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Guest Editorial Financial Services Industry Shares the Blame for Empty Nest EggsBy Jane White, President of the Retirement Solutions LLC and a former financial journalist. She can be reached via email at jane@retirement-solutions.us. The Retirement Solutions LLC is a non-partisan organization dedicated to educating the public about saving for retirement. Defining the goal should be a no-brainer. A typical formula used to calculate a defined benefit pension for long-services workers is 10 times final pay, which is why most people who are earning $100,000 at age 65 should aim for at least $1 million. As PSCA President David Wray has been quoted, "Ten times final pay gets it done…The issue is the 40 years. You've got to start (contributing) at 25 to retire at 65." Right you are, David. Or, if you don't start at age 25 you've got to ratchet up your efforts to make up for lost time by contributing 10 or 20% of your pay, depending on how long you've procrastinated. Are the folks who advise 401k investors communicating this formula? With the exception of the Wray quote, we've never found any article that cites this formula. What's more, when we asked the major players in the 401k investment arena whether they offered a target, their response was that they instead offer great online tools to help people reach their personal goals. Well, guys: maybe you do but the majority of your customers are leaving them in the tool-box. We don't need to rely on survey data to know that 90% of Americans are going to come up short when it's time to get the gold watch. If the median income for 62 to 65 year olds was $46,000 in 2001 (the latest year that statistics are available), then the median 401k balance combined with rollover IRA balances for that age group should be about $460,000. However, the median balance in 401k plans for age group in 2001 was $45,000; as was the median balance in IRA/Keoghs. So that's a measly nest egg total of $90,000 when it needs to be nearly five time that much for that income bracket. To make matters even more outrageous, a group of financial advisers has created an organization called the Retirement Income Industry Association, to help Americans nearing retirement age take advantage of "durable, inflation-adjusted retirement income" (translation: variable annuities). Read my lips, RIIA: if Boomers haven't accumulated enough money to last them 20 to 30 years in retirement, they need to stay in the accumulation phase (keep working), not the distribution phase (retirement) because there is no investment product that's going to guarantee to morph a $90,000 nest egg into a $450,000 one, especially after you subtract the outrageous fees. When there is, call me. Warren Buffett once said that the financial services industry reminds him of doctors who prescribe medicine to patients who aren't sick. We'd level more serious charges: that these doctors don't tell their young patients that compound interest matters more than the investment they choose. Nor do they warn their asset-poor middle-aged patients that in order to get financially healthy they must swallow the bitter pill of working harder and longer and banking more. People in the latter group may initially respond to this advice by wanting to "shoot the messenger" but at least they'll get the message they need to make up for lost time rather than being sold an investment product that can't work magic on an empty nest egg. ### 401khelpcenter.com is not affiliated with the author of this article. The opinions expressed here are those of the author and do not necessarily reflect the positions of 401khelpcenter.com. | ||||
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