Cutting through retirement myths and misinformation
Dallas Salisbury, president of the Employee Benefit Research Institute, has long been a go-to numbers guy for anyone writing about retirement issues. On Tuesday, he urged reporters to use data to knock down myths and cut through political rhetoric.
One of Salisbury’s targets is the Universal IRA proposal that’s included in President Barack Obama’s budget. It would require employers to offer payroll deductions into an Individual Retirement Account, and their workers would automatically participate unless they opted out. Salisbury doesn’t object to the proposal, but he does object to the name.
The proposal excludes companies with 10 or fewer employees, and companies less than two years old. That, Salisbury says, leaves a big gap in something advertised as “universal”:
Most of the group of 75 million Americans without access to a plan at work would be excluded from those so-called universal proposals. I’d encourage you to look behind the words and force honest labeling on these proposals, even if people don’t want you to do so.
Another Salisbury pet peeve: Pundits and politicians who claim that the 401k retirement system is broken. At their peak, traditional defined-benefit pensions provided payments to fewer than a quarter of private-sector retirees, and the average defined-benefit payout is less than $2,500 a year. Compared to that reality, instead of people’s semi-mythical beliefs about gold watches and gold-plated pensions, the 401k doesn’t look so bad, Salisbury says:
Any person leaving a 401k plan with $35,000 or more in a single sum distribution would be able to buy an annuity with at least as much income as the average defined benefit pension recipient. … You can’t argue that $2,300 from a defined benefit plan is success and the equivalent from a 401k plan is failure. I love them all, but you want to make people present real data rather than notional information.
Despite all the doom and gloom you may hear from other retirement experts, Salisbury remains upbeat:
The state of the American retirement system is as strong as it has ever been. We actually have a bigger percentage of the American labor force than at any time in history accumulating retirement savings across the years.
(5 votes, average: 4.6 out of 5)
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David Nicklaus has covered St. Louis business for more than 25 years. His column appears three days a week on the Post-Dispatch business page. 
Our firm here in St Louis (ClaroConnect.com) matches people to financial advisors, and we’ve seen that this is one of the biggest reasons why people need help. All the different government programs to save for retirement (social security, 401k, IRA, Roth IRA, etc.) make it extremely confusing for people. Not to mention that government is changing legal rules across the economy, so investors don’t feel they can trust the rules, and investors know that Social Security is going bankrupt. The bottom line is that many individuals should plan on saving more and spending less. A local financial planner can help many people put together a retirement plan that makes sense for them.
In the interest of the “full disclosure” that is cornerstone of government regulation of the securities/financial planning industry, I’ll reveal that I’m registered as an investment adviser.
I do not sell anything, do not manage people’s money for them, and ONLY give advice on an as-needed basis for an hourly fee of $80 per hour. I don’t make enough from this service to live on, but don’t need to because I made my money doing “real” work in the form of engineering and have successfully invested that money according to the same rational economic principles that I explain to my very limited number of clients. Most of these are middle-income people who are approaching retirement or in retirement.
Having said all of that, I caution all investors to reject the advice of anybody like the preceding poster who is trying to scare them into paying for dubious financial advice by scaring them with the flaky statement that “Social Security is going bankrupt.” For a rational assessment of the real versus the imaginary challenges faced by the Social Security/Medicare system, refer to my various comments on this blog extending over the past several years.
Anyone who questions my credibility (as they SHOULD do of anyone giving them financial advice) should note this: Well before the latest crash of the stock market, I was giving free advice on this blog to the effect that people in retirement or approaching retirement should allocate a much higher level of their assets to bonds than indicated by “conventional wisdom.” And I particularly recommended inflation-protected Treasury bonds (TIPS) for the bond component of their portfolio. I still do, and if any other “financial adviser” whom you contact is not familiar with the unique advantages of TIPS as a significant PART of an overall portfolio, you as an investor had better find one who is.
Ted, I can vouch for your comments over the years in this blog, and your financial sense is evident.
I think if we are honest with ourselves we can clearly see that SS is indeed going broke. The demographics of the population, estimated revenue and expenses, and other data clearly show a system that is not sustainable.
SS is not going broke. Why not? Politicians like to be re-elected. There are way too many boomers who will absolutely have to have SS payments. Any pol who doesn’t come up with the money will be cutting his/her own throat. Won’t happen.