Laura Shin a contributor with Forbes recently wrote this article, “Why Gen X and Late Boomers Aren’t on Track for Retirement” and my goodness does it say a lot about how we are taught to think.
Ms. Shin, the writer, talked with two economists about why people are not able to retire. One of those economists happens to be Teresa Ghilarducci. If you don’t know who she is I suggest you google her after you read this. Until then, Ghilarducci is the main individual behind the guaranteed retirement account bill. (Another blog on this will follow soon.) This bill, in short, would confiscate retirement accounts, put all the money in a pool, be given to the government and they would distribute it back to at a rate they felt suitable. You will see more below what she believes below.
I just love to hear all the theories on why we don’t have enough money to retire and how they think they are going to fix this problem. This one really got my goat and I could not wait to write my response.
Below are some statements from the article I will break down. I am going to try to be nice, but be warned I may get sassy.
First off Ms. Shin writes:
“According to a recent study, Gen X and late baby boomers are on track to replace only about half of their current income when they reach retirement — which means they’ll need to seriously downgrade their lifestyles.”
This blows me away each time I hear this.
- Downgrade your lifestyle! I have said this before and will say it again, I don’t know anyone who dreams of moving to a smaller, older home, never buying another new car and never going on a trip after they retire. Many peoples vision of retirement is stress-free living with travel involved.
Now onto Ms. Ghilarducci:
…as 401(k)s were being introduced in the 1980s, people thought they preferred to have control over their retirement accounts and their investments, said Ghilarducci. But it turns out that if they actually have a choice between a pension and a 401(k), they prefer the pension.
Let me break this down in a couple simple explanations:
- People did NOT think 401K’s were better. Employers were forced to hand over retirement accounts to employees. To make this sound good employers and employees were given incentives for tax savings if they contributed. Tell me where this was the choice of the individual?
- “they prefer pensions” – of course, that is what worked prior to the 401K and IRA taking over in the 80’s. Most pensions were managed through whole life insurance policies, secure and guaranteed retirements.
Ghilarducci discounts some other factors that are frequently cited: “There’s a lot of noise that you’ll hear — that it’s lack of financial literacy, that it’s student debt,” she said. “None of those matter. Having an $8,000 or a $20,000 to $30,000 debt does not affect accumulating the more than $600,000 that most people need for retirement. Those are fly-speck reasons.”
Noise and fly-speck reasons? Where is this lady from and who buys what she is selling?
- If you have debt, all the money that goes to pay the debt ends up in someone else’s pocket. This leaves you with no opportunity to use that money again or make it grow. It is gone forever in exchange for a good or service. Plus, personally I have never seen a rich person in debt, but if you know someone please pass their name along.
- She says the lack of financial education is not an issue. Not knowing how to handle money leaves you at the mercy of a broker, money manager, credit card company and/or bank. By not being educated we allow others to decide what is best for us. This would be like you not learning how to cook. There is no need; there are trained cooks out there who have restaurants. For a small fee, they will feed you and decide what you get in return for your money. Just trust it is healthy.
“So no other reason holds a candle to the collapse of the employer-employee retirement system.”
This one makes me giggle, the collapse of the employer-employee retirement system was the government and wall street’s idea. They collapsed the system, gave us 401K’s and now tell us this was bad and they want to fix it. They created the mess, I surely don’t want them touching anything more of mine.
This is what Ms. Ghilarducci wants:
Advocates for a new type of retirement plan that is better for employees than their current 401(k)s. These are the features she believes it needs:
- Universal coverage, so everyone would be saving for retirement
- Pooled assets, to reduce individual risk
- Payouts only at retirement, so people would not deplete or borrow against their accounts before retirement
- A steady lifetime income stream (a.k.a an annuity), so people don’t outlive their savings
- Portable benefits, so people can take the savings with them from job to job
- Low-cost and transparent administration, to address the problem that some retirement plans charge fees that keep retirement savings from growing
Look at the terms she is using:
- universal coverage
- pooled assets
- payout only at retirement
- lifetime income stream
- take savings with you.
These “needs” look very similar to social security. Her plan does all the same things and would have the same controls as social security. I am pretty sure we do not need another failing program.
Another economist, Annamaria Lusardi, was interviewed and had some comments of her own that I would like to bring light to.
She (Lusardi) also noted that many retirement experts advocate for automatic enrollment into retirement plans such as 401(k)s, but said, “because people borrow against their accounts, I think automatic enrollment is not enough.”
She advocates for financial education at school and in the workplace, and policies that make it easier for people to save and harder for them to borrow. “I think it’s important to take a holistic approach. When we talk about retirement savings, we think too narrowly. In fact, all of the financial decisions are interrelated, and we need to find ways people can get help and advice on how to deal well with their financial wellbeing.”
- “Automatic enrollment is not enough.” What?! Because people need their money in hard times she assumes these people are not worthy to manage and save their own money. She feels the need to step in and mandate what people do with their money. Which brings us to…
- “harder for them to borrow..” If you read my other blogs you know how I feel about this. It is OUR money but yet she feels the need to lock up our money and give us zero access to it. In hard times, money is needed to live. I will not rant about this here as I have another blog on this whole subject.
- “think too narrowly” and “get help and advice..” This is a great idea in concept but I wonder why we continue to neglect to teach our children about money? Why we offer our adults only one major option, the stock market through 401K’s and IRA’s? For all the talking that is done, they teach less and mandate more controls.
Schools can’t teach our children everything nor should they. Some things need to be taught at home and finance is a great subject for home teaching but when parents don’t know themselves it can’t be passed on. Adults need to educate themselves and stop buying into this one-way street mentality. Our kids and adults equally need to know how to correctly use money as the banks and how to create a secure future like the elite. Eyes need to be opened to the fact that we are instructed to do what is best for some not all.
Articles like this and economists like these two ladies do nothing but keep us on the road to financial failure. Do your due diligence, 90% can’t retire because they are on the same one way street like everyone else. If you are on this street and tired of the traffic, get off at the next exit.
Take it upon yourself to broaden your thinking and getting the help you need to find other avenues. Ms. Lusardi says that is what we need. She is right, just don’t wait for them to tell you, by then they will have a new plan for your future.
Contact us today. If you are already a client, I ask that you please share this with your friends. I don’t want to be retired waiting for my friends to get off work so we can have coffee. I want to celebrate retirement with them.