A recent Gallup poll asked working Americans what they expected in retirement. “Half of Americans think they will have enough money to live comfortably after they retire.” This is the first time since before the financial crisis that a majority of Americans have felt this way.

The poll is very revealing about both investing psychology and consumer sentiment. It contains good news and bad news.

Let’s start with the good news: Since the March 2009 lows in the equity market, and the nadir in the economic data, there has been a painstakingly slow improvement in psychology across the country. We have seen five years of gradual increases in employment, consumer spending, construction, exports and services. Although no one would say the U.S. economy in having a boom — we just had first-quarter gross domestic product that showed no growth — the gains have been impossible to miss. Things are getting better, albeit at a much slower pace than we would prefer. This is the nature of post-credit-crisis recoveries, as Carmen M. Reinhart and Kenneth Rogoff showed in “This Time Is Different: Eight Centuries of Financial Folly.”

I am not a big believer in what some have described as the Confidence Fairy-approach to managing economies. If only we fix the sentiment, goes this flawed and backward-looking thesis, then everything will be OK. It is a classic case of confusing correlation with causation.  Continues here


Category: 401(k), Investing, Really, really bad calls, Taxes and Policy

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

10 Responses to “The Retirement Delusion”

  1. rd says:

    I think there is a disconnect about how an individual and their financial planner need to look at retirement, compared to the more actuarial approach for the population as a whole.

    Much of the tooth-gnashing over people being unprepared for retirement is that most people do not have enought saved to have sustainable withdrawals for 30 years. However, most people won’t make it to their 90s, so many people are probably correct in saying that they have enough saved for retirement; we just don’t know which people those are. A number of the people who make it into their 90s will probably be poor then, but that should be a relatively small eprcentage of the total pool of people at age 65. In the end that is why Social Security and Medicare were created, to provide a safety net floor for people who would otherwise have nothing and would die of poverty instead of in poverty.

    The US spends more capita on health care than any other country in the world. We have a lot of low-hanging fruit to go after to reduce healthcare costs – there is about 5% of GDP just sitting there waiting to be picked and re-allocated to other purposes. There is going to be lots of bleating from the healthcare industry as they see their gravy train impacted, but I suspect that we will have better care at lower prices 30 years from now compared to today. It will be like the re-invention of the US auto industry that we have seen over the past 30 years.There will be lots of pain and anguish, but hopefully the healthcare industry will be able to learn from the past experiences of other industries instead of simply wanting to hold onto the good old days. I suspect that initially healthcare mamanagement will think it is everybody else’s fault, but after a while they will figure out that they are a major part of the problem and then can be part fo the solution.

  2. VennData says:

    “..This is the nature of post-credit-crisis recoveries, as Carmen M. Reinhart and Kenneth Rogoff showed in “This Time Is Different: Eight Centuries of Financial Folly.”


    Too bad their error-laden research didn’t support their conclusions.

    But like “Fannie caused the crisis” the GOP won’t let facta get in the way of a good narrative.


    Admin: Wrong error laden report == that was their Debt paper

  3. sailorman says:

    According to Forbes magazine, 70% of Americans have savings and investments of less than $100,000. How does this number match up with 50% of Americans thinking they have enough money to live comfortably?

    Social security pays something that will let you eat, but not much more. With today’s interest rates at less than 1% for a CD, people with $100,000 invested might get $4,000 per year from a 20 year annuity.

    Are the people surveyed delusional or is the Forbes survey wrong?

    • bigsteve says:

      Acceptable standard of living is in the eye of the beholder. I know relatives who live only on Social Security in low cost areas of the country who do fine. They have everything they need or want. I make a good living and spend far less than I earn. In retirement I will spend even less and have a bigger surplus. It is not that I am miserly but my wants and needs are modest. So yes the Forbes survey is probably accurate in perception of the surveyed and also in reality.

  4. Livermore Shimervore says:

    It seems we have a fixation of employment numbers without reality discussing or acknowledging that Clinton era all-time low unemployment fgures of the 90′s do not really compare to the present post-NAFTA, post-China Boom U.S. economy. Current unemployment levels in an economy that has become entirely focused on consumption rather than production/export is far worse than it appears — especially from the view of worker retirement. The jobs we have been adding to the economy since the dot.com crash have not been the type of jobs that can keep pace with significant jumps in commodity prices, healthcare costs increases, home ownership costs, etc.

    Yet Americans continue to live the lifestyle of the economy that no longer applies.

    Current savings rates should be in the double digits once again, home ownership needs to be reduced drastically (certainly well below the 50% mark, learn from the Swiss) with a focus on investments that do no not carry high costs to hold, IRA/401k’s must be streamlined severely to reduce the total number of redundant funds invested in by God knows how many dozens of funds — billions are being wasted in excessive fees, monies that can not be wasted this way. And frankly short of big time belt-tightening for the explicit purpose of increasing savings and investment, second part time jobs really need to be taken up by the millons of Americans who give themselves the luxury of taking every weekend off when their present savings rate is zero or negative. This is like announcing to the generations that come after them: “get my slippers and make sure the bath water is warm”.

  5. BennyProfane says:

    Weird. Half of Americans think they’ll do OK in retirement, while half have zero saved for retirement. I would like to see how the two groups intersect. Bottom line, though, maybe 20%, at the most, of Boomers, who are either over 65 or closing in, have anywhere near enough to avoid a pet food diet if they stop working.

    I just read this this morning: http://www.theatlantic.com/international/print/2014/05/the-danger-of-financial-ignorance-do-you-understand-money/361851/?source=Patrick.net

    Pretty amazing how financially illiterate most people are, worldwide.

  6. willid3 says:

    well with the average house hold income being around 50,000 (note house hold, not individual) how do we really expect them to be able to save much for retirement? they just make enough to barely survive, not much else. and social security, 401ks/IRA’s and pensions were meant to work together not by themselves as a retirement solution. take away any of them, and our retirement ‘solution’ will fail. and so far, pensions have been for the most part eliminated, and haven’t been replaced. and so far we do have some who want to eliminate social security too.

    and its not like ‘savings’ industry is there to help savers. they are there to make as big a profit as they can. how ever they can.

    and even if the common pension has been eliminated for the most part, there are still pensions for executives, that are in much worse shape that the regular one was

  7. constantnormal says:

    Bananamericans always take the path that makes Time their Enemy, rather than the one that makes Time their Friend.

    It’s who we are as a people.

  8. mrflash818 says:

    In my opinion, only “The one percent” will have a comfortable retirement.

    The rest of us will likely only have enough funds to meet basic needs.

    Simple example, just one metric: Automotive fuel prices.

    Back around 1991, a gallon of 91 octane unleaded gasoline was about US$1/gallon.
    Now, in 2014, it is about US$4/gallon.

    That fuel price has increased 4x in approximately 25 years. If the trend continues, retirees that will reach retirement age in another 20years would be looking at gasoline prices in the US$16/gallon range, yet their retirement income would be today’s.

    …Seems many will likely be just scraping by.

  9. intlacct says:

    “We haven’t even touched on the costs of long-term medical care for retirees. It is high, and likely to get higher as boomers age.”

    What I don’t get in some of the doom and gloom arguments (and BR is not by any means a d&g-er), is why regression to the mean doesn’t apply to stuff that is overly bad. Regression to the mean is always applied to profit margins. But it seems already high health care costs are doomed to grow to the sky. Why on earth won’t health care costs, which are a minimum of 50% per capita too high, return to earth once the US starts applying sensible strategies to squeeze profitability out of pharmaceuticals, doctors and device makers?