Source Article: http://www.smartmoney.com/retirement/planning/the-cost-of-living-longer--much-longer-1328897162395/#printMode
If you are like me and HATED Statistics in school – sadly the one class I had to repeat twice and ultimately drop in an otherwise stellar college career – then you will give yourself a massive headache reading the article by Charles Passy that appeared in SmartMoney magazine this past February.
So allow me to summarize for you. Mr. Passy addresses the answer to the age-old (technically 429 year since the first life-insurance policy was issued in 1583) problem of how long you can expect to live, or as my favorite Investment Risk Profile questionnaire asks, “When do you expect to DIE?” I don’t know about you, but I’m really concerned about what happens if I get the answer to that question WRONG!!
Of course, you’ve heard me lay out the simple solution that makes the need to answer this question irrelevant, and that is you must “Save enough during your working years so as to be able to replace your final salary with just the guaranteed interest on your savings.” And you can find that solution here.
But back to the article at hand…
Mr. Passy provides some idea of the magnitude of what the Compass Institute refers to as the “Investment Return Gap,” i.e., the difference between the amount of money you HAVE and the amount you NEED, when he lays out the total amount in the United States invested in investment sources like company retirement plans, IRAs, state worker funds, corporate pensions and Social Security versus the amount of money that will be needed by Americans during their retirement. The size of the problem has 14 – that’s FOURTEEN – zeros after it. That’s not even a number most humans can comprehend. Let it suffice to say it’s a problem that may not be fixable by any rational or socially acceptable means.
The author interviewed several experts in the area of human longevity, one of whom is Stephen C. Goss, the chief actuary of the Social Security Administration. When asked to categorize the people in America whose retirement strategies will lead them to have a financially secure retirement, he could think of just one; not one “category” but one person—none other than one Mr. William Henry Gates III, aka 2011’s wealthiest American. Surely Mr. Goss was exaggerating because I have a hard time seeing Warren Buffett, Larry Ellison, George Soros, or the Waltons (the Wal-Mart ones, not the TV ones) facing a financial crisis anytime in their future. But nevertheless, the point is this is a severe issue faced by nearly every American and one that will only get worse without prompt attention.
So, unless you share financial stratosphere with Mr. Gates, etc., the author essentially sounds the alarm – as well he should – to the real problem of people outliving their money. The Compass Institute coined a phrase, Retirement Income Security Risk, meaning “the risk of running out of money before you die without a substantial reduction in your standard of living.” This is a classic “good news/bad news” scenario. The good news is people are living longer due to advances in medical science. The bad news you are likely to end up needing far more money than you will have to live out those extra years, however there may be.
True, people will not live forever and as Alan Glickstein, a pension actuary with benefits consultants Towers Watson points out, “all things in the natural world are destined to stop growing sooner or later.” There are several competing factors at play. Despite the fact there are 2,200% MORE centenarians in the US that there were in 1950, one third of Americans are classified as obese and therefore at risk for such life-shortening ailments as diabetes and heart disease. But even if we were to put America on a much-needed diet, scientists would still have to come up with a way to slow the biological processes of aging itself, which experts agree may not be possible.
But since some of these concerns are not for our generation – or even the next – lets deal with today’s realities. University of Illinois at Chicago researcher, S. Jay Olshansky concludes that “no matter what cures doctors discovered, humanity would hit a longevity wall -- with men and women, on average, reaching age 85 for the foreseeable future.” However, at the very least, say most pros, “It’s essential to plan financially at least through age 95 -- and if you have a history of longevity in your family, figure on surviving to the century mark.”
And, if you are counting on your current (or former) employer to help, you may be gravely disappointed as pensions continued to be depleted. And those government employees depending on state pensions may have it even worse. According to a 2010 study from the Pew Center on the States thirty-one states "have less than 80 percent of their pension obligations funded."
So the challenge to each of us is not to answer the question “How long can you expect to live,” (answer somewhere between 85 and 100) but rather answer the question “What am I going to do about it now!” The answer is to start taking an active investment approach to growing and protecting the one thing that you can control—your retirement plan.
Kevin L. Coppola, President, Compass Investors, LLC
Toll Free: 1.866.54.COMPASS
Direct: 1.847.920.1825 x 1234
Source Article: http://finance.yahoo.com/blogs/daily-ticker/america-retirement-system-failing-us-economist-153445894.html
More validation today for our messages of the past decade to a growing problem. It’s nice to see other people starting to finally get it.
The article highlights the problem Compass Investors has been trying to alert people to for the past decade. As you know we call it the "Retirement Income Security Crisis".
Employers were given cart blanche 30 years ago to "punt" their responsibilities to provide retirement income for their workforce back to their plan participants through the implementation of the defined contribution program. However, it's like being given a car without the keys or without driver’s-Ed!! It's a great idea and concept but people are ill-equipped to use it.
The Defined Contribution plan, or the "do-it-yourself pension plan" as the author calls it (I love that term) forgot that most people without investment experience and, even potentially more disastrous, those people who think they have investment "experience," would be unable to get the same results (as poor as they may be) as professional investors and money managers.
But that's only half the problem. As you know even those "professionals" have been unable to fill the gap left between what a TDF (the investment vehicle of choice) will produce and what will be needed to obtain Retirement Income Security.
Compass Investors has been saying for 10 years that people should save not the 8-10 times their final salary before they retire that the "professionals” have advised, but rather they should save at least 20 times in order to have Retirement Income Security. Well this author agrees to the number (I wonder if she took a look at our web site?!) and it’s about time people are stepping up to these realities.
Furthermore, we've stressed that to have Retirement Income Security you need to divorce yourself from dependence on government programs (Social Security, Medicare) that are not under your control and potentially insolvent. If they survive until you need them, great! No one will ever complain about having too much money!! But why risk it when the retirement plan, properly and actively managed, CAN by itself provide most Americans with Retirement Income Security regardless of any government entitlement programs.
The article, as well as all others, stops short of providing any answers to these burning issues. But the good news, is Adaptive Asset Allocation™ is a solution to closing the Investment Return Gap which will lead to many more people finding Retirement Income Security in their lifetime.
This article joins the growing list of external supporting references posted on the Compass Institute web site where the “Retirement Income Security Crisis” and Adaptive Asset Allocation™ stories have been told going back a decade now.
Kevin L. Coppola, President, Compass Investors, LLC
Toll Free: 1.866.54.COMPASS
Direct: 1.847.920.1825 x 1234
By Kevin L. Coppola
(Click Here to Read the ORIGINAL ARTICLE)
The on-again-off-again public concern over Social Security seems to me to be an inversely correlated concern over what the markets—and correspondingly, retirement plan balances—are doing. When times are good for the stock market, people seem to want to raise concerns about Social Security. And when the markets are going down, Social Security seems to take a back-seat to concerns about the market.
Why is this? I have 2 theories:
(1) Greed and fear are the 2 emotions that drive most people. No offense to you if you are one of the few who have those emotions well in check. However, for the “greed” driven, when all is well with their retirement plan, they go looking for MORE. “Social Security…woe is me…may not be there when we “need” it, etc.”
(2) For those already resigned to the possibility that Social Security may not be around—or at least insufficient to provide Retirement Income Security—their focus, AS IT SHOULD BE, is on the fate of their retirement plan…how to fix it…what is their employer going to do for them?, etc.
We don’t have a Social Security crisis in this country…what we DO have, and what the article confirms and Compass Investors has been saying for a decade, is that we have a retirement security crisis. And between 92% and 100% of those surveyed, depending on their age believe that to be the case too. And, BTW, having 90% of respondants agree to something is an unheard of number as far as surveys are concerned.
Compass Investors begins our education process by encouraging new customers them set a goal for having Retirement Income Security. That goal is, simply put to “make sure you can generate your pre-retirement level of income, no matter how long you should live.” This can be done by growing a nest egg large enough so that you can invest it in a guaranteed product (such as an annuity) and live off the interest alone.
The author speaks to the use of annuities in the article too. However, annuities have a bad rap for some reason. Well, we don’t sell them, but I can tell you I have a few for just the reasons I mentioned. If my company is not going to have pension money left for me when I retire, and/or if the government is not going to give me a “pension” (aka, Social Security), then I’ll just go create my own by growing my retirement plan large enough so that I can annuitize it and live off the interest—forever, if need be. After all, my retirement plan the ONLY thing I can control or do anything about!
Learn more about the SOLUTION today! Research Compass Investors L.L.C.
Kevin L. Coppola
by Kevin L. Coppola
(original article here)
This article entitled, “Scary study shows 401(k) matching doesn’t work” in and of itself should be a concern to a 401k investor and plan sponsor. The essence of the article is that the choice of which funds to own is a difficult one and one that the plan participant is likely to either not make at all, or make the wrong choice (at least better than doing nothing.)
This flys in the face of plan sponsors who think they are doing their plan participants a favor by giving them more choices. My favorite is the “brokerage window” offered to many Fidelity plan participants. If the plan participants can’t do well with 20 choices, what are they supposed to do with 3,000??!!
Additionally, the article all but admits that the best return someone can expect over their lifetime is 8%, which can be shown mathematically to leave plan participants well short of the Retirement Income Security goal of being able to replace 100% of their pre-retirement salary. And this is still overstated.
-As using historical returns of 10% for stock and 3-5% for bonds, it would require the average equity/fixed income mix over a lifetime to be 80%/20% when the reality is only the most “aggressive” investor would hold this percentage, and the industry advises all people to reduce the stock holdings – and therefore reduce the potential return – as they get older.
-So a 60/40 lifetime mix may be closer to reality and it’s return would be closer to 6% than 8%. Note that the BEST formulaic asset allocation fund (fixed pie-chart of XX%Stocks/XX%Bonds) over the last 14 years has averaged 6.7% return, so the average would of course be lower.
ATTENTION: Plan Sponsors
- Make the best use of the plan you already have
- Contributions—yours or your employee’s—matters little. What matters are the results.
-Most plan participants just want to be told what to do. The Horizon™ Model Portfolio does exactly that.
-The return for default investments can AT BEST be between 6-8% which are insufficient to generate enough income in retirement. Horizon™ offers 12-14% on average (Hard to believe? These results were audited by Ashland Partners).
ATTENTION: Plan Participants (401k Investors!)
- Get a regular analysis of your 401k fund options every 5 weeks with SIMPLE guidance on how to align your portfolio for success
- Empower yourself to have ACTIVE CONTROL on your own money with the proven support of the Horizon™ service
- Achieve better results for yourself and your money!
- Have confidence that your retirement investments are on the right track!
Kevin L. Coppola