Fiduciary Is Fun!
(a.k.a. I heart taxes)
(a.k.a. I heart taxes)
I was recently reading an article from the Pension Research Council of the Wharton School of Business and came across this little nugget from Olivia Mitchell from the School, “the baby who will live to be 200 has already been born.” Does anyone think this is a good thing?
Regardless of whether or not Ms. Mitchell is correct, the key point she is making is that people are living longer than they once did. On the whole, this is probably a good thing, right? However, it also raises some obvious issues. The first one, and one that has been noted many times in the financial press, is how are individuals going to plan for what could be a prolonged period of retirement? 100 years ago, retirement was a relatively short period of time. If Ms. Mitchell is correct, retirement in the future could last 100 years?!
The truth is probably somewhere in between, of course, but what will be the consequence for those who have not saved enough for a prolonged retirement, whether that be 20, 30, or even 40 years? Many people say they want to continue or will continue to work into the years that would otherwise be defined as their “golden years.” This is great, if they are able and allowed to do so. Let’s explore that last point
According to a study by ProPublica and the Urban Institute, between 1992 and 2016, 56% of older workers reported either being laid off or pushed out of a job at least once in their older years. Once reemployed, only 1 in 10 reported earning at or above the rate they were making. Rehiring older workers has always been a challenge, and remains so today, even though there are more and more older workers desiring to work!
What’s it going to take for employers to get more comfortable hiring older workers? Obviously there will be a large pool of such older workers available who need and want to work in the future. If we continue to harbor a bias against older workers, how are these individuals going to support themselves in their older age? This situation is going to get uncomfortable for all parties in the not too distant future
We can’t change society in a blog post, but we can at least take accountability for ourselves. If the thought of a prolonged retirement has you concerned and working into retirement is not your first option for several reasons, it is probably time to put together a plan. After all, no one wants to be 150 and standing in line for a job
Give me a call.
Pete Welsh a/k/a 401kGuy
Every employer wants satisfied employees. After all, the opposite doesn’t sound very appealing, does it? How an employer works to create satisfied employees can take numerous avenues. Some of the obvious Management 101 principles include having a boss that cares about their employees’ growth and development, providing an appropriate work/life balance, properly recognizing a job well done, and providing a healthy work culture. These are just a few means of valuing employees on which an employer should focus if the goal is to create satisfied employees.
Nevertheless, even when an employer tries to do everything possible to support employees, not all are satisfied. Some new research from the LIMRA Secure Retirement Institute sheds some interesting light on how you can tell if your employees are Satisfied, Settled, Resigned, or Restless (this last one is not good, by the way).
What I found interesting about this research is that it didn’t just simply ask employees how satisfied they are with their employers, but rather looked at specific things employees do and value after they have been identified as Satisfied, Settled, Resigned, or Restless. Satisfied employees are defined as Enthusiastic, Passionate, Positive, and Proud. Just the kind of employee we all want! What is particularly useful about this employee classification is that employers are able to look at the behaviors and values of their employees and get a sense of how successfully the employer is creating Satisfied employees. So, what were some of these behaviors and values that Satisfied employees have that less-enthusiastic employees don’t?
Well, 99% of Satisfied employees feel that workplace benefits are critical to their financial security. And, not surprisingly, Satisfied employees are twice as likely to be participating in the company’s retirement plan. The first takeaway here – if you have many employees not participating in your retirement plan, they might be Restless. Restless employees are unengaged in the employer’s mission and have one foot out the door.
If you find yourself with several employees not involved in your retirement plan, working to improve their satisfaction with your company is a good place to start. Getting them involved with the retirement plan is also a positive sign. Restless employees are more financially stressed than Satisfied employees and tend to be less secure about their future. Helping these Restless employees become more financially secure and involved in the retirement plan is one step an employer can take to move Restless employees toward Satisfied employees.
Want to learn more about how to build a staff of Satisfied employees? Give me a call!
I have long given up believing that investors are “rational” as I was taught in college. As a Finance major, I learned that investors are rational and make decisions in their own best interest. People don’t voluntarily make decisions that do not favor them, I was told, but rather “optimize” their decisions to benefit themselves. HA!
Some new research from Bankrate.com would leave some college professors scratching their heads. The survey asked 1,000 individuals about their investing preferences for 2019 for money that they would be investing for more than 10 years. Obvious categories were Stocks, Cash, Real Estate, Gold, etc. (Real Estate was #1 for 2019, by the way). What was really interesting, however, was a question about how falling interest rates would affect their investing decisions. Now for a “Rational Investor” falling interest rates should have a profound effect on where they put their money for 10 years or longer, just as rising interest rates should affect such a decision. Entire financial empires wobble on whether the Federal Reserve Board will raise or lower interest rates by even tiny percentages, for example. Certainly, a rational investor would factor declining interest rates into their investment decisions for the long term, right?
Nope. Not going to happen. According to BankRate.com’s research, the survey respondents would make almost no changes to their investments in a declining interest rate environment. It appears that people pick a preferred investment and then decide to stay with it regardless of what is happening around it that would impact their long-term returns. In fact, only 33% of the respondents said that if interest rates were declining would they put more money into the stock market. 67% of the respondents are “not rational.” Surprise!
So, what can we make of this information? If people should be making changes to their long-term investments as a result of macro changes in the economy, and the vast majority won’t, we obviously can’t rely on people making their own decisions in their best interest. Rather, the obvious takeaway for me is that investors need to have some distance from their investments and the decisions on those investments. What does this distance look like? To me, it looks like a competent investment advisor. Someone skilled in taking the emotions out of the decisions and applying financial analysis to the situation. It looks like someone who will act in your best interest. I guess, it looks sort of like me. Give me a call so we can discuss your situation.
Milliman, an actuarial and consulting firm (and a very good one by the way), recently released a report suggesting that the “average” healthy 45-year-old couple that retires at age 65 can expect to pay $1.4mm out of pocket in their retirement years for retiree healthcare. Before anyone gets excited, let’s think about this.
Milliman is full of excellent actuaries who are skilled at “running the numbers.” The problem with running numbers out over many years is you can get some crazy results. I would like to suggest that the results of this report are indeed crazy. I am not going to argue with the way the numbers were calculated; Milliman’s actuaries are much better at math than I. Rather, I am going to suggest the numbers simply don’t make sense from a practical standpoint.
Milliman suggests that the average couple will have $1.4mm in just retiree healthcare costs. However, I can tell you that the average retiring couple will not have $1.4mm in TOTAL, let alone for just healthcare costs. I can appreciate the point being made which is healthcare in retirement is going to cost A LOT of money. Got it. But it’s not going to cost $1.4mm per couple on average because on average couples don’t have $1.4mm.
So, we have come to an impasse. Milliman calculates $1.4mm in cost per couple, but most couples don’t have this amount of money. What do we do? Something has to give, right? And don’t forget, these costs are after Medicare has paid because we are talking about a retired couple. Nothing like pointing out a problem without offering a solution.
I’m not going to suggest that I have the answer to this one, but I can tell you that couples are not going to pay what they don’t have. What is the best that you can do today to plan for this less than rosy future? You can certainly start maxing out your Health Savings Account (“HSA”) assuming you have one. This might be one of the best long-term vehicles to fund retiree healthcare costs. You can also start planning for Long Term Care needs, as a significant portion of retiree healthcare costs are expected to fall into this category.
Want to learn more about how to prepare? Give me a call and let’s have a conversation.
Apparently, we do. At least you should talk about your parent's retirement with them, according to some new research from TIAA. The research just released last month indicates that 53% of Gen Xers and 66% of Baby Boomers are concerned about their parents’ financial security in retirement. The reason why this is a concern is because we get STRESSED OUT about our parents financial situations as they age. I suppose we didn’t actually need any survey to tell us this.
However, the more worried we get, the more it takes a toll on our own health and financial preparedness. The research seems to suggest a trickle down effect showing the more we are concerned about our parents, the more likely we are to lack confidence in our own retirement prospects. And I wouldn’t be surprised if this lack of confidence that we develop flows down to the next generation.
Is there any hope to break out of this cycle? The good news is yes, and it’s not that complicated, but it’s not that easy either. Evidently, we need to talk about our parents retirement WITH THEM. Having a discussion, and the sooner the better, allows both the parents and the children to understand the realities of retirement better. Discussing begets understanding, which begets planning, which, when done well, can alleviate our concerns. It’s not always a full proof strategy, but it is better than doing nothing and presuming the worse.
Now I said those discussions while simple on paper might be difficult in reality. How might such a conversation begin? I would recommend engaging with a good financial planner to who can assist leading a multi-generational discussion at a neutral location. These types of conversations are never easy, but better to have them with a financial professional than over Thanksgiving Dinner. Those never work out well.