On the day I write this column, I made my last payment towards the education of my children. Had I paid via actual paper draft rather than electronic transfer, I would have waited to receive the cancelled check back and framed it. All three of my kids have now graduated with honors from fine universities and have done so without any debt. All of them have gotten good and fulfilling jobs. None of them has moved back home.
Providing college for them was a key goal for my wife and me and I am (obviously) proud that we have accomplished it and even prouder of the accomplishments of our children. My wife and I have plenty of reasons to be proud. We might even throw a party to celebrate. But achieving this goal came at a cost. Our retirement planning is not where we would like it to be, and we are not alone in that.
The Retirement Confidence Survey (RCS) from the private, nonprofit Employee Benefit Research Institute has gathered opinion data from workers and retirees as to what they believe their financial status to be for over 20 years. The most recent survey results, published in March, once again show that worker confidence in having enough money to live comfortably throughout retirement is not very high.
Only 14% of people are “very confident” about their retirement prospects (compared with 27% as recently as 2007) while 23% say they are not at all confident about having a comfortable retirement.
People recognize the trouble they are in, and with good reason.
According to the EBRI Survey, 35% of all workers think they need to accumulate at least $500,000 by the time they retire to live comfortably in retirement. Another 18% feel they need between $250,000 and $499,999, while 34% think they need to save less than $250,000 for a comfortable retirement. At current rates, $500,000 purchases roughly $2,750 per month in guaranteed income for a 65 year-old male. Accordingly, there is very good reason to believe that people greatly underestimate the amount of money they will need to retire comfortably. This is yet another unintended consequence of the Fed’s zero interest rate policy and the “war on savers” it has produced.
But even with these misplaced expectations (again according to EBRI data), only two-thirds of workers report that they have saved for retirement, down from 75% in 2009, and only 58% (down from 65% in 2009) are currently saving for retirement. Fully 60% of workers report less than $25,000 in total savings and investments, and 34% had to dip into savings this past year to make ends meet. Even for those who are focused upon retirement planning, life sometimes “gets in the way.”
Much retirement planning advice focuses on saving more and saving earlier. It’s terrific advice. Not nearly enough of us save and not nearly enough of us save enough. But this advice isn’t always realistic and often comes couched in unjustified criticism.
The first major financial goal my wife and I set after we were married was to buy a house. We wanted our own home near good schools before we had children. Interest rates were high, unlike now, so there were relatively safe, liquid and convenient ways to save that provided excellent returns. But real estate values were climbing rapidly and mortgage rates were high. After a couple of years of very diligent saving — and nothing to retirement savings above the level needed for the 401(k) employer match — we were able to save enough to make a down payment and buy our first house.
One might quibble with that choice, and fewer young couples would likely make a similar choice today given the current real estate market, but it was a reasonable choice under the circumstances. The house offered us a place to raise our children in a good environment near family and other support systems. It was the right decision for us.
Obviously, young families are expensive, and ours was no exception. Retirement planning continued to mean little more than the company match until later, after college planning was more firmly grounded. Providing for our children — including college — was simply a more urgent concern for us. Many retirement planning advisors insist that college assistance should only come after maxing out the 401(k) each and every year, but we were not willing to go that route to the expense of our children’s prospective education. Our priorities were (and are) different. Again, one may disagree with that choice, but it was an entirely plausible one, especially since I do not ask anyone to feel sorry for me or to prop me up financially on account of it.
I do not fall into this camp, but many workers are also incredibly discouraged about the prospect of saving and investing generally, including for retirement. According to the EBRI Survey, just 16% of workers are very confident that their investments will grow in value going forward. The secular bear market for stocks we have seen since the turn of the century and, much more recently, exceedingly low yields on bonds have resulted in some very disillusioned investors. That is a perfectly understandable reaction, especially given the findings of behavioral finance and the biases that so frequently beset us.
Many alleged experts in retirement planning — and I include myself in this group — are far too willing to offer advice without seeming to recognize the competing interests faced by those hoping to plan well. Much of what is called advice is really hectoring about the need to save more and to save more sooner and does not seem to recognize that alternative choices are not necessarily or entirely wrong.
A more realistic approach to retirement planning will not be all that different substantively — in general, people should save more and start saving sooner. But a better approach will meet the people who need good advice “where they live” without judgment or condescension, while remaining forthright about the challenges that await.
Not everyone with a less than perfect retirement plan gets into that situation on account of foolish decisions. My wife and I made some difficult choices. We remain convinced that, for us and for our family, they were the right choices. We are now ready to give retirement planning a much higher priority. It would have been better for our retirement plan had we done more and done it sooner, but thankfully we are in a position where we can still be cautiously optimistic about our retirement prospects.
Not everyone can give retirement planning the kind of focus and attention that they might otherwise like to. Per EBRI, 42% of workers identify job uncertainty as their most pressing financial concern, 20% report that their debt levels are a major problem and an additional 42% describe debt as a minor problem. Others have faced real economic, familial or health-related hardship. Some of us had what to us were more pressing priorities. We knew the risks we were taking and accepted them.
More realistic retirement planning will seek to offer the best and most creative approaches to the vexing problems we face without presuming that we have been irresponsible because our planning is not yet as advanced as it might be.
Bob Seawright is chief investment and information officer for Madison Avenue Securities in San Diego.