Selling Employees Life-Long Austerity to Create Retirement Income

The financial services industry has quite a sales job ahead.  Is lifelong austerity the only solutions to the radically extended retirement income needs of future generations?

Want to “change the world” or “save the world?”  Set aside the tropical locations and clean water, micro-lending, mosquito nets or the next “mating and dating” super app – get every employee at your local tool and die shop to embrace austerity and save more for retirement – truly.

To meet growing retirement income funding needs, we are looking at an abrupt “about-face” in lifestyles and spending, especially for younger employees.

Actuarial Certainties
There appear to be three certainties in the new future of retirement:

  • Lifespans have already extended to historically unprecedented lengths.  These lengths will likely continue to extend out into more decades beyond normal worklife.  Especially for women.
  • Funding of these extended lifespans must come from savings accumulated during everyone’s worklife.
  • The default financial behavior is to spend now and never save for the future. 

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Retirement Income and Consulting Blueprint? Lecture: Robert Merton @MIT Video

Out of all topics Merton choose the quandary of retirement income.  He is straightforward and seems to lay-out the blueprint for addressing this very tough challenge.

Here is the full lecture on video — worth studying and watching — more than once.

To illustrate society’s need for financial innovation, Merton uses “a live case study:” the vast problem of retirement funding. In the past decade, stock market declines and falling interest rates have hit mainstream employer pension plans hard. Municipal pension plans may be underfunded to the tune of three trillion dollars. (“It makes the S&L crisis look like nothing.”)

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Robert Merton @#MIT on Retirement Investment Challenges - Blueprint for the Future?

Evidence on Retirement Plan and Financial Education - Hard Realities

This is always a popular topic with much heat but only dim light.  Here is a study from Michigan.  Our understanding is that any kind of adult education is very difficult. Our behavior patterns are pretty much set before age 30.

Results for this study:

Key Findings: 

  • The more valuable the pension, the more knowledgeable are covered workers about their pensions. We argue that causality is more likely to run from pension wealth to pension knowledge than the other way around.Most measures of cognitive ability, including numeracy, are not significant determinants of pension and Social Security knowledge.
  • Standardizing for incomes and other factors, a pension of higher value does not substitute for other forms of wealth. 

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Have the 401(k) “Haters” Been Satisfied (or Turbo-Charged) with Full Fee Disclosure?

It’s like trying to make a tiger a vegetarian by over-feeding them raw meat.  Once they get the “taste of blood” – they want more.

They want more.  The drumbeat and venom directed at the 401(k) system and pretty much any one serving it in a professional capacity is rising.  Here’s the latest example from Huffington Post.  “Gravy Train” - “Leak” !?  Look at these LA Times and CBSMatkewatch articles and comments if you want to see some venting and name-calling.  Notice the attacks by one of the by-lined journalists! Whew!

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