As a team that administers accounts for Self-Directed IRA investors, we’re very excited about the forthcoming publication of Falling Short: The Coming Retirement Crisis and What to Do About It (set for a January 2nd publication). The authors are Charles D. Ellis, Alicia H. Munnell and Andrew Eschtruth, and all of them are true heavy hitters when it comes to retirement investment theory.
Alicia Munnell currently heads Boston College’s Center for Retirement Research. According to her team, as many as 53 percent of Americans are at serious risk of not having enough money to maintain living standards in retirement.
While we’re waiting for the publication of the book, though, we did find a sneak preview of some of the team’s findings in this CRR working paper: Are Retirees Falling Short? Reconciling the Conflicting Evidence.
Among their key findings:
- Households retiring in the future will be less prepared than they were in past generations.
- Families tend to accept that they will be sharply reducing expenditures after children leave home, and therefore make retirement investing decisions on that basis.
- Other studies find that consumption does not decline in later years. Families banking on a significant decline in expenditures after the children leave the nest will be severely stressed, and unable to maintain their desired or expected retirement lifestyles.
- Most households are, indeed, falling short in retirement preparedness.
- Policymakers considering Social Security reforms should bear in mind the unpleasant realities.
- Government should seek ways to encourage more private saving, such as requiring 401(k)s to adopt auto-enrollment and auto-escalation polices, and to apply these policies to current hires.
All that is well and good, but it’s tinkering around the edges. It all comes down, in the end, to finding ways to substantially increase savings not just in 401(k)s, which apply to people who are W-2 employees, in the main, but also to encouraging people outside the system to become fully engaged in the problem of managing their own retirement preparations. It’s not just about 401(k)s for corporate employees: The solution must include massive improvements in the retirement preparation of independent contractors, small business owners just trying to keep their doors open, part-time and marginal workers, and everyone else struggling at the fringes of the economy.
“I think saving for retirement is really a hard thing to do,” said Alicia Munnell in a recent interview in Forbes. A lot of middle-income people are under enormous financial pressure because wages haven’t grown much.”
Only half of Americans even participate in retirement plans, for starters, Munnell argues, and even those trying to use IRAs and other individually-owned rather than corporate-sponsored retirement plans are struggling with stagnant wages and increasingly unstable employment.
Furthermore, despite current record highs in the stock market, actual returns on investment in diversified portfolios and income-based portfolios have been pretty lackluster, compared to past decades, thanks to stubbornly low interest rates, thanks, in part, to a Federal Reserve Board that is determined to boost current consumption at the expense of savers.
Among other measures, Munnell and the other authors argue that 401(k) plans shouldn’t just cover full-time workers – they should cover part-timers, as well.
They also argue that we should not allow people to take 401(k) distributions when moving from one job to another, and that we should do away with 401(k) loan provisions.
Self-Directed IRA Investors
Most of our clients are doing quite well. Self-Directed IRA investors in the first place tend to have been at least somewhat financially successful, and they have developed some expertise in some area of investing that they hope to leverage via the use of Self-Directed IRAs, 401(k)s and other retirement accounts.
If this describes you, you are at a big advantage over most people because you can declare independence from the stock market and to some degree, even prevailing interest rates. You are free to choose investments that don’t correlate to the stock and bond markets or to prevailing interest rates, and can therefore get an increased return on your investment at a given level of risk compared to most.
For those of you who have employees with less sophistication than you, however, you can probably make a substantial difference in their lives by adopting automatic enrollment and by making low-cost index funds available to them within your company –sponsored 401(k) plan or SIMPLE IRA.
You can do this without giving up full control of your self-directed assets, even within the same 401(k) or SIMPLE IRA plan you offer to your employees, since joining the ranks of Self-Directed IRA investors is obviously an option, not a requirement.
Want to learn more? Call American IRA, LLC today at 866-7500-472(IRA), or visit us online at www.americanira.com. We can walk you through your options, take a look at your existing plan, and work with your current team of advisors to give you the most freedom of action and independence possible, while still honoring your fiduciary responsibilities to your plan participants.
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