Already a subscriber?As a retirement economist – not to be confused with a retired economist, which are rare – I often find myself talking to Wall Street types who happen to be in charge of a lot of other people’s money. The conversations vary, but the takeaway almost never does. As a senior executive at a large asset-management firm recently said to me, with surprising candour: “We don’t know how to solve the retirement problem.
There is some good news. More employers than ever offer retirement benefits in the US, and automatic enrolment has increased worker participation and improved how investments are made. The 2022 Secure Act should expand coverage even further. Today’s Americans have more money saved than previous generations.
Defined-contribution pensions don’t have such a clear goal. Often their brochures talk about income, but the strategies appear more geared to achieving a certain level of wealth. Most investors – as well as the retirement industry – judge the success of their retirement portfolio on its value on any given day, or over some arbitrary period, or on how much money it will have on day one of retirement.But the goal of retirement finance isn’t your wealth level on a particular day.
Income, as a goal, should be more prominent from the start – and it should be how success is primarily measured. The investment menu should also offer more income-oriented investment strategies. The idea is to give people a sense from the beginning of how much income they can expect when they retire. It would help ease the transition from working and saving to retirement and spending.There also need to be more and better annuities, both immediate and deferred.