelerated rate.
I believe the mutual fund firm offered proper guidelines. While the realities could turn out positive instead – big inheritances, rising markets, stable prices; abundance that reduces the costs of lifestyle spending; and healthcare deflation – it is always more prudent to plan for the worst and be pleasantly surprised.
Nevertheless, it seems to this observer that planning for the worst is more than merely prudent. I view it is as something of an antidote to the poison of false expectations promulgated by the retirement industry, with its portrayal of perpetually partying retirees (gray-haired but buff) enjoying exotic getaways, riding their Harleys or playing on the links or its pricey clubhouse.
The incessant imagery of juvenile seniors may match the bank accounts of a portion of the affluent readers on this site – but is far from the well-known realities that Americans have not saved enough for retirement and that Social Security and Medicare are underfunded, as well as the less well understood reality that longevity, however high it is today, continues to trend upward. See the math here? The household budget for most people would need to stretch as never before.
To give you a sense of this, note that Fidelity Investments each quarter tabulates the average 401(k) and IRA balances of its account holders. That’s a very significant survey population, as Fidelity is one of the biggest asset managers in the world, and it seems safe to assume that its investors are well above average in affluence. The firm’s Q2 survey shows its investors hold about $89,000 on average in both kinds of retirement accounts.
Not everyone who has a 401(k) also possesses an IRA, so we can’t assume this represents savings of $180,000. Plus, markets will rise and fall, and many investors will behave badly amid the volatility. Social Security, if intact, will not hugely supplement the ending account balances. Investors may choose to work longer, though it is uncertain their employers will give them that choice.
Retirees can certainly survive, and maybe even splurge for a special wedding anniversary. But can we dispense with the heedless indulgence pitch? As mentioned, some investors can afford such lifestyles – and perhaps they are the primary targets of the big asset managers, anyway.
With the unprecedented increase in longevity, together with another “reality” of decelerating economic growth, it would be healthier to revive now quaint notions of simply working hard to not one day be a burden on one’s children or public programs designed for the poor. Given current data on retirement savings, that modest objective alone would require active, disciplined saving. It is precisely that kind of investing behavior that tends to lead to positive surprises, by which I mean surplus wealth that can be enjoyed, even relished in a way especially reserved for unanticipated pay raises or bonuses.
Let us know your thoughts in the comments section. And below please find a few additional links to advisor news and views:
- George Schneider: Retirees needn’t take knocks to their income lying down.
- Dirk Cotton discusses the risks of funding your retirement via a reverse home mortgage .
- Wells Fargo board actively considering executive comp clawbacks .
- John Huber: Practicing Buffett’s “punch card” approach to investing.
- Allianz Global Investors’ Kristina Hooper discusses the final phase of the election campaign and its potential market impacts.
- Jack Waymire on how RIAs should select an inbound marketing agency .
- Manning & Napier lays out fiduciary rule changes for retirement plan advisors.
See also T. Rowe Price: A Preeminent Financial Services Dividend Firm on uniquefinance.org
