Office Space: Today’s Retirement

Tuesday October 31, 2017 12:01 AM
By Conor F. Delaney

In 1980, 60 percent of Americans were covered by a traditional pension plan. In 2006, that number had fallen to just 8 percent.

Why is this important? Because in 1980, the desire was to get to retirement and enjoy your retirement years by living off your pension and your Social Security. The “market risk” was taken on by the employer, not the employee. In bad market years, the employer could be forced to make up the difference between the withdrawal demands of the plan and the decline in investment performance. Financial advisers had two distinct roles: act as the “middle-man” between investors and product (stocks, bonds, mutual funds) and cater to the needs of the owners of the companies because they were the ones who had the investment risk of having the company pension.

Over the last 30 years, employers have largely shifted that risk to the employees. Instead of the stress to make sure the multi-million-dollar plan was solvent, they could set up a “defined-contribution” plan, i.e. a 401(k), whereby the market performance no longer affected the employer’s obligation. The employer contributes a certain amount of dollars or a certain percentage of income and the employee can invest those dollars in a tax-favorable way to save for retirement. If the markets perform, the employee could win, perhaps even more than having a pension plan. If the markets collapse, the risk of coming up short in retirement would fall entirely on the employee. Coupling the shift with the enhancements in technology gives clients more access to products and information. Therefore, the financial adviser’s role has changed greatly from what it was in 1980.

Eight percent of Americans are now covered by pensions versus 60 percent in the 1980s. What does that mean for the other 92 percent? Presumably (and hopefully), the other 92 percent are at least investing in some sort of savings vehicle for retirement, right? Unfortunately, we know that is not true. Amazingly, most Americans do not have $500 in savings.

Americans are living longer and the need to save while making good investment decisions is greater than ever. As advisers, we must make the pivot from being the best-dressed adviser in the 1980s who can give you access to the best products to the adviser who can relate and help you match strategy with the products that best meet your needs.

I often get asked what my “minimum” is and I have yet to figure out how to answer that question. I do not think I could find a more degrading way to enter a relationship than to gauge my interest based on the size of the family’s investment account. We must build practices and organizations that allow our families and communities to get closer to their goals regardless of the size of their investment account. When we do, the results will be rewarding and beneficial for all.

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