“American Workers Short on Retirement”

The Wall Street Journal published an excellent article last Saturday focusing on the shortage in retirement savings for the age group between ages 60 and 62. These are the pre-retirees that hope to retire within the next 5 years. Their findings are that this group is about 75% short of their needed amount within their 401(k) s. The typical household was earning $87,700 and the assumption was they could retire on 85% of this amount for a total retirement need of $74,545. I find this to be a false assumption since most households can’t or won’t accept a 25% drop in income and expenses unless it is forced on them through job loss or disability. The article goes on to explain the average employee in this situation has under $150,000 in their 401(k) when in fact they would need $636,000 to bridge this gap. Remember the gap already assumes a 25% drop in income and expenses and confirms that the average employee has accumulated approximately 3 years of income when they typically need a minimum of 8-10 years of income.

We have a crisis on our hands that we are not yet addressing with the level of urgency that’s needed to create viable solutions. Our current retired population is much different than our next retired generation. My parent’s generation retired with monthly pensions, paid off homes and very little consumer debt; if any. The baby boomers are a whole new dilemma. Most don’t have a pension and many carry large mortgages well into retirement. Many have most of their money in their 401(k) s and all of this money will be taxed when withdrawn.


There is plenty of blame to go around about who is responsible for this future financial crisis. Just imagine 100 million retiree’s running out of money and dignity; well this isn’t totally true because 8% are estimated to be on track. An 8% success rate tells me that it can be accomplished even within the current less than perfect system, after all, what one man can do another can do. We must learn about the behaviors and attitudes of the most successful savers and incorporate these characteristics into our retirement system while drastically improving the quality of the investment experience by creating low cost and efficient plans. Many of these traits and behaviors can be automatically built into the plan to nudge us in the right direction using technology. In my travels I view this as a joint effort between the companies and the employees. In almost all cases I see inferior, high cost and inefficient plans that are run by employers and HR Departments that are not trained in result based retirement plans. They tend to be complacent and thrilled to have a plan no matter how bad it might be and once they own it they tend to defend it for years. On the other hand, we have employees that must figure out how to mirror the 8% that have successfully funded their retirement plans. These behaviors are things like; signing up early and regularly increasing their savings amount. They choose low cost, diversified portfolios within their plan; they don’t spend their accounts when they change employers and rarely use loans. The best state of the art plans have automatic sign-up at certain percent of income with annual increases of 1 -2 % per year until you reach a maximum savings rate. They also provide professionally managed accounts so the employees can choose risk adjusted portfolios instead of trying to assemble and manage a portfolio using expensive and normally high turnover funds. I hope we begin to take these warnings to heart and start to ask; “What can I or my company do to improve our Retirement Outcomes?” Just Ask!