I spend a lot of my time reading about retirement planning. Just not before bedtime.
This morning, at 2:30 am, my phone made that odd gulping bleep: Rebecca, my editor, had sent a text. “Can you talk?” Uh, oh. I rang her up, 11 time zones away. No problem with any of my stories; she simply couldn’t sleep. What was wrong?
“I watched the Japanese version of ‘Ring’ – the one you recommended.” Ah, it’s my fault; now I must pay for the horror by hearkening. “Gosh, it was scary. It was ten times worse than the American version. Everything we do here stinks.” So Becky was off to the rant races; I didn’t listen closely, but there was a multi-minute comparison of the US and UK Kit Kat candy bars, and we came off badly.
What’s with the mood? “I ache all over. Everything I eat makes me sick. I wake up tired and stay that way. My eyes are all red. My big toe is killing me.” Tell me about it. Whenever I feel good, I red-mark my journal. It’s as rare as a holiday on Devil’s Island. Stick around a while in life, and that’s your lot.
My mother – today would have been her 105th birthday – was a genteel Irish lady. There were certain things she just wouldn’t say. If a woman was grating or snippy, mom would say, ‘Don’t be an itch’. If a politician was lying, laying it down in great steaming patties, she’d say, ‘What a load of old hoop-di-do.’ And if her arthritis kicked up, Marie Lynch would say: ‘That’s what to expect at my ay-gee-ee.’
A-g-e. Aging – it’s a frightening word, if not grossly indecent. I suspect this is what keeps Rebecca up at night, and without sharing too much, I know she’s concerned. Me too. No matter our preparations, we wonder – if something goes wrong in our truly old age, have we socked away enough to get by?
PWC has released a report that makes essential, if slumber-killing, reading for retirement industry professionals and clients alike. It’s called “Retirement in America; Time to rethink and retool.” Ferret it out and give it a look.
Here’s the gist for today’s purposes: “There are too many signs suggesting the population is unprepared” to retire and live comfortably – and sleep peacefully at night.
Twenty-five percent of our compatriots have saved nothing for retirement; 64% fear their retirement plans are insufficient to support them. PWC estimates the median retirement savings for people in the crucial age 55-64 cohort is $120,000, which would provide less than $1,000 per month in income for 15 years. These are a few of many stark figures. To see what a retirement planning crisis looks like, examine PWC’s report – but read it only during daytime.
The government has noticed our predicament. In the Secure Act of 2019, Congress mandated that 401(k) plan sponsors must provide two graphic illustrations in their quarterly and annual account statements to participants – sponsors will start issuing them next year. The illustrations will show the projected monthly income from the plan’s current balance, assuming it was placed (1) in a single life annuity, or (2) in a qualified joint and survivor annuity.
The illustrations will assume that the plan participant is 67 years old, which may lead to unquiet slumbers, or indeed wide-awake nights, as young participants contemplate the reality of being ‘oh-el-dee’, another of mom’s lacy euphemisms. That’s exactly the intention of lawmakers. They want wakeful nights; they want us to do something.
The Labor Department is guiding the assumptions informing the illustrations. Life expectancy figures will come from the IRS’s mortality tables. Annuity income will be based on the 10-year US Treasury yield at the time the illustration is issued. The Labor Department started pushing for these retirement income graphs in 2013, but everything takes time in Washington. They got it done, though; it’s now time for plan sponsors and participants to wake up.
The motive is to get plan participants thinking less about account balances, and more about the monthly income their nest eggs can generate. Critics say there’s a flaw in this system: young people will have miniscule balances, as a rule; PWC estimates the median retirement savings of those under 35 at just $12,300. My off-the-cuff estimate projects this would generate a monthly income below $100.
Congress hopes a terrifying illustration might spur young investors to double down, save all they can, while they can. Those critics fear it might scare them off. In Congress today, some members are pushing to include even more information in the new disclosures, aimed at incentivizing future savings and investments by illustrating how they might boost one’s retirement income.
I don’t know how this will run, as the mandate as written looks ready to go. I hope these additional assumptions are included in the graphic package, at some point. Hope is what drives future planning. I think optimism is driven by sound information that highlights alternative outcomes, good and bad, and you must proactively choose. ‘Show us a way forward, and we’ll take it’ is my principle.
A trend is noticeable today, part of the global shift to adopt sustainable business practices: companies are providing regular financial advice to employees. I hope plan sponsors will explain these new graphics, as a matter of policy, to employee-participants. They should hear a clear message: hard saving now, while you are working, will lead to a restful retirement.