Avoiding The Retirement Crisis

Jill and I went down last Friday to pick up Maeve at college.  You know, it is good to have Maeve home from college.  I really missed the kid.  Over last Saturday’s breakfast with the girls, we somehow got on the topic of funny stories of our girls when they were little. Jill, with her elephant-like memory, reminded Maeve about a time when she was about 6 years old or so and saw a Hannoush jewelry store commercial for Valentine’s Day, which was a full month away. Maeve had decided then and there that she was going to buy Jill a diamond necklace. I laughed and told her to better save up her money. But come allowance time over the next 4 weeks, she spent all of it at Ghelfi’s candy store with Phoebe and Sophie. Each week I reminded her that she needed to put something aside if she wanted to have enough for Jill’s “diamond necklace”.

Alas, it’s two days before the big day and the girls and I are shopping for Jill. And Maeve was in tears because she didn’t have enough. In fact, she could barely afford a red carnation so I did break down and give her a few bucks to buy Jill some roses.  Now I’m not that cruel, so I didn’t use this as a teaching moment for a 6-year old kid, but reminiscing about this story did bring to mind some very similar situations I see with folks every day – the inability to think ahead and start saving now for retirement. So this week with our time together, let’s talk about planning and saving ahead of time so we don’t come up short in retirement.

Now, there has long been talk that the America as we know it today is headed for a retirement crisis.  Click on any news site and you’ll hear this theme repeatedly, and unfortunately there’s no “silver bullet” for fixing the problem. This should be obvious, because if there were such a thing, we wouldn’t be in the retirement predicament we are. Just how serious is this problem? Well, consider recent studies which show that one in four Americans have nothing saved for retirement – nothing! And a substantial number of other Americans have woefully under saved and under planned, as the median retirement savings for Americans aged 55 to 64 is $120,000. This translates into approximately $1,000 a month in income over the course of 15 years. I don’t know anybody who can get by on $1000 a month in today’s dollars, let alone years from now, especially as inflation begins to heat up.

For far too many, their only solid plan for retirement is Social Security. Unfortunately for the typical American, Social security will provide approximately 40% of their pre-retirement income. In contrast, an even marginally comfortable retirement would require most Americans to generate an income of at least 70% of their pre-retirement spending. Couple this with studies showing that Social Security is due to become insolvent by 2034 without any legislative changes, leaving with beneficiaries receiving just 75-79% of their planned benefits, and things sound downright scary.

This should be a wake-up call for all of us to better control the things we can, specifically our own retirement. As Ben Franklin once said, “The failure to plan is a plan for failure.”

Hmmm . . . Folks, I have lived my life by that quote.

You see, I believe that much of the problem here comes from poor access to information and the lack of access to certain retirement vehicles. For example, people that work in small businesses often don’t have access to 401Ks.  While we are likely to get technology driven texts from our bank or credit card company, retirement planning as a whole has not kept pace with that type of push-driven information to consumers.

So how do we solve for this? Well, first off Social Security needs to be addressed by Congress and future administrations. And we must improve access for everyone to different types of retirement accounts and, most importantly, make it simpler for people to save. People are far more likely to engage in retirement planning if we add technology and automate the savings and investing process. We need to prioritize being educated on and engaged in the one thing we can control . . . our own retirement. In other words, we must develop our own sense of urgency.  We must take responsibility.

It’s also important to note that people that have access to professional financial services may fare better than those that do not. Some incorrectly assume that the main benefit of having an advisor is that the advisor can predict the best future returns on investments. This is folly since no one can predict the markets consistently . . . I mean no one.  In fact, a good advisor will help folks to see the big picture and to design and deploy a sound retirement system without the emotions that follow money. They make sure the details are attended to and your system is designed to remain steady during stormy times. In my opinion, good advisors often prepare for the potential downside risks that are inherent in the markets by incorporating quantative data to help give the retirement system the highest probability of financial success.

And I also know it can be difficult to plan for retirement when day-to-day life occupies so much of our time. Heck, I’m 53 years old, been married to the same gal for 28 years, built a business, raised three great kids and coached their sports, I get it!  Many young people are planning a family, or the purchase of their first home or car. People a little further along in life are setting aside money for their children’s college fund. The pandemic has many of us prioritizing building up our emergency fund reserves. Still, it’s crucial to start saving and building your retirement system as soon as possible. This will allow you to reap the benefits of compound interest, which is how money makes money on money over time.

As a country, retirement planning can seem daunting. But folks, the good news is that you can still exercise considerable control over your own individual circumstance. Take time now to save for your retirement “diamond” so you don’t have to settle for the carnation instead.

And as always – be vigilant and stay alert, because you deserve more!

Have a great week.

Jeff Cutter, CPA/PFS is President of Cutter Financial Group, LLC, an SEC Registered Investment Advisor with offices in Falmouth, Duxbury, Mansfield. Jeff can be reached at jeff@cutterfinancialgroup.com.

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