US Citizens are waking up to the fact that retirement lasts a long time. That truth holds many implications. The US Government is waking up to the fact that less than 50% of US adults have savings or have only nominal savings. The Retirement Planning industry is waking up to the fact that most participants in formal retirement plans are financially illiterate.
Those are three big facts. Each one impacts all of us in one way or another.
1. Retirement lasts a long time. When you realize that more and more of our population is going to experience a 30-year retirement, the first and obvious issue is financial. When you live longer on savings and Social Security, you must save for the 30-year period. You must save more and manage your resources wisely. Tying that statement to fact number 3, identifying financial illiteracy as an issue, illustrates the depth of the problem and how difficult it is to solve.
2. Less than 50 percent of the adult population have adequate savings. We are learning more about the psychology of saving and spending but this knowledge has not yet been translated into changed behavior. There are certainly families that are truly living on the edge and literally can’t afford to save. For all the rest savings is not a priority. Most believe that payroll deduction is the best way to help people save. What they don’t see they don’t miss. The conundrum for the government, and maybe for the rest of us too, is to figure out what triggers result in changed savings behavior. Tax deductibility of savings is certainly one…. although it seems as if all of those who are going to save for this reason are already doing it. The open question remains about the other 50%. Encouraging employers to offer and contribute to a plan seems like the best path. The triggers to encourage the employers are as unknown as the triggers for the individual. A rethinking of public policy is needed badly.
3. Most retirement plan participants are financially illiterate. This problem is summed up with the observation of “don’t know, don’t care.” The industry operates on the assumption that if people knew how to invest, they would. Unfortunately, that is not true. What I’ve learned about changing people’s willingness to participate in their own future is the need for a huge “why”. The “why” is the motivation to break the inertia and do something. Once that happens, the need for education is clear and the engagement begins. While there is a big push for financial literacy, which I totally support, without the “why” the future is more likely to look like the past.
So, three big facts overshadow much of the retirement plan world. It is like weight loss and dieting. How many options or programs are available to help you lose weight? A recent article suggested that the weight loss industry is a 60-billion-dollar business. You determine to lose weight, you pick a program, pay for it, get started and it lasts for a week, a month, sometimes a year. Why? Because the desire for change is not greater than the pull of carbohydrates, sugars and the wrong kind of protein. When you stay at a chain hotel, Marriott, Best Western, or Holiday Inn, think what the breakfast spread is like. Waffles, pancakes, danish, bagels, toast, rubber eggs and either bacon or sausage. Your cholesterol count goes up just walking into the room! Oh yes there are bananas and maybe an apple and yogurt in the fridge. You can probably tell I’ve been traveling too much.
Key trends in the retirement arena include paying attention to the compliance and legal side of things. 403(b) plans and 403(b)(9) church plans did not have a mechanism to get the IRS blessing on the specifics of the actual plan document. That now has changed and plan documents blessed by the IRS are available from Vendors who had the foresight to subject documents for review two years ago. Fortunately, Envoy Financial is one of those firms.
There are still non-profit organizations that are flying blind and do not even have a plan document. Without belaboring the fact, the regulations changed in 2009.
With a retirement plan participation rate of 50% nationally, the government is concerned about how as a society we are going to take care of the wave of Baby Boomers now overflowing into their 60’s as well as all those coming behind. It is a problem. I maintain the we have not and are not spending enough time and energy prompting them to think about the why. Apparently, the threat of being homeless or a bag lady is not enough. That is a little strident, yet the reality exists.
Another significant trend over the last few years is the wake-up call to high retirement plan costs. Most organizations never really paid much attention. For the last 30 years firms like Vanguard have been living off products with lower costs. The cost awareness phenomena did not really kick in until 3 or 4 years ago. People and organizations started asking the “how much does it cost” question and found out that it’s hard to figure out what a retirement plan really costs. This is particularly true when the plan is managed by an insurance company. It feels like you are mining for gold just to figure out what is true, let alone what is better. Paying attention to costs is a good thing and will continue for the foreseeable future. It too will run its course when the focus shifts to lower cost with higher value.
The Government, as well as Christians, realize that not having enough during retirement will severely restrict their ability to serve faithfully for a lifetime. There are a few but not enough voices examining the consequences of this issue and then creating a pathway to solve it.
Understanding the truths about retirement and then the realities of what it takes to be faithful for a lifetime is what the Retirement Reformation is all about. I’m committed to bringing not only the truths about financial preparation for retirement but also the balance of our lives that need attention too. The spiritual, emotional, physical and mental parts of our lives also need thoughtfulness. More and more I’ve come to believe that the result of excellent financial preparation is the platform for the others to build on. It provides choice, flexibility and stability. Without it those attributes become increasingly difficult. With a good and stable financial platform, there is freedom to fully respond to God’s call on your life during those final 30 years.
Compliance, cost, and education are the big three trends. The reality that more individuals need to engage almost does not need to be said. Sadly, many will treat financial readiness as they treat their diet.
My prayer is for your New Year. May it be one of evaluation and then intentional change. In the financial area if needed, and most certainly in the other four areas. For those of you that are older, I’m observing that emotional and spiritual strength can continue to grow over the years, while the physical and mental become increasingly challenging. Really good news, don’t you think?
Come back and stay with us as we journey with Trusted Advice along The Way.