If you missed the well-documented, artfully produced PBS Frontline program, “The Retirement Gamble,” here’s the nutshell version: You’re screwed and it’s the financial industry’s fault. This is a piece that is absolutely worth your time to watch if you haven’t yet, but I will warn you that it takes on a bit more of a sensationalistic tone than I’d hoped for from PBS (maybe because the chief correspondent is also one of the protagonists in the story?).
Yes, it’s true that the financial industry deserves the vast majority of the criticism it receives, but I’m pretty sure that if you watch the video in reverse, you hear the words, “J.P. Morgan Chase is Beelzebub.” Outright demonization is a stretch, even if only a tiny one. And Jack Bogle, the father of passive investing, may be the closest thing to a saint in the financial industry, but he’s so deified in this program that by the end I thought I was watching a Vanguard commercial. And most importantly, if you’re going to take an hour to scare the crap out of people—telling them what’s broken and what doesn’t work—I’d like to see a bit more on what works and how we can mend what’s broken. And yes, PBS, that’s an implicit challenge to follow-up “The Retirement Gamble” (TRG) with a part two: “Retirement Doesn’t Have To Be A Gamble.” But just in case they’re not already filming and don’t read this post, let me attempt to paint a slightly more balanced, if not hopeful, scenario:
YOU still play the primary role in the success of your retirement planning. You still choose how to spend your income and how much to save. I can’t have been the only one to notice that one of the aggrieved “nobodies” featured in TRG is shown working on an Apple laptop at her kitchen table equipped with a flat-screen TV, sitting in front of stainless appliances. I’m not judging her and I’m not sermonizing you, but most of us have limitations placed on our income that require us to make decisions to endure some form of sacrifice today in order to provide for tomorrow. While compounding gains may be the engine propelling us toward a comfortable retirement, it’s not going anywhere without the fuel—our contributions.
YOURS is not as hopeless a situation as TRG makes you feel. Crystal Mendez is one of the regular Janes featured in the program. She’s 32 years old and making $70,000 per year, decent money for a teacher, and she’s saved $115,000 already for retirement. According to a recent Fidelity study that judges our retirement readiness based on multiples of current earnings at different phases of life, Crystal is well ahead of the curve. The study suggests she should have approximately 70% of her current salary saved—and she’s already at 164%. (Nice job, Crystal!) Furthermore, if she saves 10% per year until she’s 67 years old (when she’ll be eligible for full Social Security benefits), she’d then have $2,442,544—17 times her salary if we estimate she earns a 7% annual average rate of return and her salary increases only 2% each year. According to Fidelity, she’d only need eight times her salary for a comfortable retirement at the age of 67.
YOU don’t really want the good ol’ days anyway. We have a habit of painting the days of yore as an idyllic time, when everyone joyfully punched a time clock for the same benevolent company for 40 years straight; the same company that then subsidized a blissful 20 year retirement spent golfing and sipping lemonade on a wrap-around porch attached to a Cape Cod house unencumbered by debt. But guess what, even if that sweetheart deal existed then, and more importantly today, we wouldn’t want it! According to CNNMoney, “…by the time they reached their forties, the boomers worked about 11 jobs—equivalent to a job change roughly every two years.” Generations X and younger hop jobs slightly more. And is it possible that the employers of former generations weren’t solely offering pensions out of the kindness of their hearts, but also because they wanted to make it very difficult for employees to consider leaving their job—and their pension? It is true that the once fabled “three-legged stool” of retirement—pension, Social Security and personal savings—is now down to a pair of stilts for most baby boomers and likely no more than a pogo stick for Gen X and younger; but a minority of us would trade a lifetime of occupational freedom for the continuation of a portion of our paycheck in retirement.
Yes, the odds are stacked against us. And no, the financial industry does not exist for the benefit of its customers. Yes, that’s a shame. And no, despite a movement of well-intended zealots and justified outrage in the media, we’re not likely to see the Masters of the Universe unseated in less than a generation (although that won’t keep us from trying). BUT, your chances for a comfortable retirement are still better than a roll of the dice, as seemingly purported in “The Retirement Gamble.”
Over the course of the coming weeks, I’ll be bringing you a collective of wisdom from numerous sources on how you can demystify decisions regarding not only your retirement, but specifically your 401(k) or other retirement plan, mutual fund selections and a couple of the most complex personal insurance products. That way, regardless of whether or not the fallen angels of the financial industry clean up their act, you’ll be able to make informed decisions.