Saturday, June 25, 2016

Your Plan Might Be an Excessive Fee Litigation Target If…

Last week another of the so-called excessive fee lawsuits was settled – not adjudicated, mind you. Here are some factors that the targets of these lawsuits seem to have in common.
Now, in fairness, most of these cases haven’t actually gone to court – and, by my count, most of the ones that actually get to court are won by the employers/plan sponsors. Even the Tibble case, which drew so much attention when it made it to the Supreme Court, eventually came out in favor of the plan sponsors (though they “lost” the Supreme Court decision).
However, a lot of litigation has been filed over the past decade, and millions of dollars spent — reminding me of an old mentor’s admonition that you can spend a lot of money in court being “right.” That so many employers have decided that it is “cheaper” to settle for millions of dollars gives you some idea of the magnitude of these challenges.
So, with that in mind – and with apologies to Jeff (“you might be a redneck…”) Foxworthy: Your plan might be an excessive fee litigation target if…
It’s a multi-billion dollar plan.
Nearly all of the excessive fee lawsuits filed since 2006 (when the St. Louis-based law firm of Schlichter, Bogard & Denton launched the first batch) have been against plans that had close to, or in most cases in excess of, $1 billion in assets. There’s no real mystery here. Willie Sutton robbed banks for the same reason: that’s where the money is. And if you’re a class action litigator, that also happens to be where a large number of similarly situated individuals can be found.
Harder to figure out is why plans of that size, and the expertise/resources that such employers can ostensibly bring to plan administration, have been so vulnerable.
Your multi-billion dollar plan has retail class mutual funds.
Granted, even at the largest employers, individuals frequently find themselves assigned the responsibility for being a plan fiduciary with little or no training or background. Still, in this day and age, it’s remarkable that so many of these targets were either so ignorant of the concept of share classes or so poor at negotiating with their providers that they included options in their multi-billion dollar plan menus funds that were, in some cases, no more competitive in price than what the individual plan participants could have acquired in their IRA.
You have proprietary funds on your menu.
As a financial services provider, there are any number of valid business reasons to include your own funds on the menu you offer to your workers. It’s a testament to your willingness to “eat your own cooking,” a statement of confidence in the skill and acumen of your investment management staff.
However, this access can be used to prop up funds with steady cash flow that aren’t deserving of that confidence, and can provide at least the temptation on the part of committee members to favor internal offerings to the exclusion of external choices. Moreover, since it can be difficult politically to “fire” an internal service provider, the plan might find itself paying “retail” prices, not only for funds, but for administrative services – an issue that has been made in several of these lawsuits.
The bottom line: However outstanding your internal options are, the current litigation environment seems to favor a “Caesar’s wife” approach – your actions need to be above (and beyond) suspicion.
You can’t remember the last time you benchmarked your plan/investments.
Let’s face it, even changing a single fund on an existing menu can be complicated, much less a full blown consideration of changing record keepers and fund menus. And plan sponsors, even plan sponsors at multi-billion dollar plans, juggle myriad responsibilities and are constantly pulled in multiple directions. “If it ain’t broke, don’t fix it” is a mantra born of practicality, if not necessity, for most. If the current process and services are working, that is often “enough.”
But if you haven’t been through some kind of competitive bidding/review process in recent memory – well, “it seems to be working” isn’t necessarily in keeping with the legal admonition to ensure that the services rendered and fees paid for those services are “reasonable” and in the best interests of plan participants and their beneficiaries.
And even if it is in the eyes of a judge, a motivated plaintiff’s bar can likely make an issue of it.
You are still paying asset-based record keeping charges, rather than a per-participant fee.
Okay, this is a new one. I don’t recall seeing this being an issue until this year – and though it has been alleged, and incorporated in a couple of the most recent settlements, to my recollection, no court has ever ruled on this.
That said, the current and apparently emerging argument is based on the notion that there is little correlation between record keeping services and the dollar value of that account. And the most recent litigation puts forth some fairly specific notions of what that reasonable per-participant charge should be. And did I mention that this has even been raised in some very recent litigation involving a $10 million plan?
You haven’t hired a qualified retirement plan advisor to help.
It’s possible that advisors have been involved in these plans, but to date I can only recall one situation where an advisor was involved/named (though not as a party to the litigation), and that more an investment consultant than an advisor, per se.
That said, when you look at the issues like share class selection, and the lack of regular review (not to mention documentation of that review) in many of these cases, you can’t help but think, “Where was the advisor?” The answer seems to be that these plans hadn’t engaged those services.
And then you can’t help but wonder what difference their involvement might have made.

Saturday, June 18, 2016

Oliver's 'Twist': 5 Takeaways

I’ve long enjoyed John Oliver’s take on the world. He has a gift for bringing humor to subjects that aren’t generally seen as funny, and in the process not only helps make complex topics more approachable, he gives voice to the frustration that millions surely feel at the world around us.
That said, when he decides to weigh in with his style of biting commentary on your profession – well, let’s just say that you’re likely to be in for a bumpy ride. And so it was this weekend, when he took on retirement savings, retirement advisors and the process of setting up a small plan 401(k).
Now, it wasn’t as biased as some media treatments of the retirement plan profession have been. Oh, they brought in the exaggerated math on fees from that 2013 PBS Frontline special, copied (and doubled down on) their dismissal of active management …and he did reference termites. But all in all – and while continuing to emphasize throughout that this was a complicated process (one that your average worker, not to mention plan sponsor, probably isn’t prepared to undertake) – he looked at our industry through the kind of eyes that most of us can appreciate, for its humor, if nothing else.
Make no mistake, Oliver was, of course, exaggerating to make a point (or two). But to my ears, the most compelling part of the program was when he described the process his production company went through in trying to set up a 401(k) plan for their employees. Of course, we know nothing about the particulars of the plan, and that makes it nearly impossible to do a reality check. Suffice it to say that he felt that this tiny start-up plan was being overcharged (1.69% + $24/participant + investment management fees), and even more so by the broker engaged to help them set up the plan – who (aside from making spreadsheet errors) seemed to be basically collecting money (1% in year one, and 0.5% each year thereafter) for (apparently) doing little more than telling them that their plan was “too complicated” to be placed at Vanguard (and whose idea was that, anyway?).
Is that overly simplistic? Almost certainly. This was no mere “hatchet” piece, however. To my ears Oliver gave voice to some great advice that, with luck, every listener (and reader) will take to heart:
Start saving now.
Oliver acknowledged that this can be rather simplistic advice for some, noting that some individuals aren’t currently able to afford to save. However, he quickly set that aside to make clear to his listeners that saving for retirement should be a priority. And he said it more than once.
Seemingly tiny fees can add up.
It’s not all about the fees, of course (or shouldn’t be), but the point that fees compound just like returns was well worth understanding. In my experience the issue isn’t that individuals think their fees are small, but that they are either unaware of them or, even worse, think that because they are unaware of them (despite those reams of disclosures), they must be $0.00.
There is, of course, no such thing as a free lunch – or a free retirement plan. Even if participants aren’t paying those fees, someone is.
If you’re lucky, you have a 401(k) at work.
Though Oliver didn’t cite this statistic, we know that workers who have a plan at work are 15 times more likely to save than those who don’t. If you have a plan at work, you have the advantage of payroll deduction, the encouragement of an employer’s education program, and likely their match, and increasingly options like automatic enrollment, contribution acceleration, and defaulted investments into qualified default investment alternatives (QDIAs) like target-date funds or managed accounts, which are not only better diversified at the outset than your average worker would be able to do on their own, but are rebalanced automatically over time by people who actually know what they are doing.
Oh, and you have a plan fiduciary looking out over all of this, with a charge to ensure that the program’s design is in your best interests, and that the fees for those services are reasonable. Lucky indeed. And Oliver’s production firm employees seem to have been well served here.
The retirement plan is a potential minefield, and you need to pay attention.
Arguably this applies to both participants and plan sponsors, but Oliver’s admonition was to an employer, like his company, that goes about setting up a 401(k) plan for its workers. This may look easy from the recliner watching HBO, but in the real world, there are complicated legal documents, complex investment considerations, regulatory requirements, participant disclosures… oh, and did we mention the personal liability?
To his credit, Oliver acknowledged the complexity, explaining that his production company “spent weeks trying to understand our own 401(k) plan.” How many employers can say that?
If you don’t pay close attention, this can really get away from you.
Complicated as things can be during the set-up, Oliver made a subtler point: that if you think setting up a retirement plan is a “set it and forget it” project – well, you’re wrong. To his production company’s credit, they did the math on their fees (going so far as to not only involve, but get “Janice in accounting” excited about their potential savings. Of course, their team not only did the math, they also had in mind a specific figurethey thought was reasonable (though whether it actually was for a start-up plan of unknown complexity is another matter). It may not have been a very well researched benchmark, but it gave them an objective measure against which they could evaluate their plan.
Ultimately, Oliver stated that, “It doesn’t need to be this confusing.” More precisely, it shouldn’t be.
- Nevin E. Adams, JD
It's worth reading John Hancock's perspective on the plan setup situation described by Oliver.  It's here. 

Saturday, April 23, 2016

Did We ‘Need’ a New Fiduciary Regulation?

I was recently asked by a reporter if the new fiduciary regulation was “needed.” The question caught me a bit off guard, because having been in “figure out how to deal with this” mode for most of the past year, I had long since moved past “why” and “if” to “when” and “how.”

I was reminded of our last home purchase – which we bought in a bit of a rush. Oh, it wasn’t like we didn’t know we were moving – but our ability to actually hone in on a new home was hindered by the fact that our current home had to sell first. And, as is often the case in such things (or has been for us), we had gone a long time with nary an offer, much less a viable one.

Once that offer came, of course, we had to move quickly (literally). And so, the planning that we had done mentally in anticipation of that day was thrust into overdrive. Ultimately we settled on a house that wasn’t the best we had seen, but it was the best available at the time (within the price and commuting distance restraints we placed upon it). At the time we moved in, I took some comfort from the fact that its prior residents had lived there more than a quarter century. More than enough time, I thought, to have fixed whatever ails might have arisen there.

It wasn’t long, however, before we realized that with that longevity in residence had come a certain complacency about the upkeep and maintenance; the even uglier things we found underneath the ugly pink carpet, the doors that we hadn’t opened during the inspection that fell off the hinges, the garage door opener that dropped out of the ceiling after a dozen uses…. I was later to tell folks that we spent the next several years (and no small amount of money) doing the 25 years of maintenance that the former residents had simply chosen to live without.


Was Fiduciary Regulation Needed?

So, with that experience in mind, I returned to the reporter’s question… was the new fiduciary regulation “needed”.

After a quick pause, I responded that, more than 40 years on, it certainly bore consideration. After all, the retirement savings world has changed a lot over the past generation, and if DB plans were never quite as ubiquitous as some remember them, defined contribution plans, and IRAs – which now have more assets than the DC plans which spawned many of them – increasingly are. It’s not just those individual retirement savers, either – the plan sponsor fiduciaries that play such an integral role in critical areas like plan design and outcomes measurement need all the help they can get in these increasingly complex areas.

At some point you can’t be in this business and not know that, as in all human endeavors, there are bad actors. Generally speaking, and thankfully, they are the minority. But they are out there, and every retirement plan advisor I have ever spoken with can cite examples, frequently multiple ones, of situations they have encountered, and not always been able to fix. You can’t credibly argue there aren’t problems – only whether this particular solution is well suited to, and cost effective for, the task for which it has been presented.

And yet, while all that was known and acknowledged, like the family having grown accustomed to the walls that surround our existence, there were no clarion calls for change, certainly not of the scope and scale contemplated by the Labor Department’s fiduciary regulation.

Not that I ever bought the widely cited $17 billion figure that proponents of the regulation said (and continue to say) it was costing American savers. Nobody knows the exact figure, of course (though I’m pretty sure you won’t be close if your assumptions are predicated on the notion that all active management choices are at an advisor’s direction, and only look at IRAs, even if you do cut that result in half). But let’s say it was exaggerated by a factor of two – would a $9 billion “rip-off” have been enough to warrant redress? What if it were a “mere” $1 billion?

But is the cure “proportionate” to the ills it purports to address? I’m pretty sure it will cost more than the current projections suggest – that’s the nature of such things. However, I’ve been in this business too long not to appreciate the benefits that ERISA’s oversight can bring, and those may well be understated. That said, it would be na├»ve to assume that flat fees (or flat rates) are necessarily cheaper in every situation. Or that the advice that comes with those pay structures is inherently “better.” But a shift in those directions will remove what is surely at least a temptation for some. And if fewer individuals take advice at those rates, and on those conditions – well, they will almost certainly do so with a greater appreciation for what such insight is worth, even if they are unwilling to pay for it.

Though it is less than a week old, there’s a pretty consistent sense that the final regulation is more workable than its predecessor. Indeed, many would argue, considerably so. Make no mistake, the Labor Department may not have acquiesced in every comment or suggestion made over the past year, but they were clearly taking notes.

That does not, however, mean that it doesn’t still have “bugs” that have to be worked out, provisions that need to be refined, definitions that need to be clarified. We may have known this was coming, but this new fiduciary “home” has only just come on the market.

It’s not unusual for “cures” to be worse than the disease – or to at least be more costly. The fiduciary regulation may yet turn out to have unintended consequences (count on it) – or, hard as it may be to imagine right now, we may look back in a couple of years and wonder at how quickly we adjusted.

Regardless, the waiting is over. The work begins.

- Nevin E. Adams, JD

Saturday, April 16, 2016

5 Reasons to Plan and Save for Retirement Now

As April is National Financial Literacy month, and this is National Retirement Planning Week, those who work with retirement plan participants know it’s important to do the right thing(s) when it comes to retirement planning and savings.

But for those you are trying to help encourage, here are five reasons to plan and save for retirement now, and as an integral part of that financial plan.

Because you don’t want to work forever.

Seriously, no matter how much you love your job, if you want to stop working one day – and trust me, you will – you are going to have to think about how much income you will need to live after you are no longer working for a paycheck.

Because living in retirement isn’t “free.”

Many people assume that expenses will go down in retirement – and, for many, perhaps most, they do. On the other hand, there are changes in how we spend in retirement as well – and they aren’t always less. A recent report by the nonpartisan Employee Benefit Research Institute (EBRI) notes that health-related expenses are the second-largest component in the budget of older Americans, and a component that steadily increases with age. Health care expenses capture around 10% of the budget for those between 50–64, but increase to about 20% for those age 85 and over,” EBRI notes. And those spending shifts don’t take into account the possibility of a need or desire to provide financial support to parents and/or children.

Because you may not be able to work as long as you think.
In 1991, just 11% of workers expected to retire after age 65. Twenty-five years later, in 2016, 37% of workers report that they expect to retire after age 65, and 6% say they don’t plan to retire at all, according to the 2016 Retirement Confidence Survey. At the same time, the percentage of workers who say they expect to retire before age 65 has decreased, from 50% in 1991 to 24% in 2016.

However, the RCS has consistently found that a large percentage of retirees leave the workforce earlier than planned – nearly half (46%) in 2016, in fact. Many who retired earlier than planned say they did so because of a hardship, such as a health problem or disability (55%), or changes at their employer such as downsizing or closure.

The bottom line: Even if you plan to work longer, the timing of your “retirement” may not be your choice.

Because you don’t know how long you will live.

People are living longer, and the longer your life, the longer your potential retirement, especially if it begins sooner than you think. Retiring at age 65 today? A man would have a 50% chance of still being alive at age 81 (and a woman at age 85); a 25% chance of living to nearly 90; a 10% chance of getting close to 100. How big a chance do you want to take of outliving your money in old age?

Because the sooner you start, the easier it will be.

As recently as the 2015 RCS, fewer than half (48%) of workers report they and/or their spouses have tried to calculate – even a single time – how much money they will need to have saved by the time they retire so that they can live comfortably in retirement, a level that has held relatively consistent over the past decade.

Whether or not you feel fully financially “literate” now, you need to have a plan for your retirement. And there’s no time like the present to start.

- Nevin E. Adams, JD

Friday, April 01, 2016

The Choices of a Lifetime


It was 10 years ago today – a Saturday morning as I recall.  I had just wrapped up my weekly column when I got a call from my sister. My father, who had been battling cancer for several years now, had suffered a series of heart attacks. By the end of the day, he had passed.

As the family converged, my siblings and I tried as best as we could, together with Mom, to deal with the tasks that required our attention, and divvied up the ones that seemed to call out for individual attention. Having spent my entire professional career in financial services, and having picked up a law degree along the way, my “job” was to organize the will and assets.
The estate wasn’t complicated.  My parents each chose careers of service to others; Dad as a minister, and then a director of missions where he helped other ministers until his “official” retirement several years ago (far as I could tell, Dad’s only retirement was from the receipt of a regular paycheck), while Mom was a school teacher – a teacher who took a fairly significant (and unpaid) “sabbatical” so that she could stay at home with her four kids until the youngest was ready to head off to school. They both loved what they did, but those aren’t professions that tend to make one wealthy (in a monetary sense, anyway).
Despite that, my Depression-era reared parents saved what they could. On top of the expenses of rearing four kids, Dad, considered self-employed for most of his working life, funded both the employer and employee portions of Social Security withholding and still found a way to set aside money in a tax-sheltered account (he also tithed “biblically,” for those who can appreciate that financial impact). Mom, covered by a state pension plan, saved diligently to buy back the service credits she had forgone during the years she worked in our home without a paycheck, and also set aside money in her 403(b) account. Somehow, despite all those draws on their modest incomes, they managed to accumulate a respectable nest egg (don’t tell me those of modest incomes can’t and won’t save).
Today, ten years later, and cruising toward 86, Mom is still self-sufficient (though nervous about what the politicians in her state may yet do to her pension, into which she, as many teachers do, contributed mightily over the years), thanks to the choices they made along the way over the course of a lifetime. 
I’ve always been proud of my parents, who sacrificed so much along the way to give us the best they could. I’m also proud – and more than a little impressed – of how committed they were to saving what they could, when they could, and the results of that commitment. So often – perhaps too often, IMHO - I think we are inclined to excuse inadequate savings rates as the product of strained finances, a tight economy, or the simple human inclination to indulge in short-term pleasures.
On this, the anniversary of my Dad’s passing, my parents’ example reminds me – and hopefully you – that the decision to save is just that – a decision, a choice.
Here’s hoping more of us make the right one - while we still can.
 
- Nevin E. Adams, JD

Saturday, March 19, 2016

The ‘Plot’ Thickens

In recent weeks, I have been distressed to see a pair of reports by what are sometimes affectionately referred to as 401(k) “haters” — but that’s not what I find most troubling.

One, by the Economic Policy Institute, is innocuously titled, “The State of American Retirement,” but it might be more honestly subtitled, “How 401(k)s have failed most American workers.” The other is a formalized (and slightly updated) version of Teresa Ghilarducci’s Guaranteed Retirement Account (GRA) proposal titled, “A Comprehensive Plan to Confront the Retirement Crisis.” Both reports tread familiar, and misguided, ground.

Misguided and misleading as these kinds of reports are, they’re not new or even original. I’d almost be inclined to simply ignore them. That is, until I see headlines like, “The Plan That Could Render Your 401(k) Obsolete,” or “These Depressing Charts Show the Different Ways 401(k)s Fall Short,” reported with a straight face by the personal finance press. The latter, which just appeared in The Washington Post, leads off with the assertion, “We already know that the 401(k) has not been a great solution for improving Americans’ retirement security.” Oh, do we?

Here’s some data that (somehow) is overlooked by these reports: According to the nonpartisan Employee Benefit Research Institute (EBRI), in 2013, 82% of 401(k) participants (for whom this information was available) made less than $100,000 per year, and 51% of 401(k) participants made less than $50,000. Even more importantly, moderate income workers participate when they have the option: More than 70% of workers earning between $30,000 and $50,000 save in their 401(k). Oh, and the notion that “less than half of American workers have access to a retirement plan”? Well, the fact is that 8 out of 10 full-time workers are eligible for some kind of workplace retirement plan, the most common of which is a 401(k)-style plan. The 50% statistic cited repeatedly by academics and the media includes seasonal and part-time workers — granted, they have a retirement to worry about, but their issues in the here and now are economic, not a fault of ERISA or the 401(k), which have long had specific coverage thresholds.

It is, as a colleague of mine said recently, blaming the well for the drought.

The failure laid at the feet of 401(k)s — if a failure it is — is that people who don’t work, or who don’t work for employers who offer a retirement plan at work, are in worse shape than those who do. Now, I’m not saying that the 401(k) design works for everyone, and it most assuredly won’t work for those who don’t have access to its benefits. That said, 401(k)s are working for far more people and in far more varied circumstances than the fear-mongering headlines give them credit for. It’s one thing, after all, to acquiesce to what has become a journalistic “creed” — that “if it bleeds, it leads” – and something else again to wield the knife.

It’s past time to call out these reports — and the reporting on them — for what they really are: part of a long-standing and deliberately intentioned “plot” to kill the 401(k) — first by undermining its value, discounting and demeaning the modest tax deferrals that encourage American savers to put aside their natural preferences for spending, then discrediting as “rich” those who do take advantage of the option and make thoughtful preparations for retirement, and then, as advisors well know, disparaging those who work with retirement savers to make good long-term decisions.

It’s been said that, “A lie unchallenged becomes the truth.” If those of us who know better don’t start speaking up — and speaking out — you can bet that the drumbeat of coverage about the failure of the 401(k) will one day become a self-fulfilling prophecy. For some, that day has already arrived.

- Nevin E. Adams, JD

Saturday, March 12, 2016

5 Ways to Boost Retirement Confidence

With increasing regularity, the financial services industry pumps out surveys that purport to capture America’s sense of confidence regarding its readiness for retirement, at least on a financial footing. Mostly, however, they seem to focus on the symptom, rather than dealing with the underlying cause(s).

However well-intentioned, these all seem designed to highlight a persistent strong undercurrent of concern — one that, certainly when juxtaposed against the generally disappointing preparation levels reported by respondents, seems completely warranted.

Confidence about retirement is one thing, of course, and preparation something else, though the two are logically intertwined. That said, for those looking to shore up confidence levels, data from the granddaddy of such surveys — the non-partisan Employee Benefit Research Institute’s (EBRI) Retirement Confidence Survey — provides a roadmap:

Work for an employer that offers a retirement plan.

Data indicates that workers — even workers of modest means — are 15 times more likely to save for retirement if they have access to a retirement plan at work than those who don’t have that option. It is perhaps not surprising then that in recent years, the RCS has tracked a huge gap in confidence about retirement between those who have a retirement plan and those who don’t; in the 2015 RCS, 44% of workers without a retirement plan are not at all confident about having enough money for a comfortable retirement, compared with only 14% of those who have a plan.

Furthermore, among those with a plan, the percentage of those who are very confident increased from 14% in 2013 to 28% in 2015. In contrast, the percentage of those who are very confident remained statistically unchanged among those without a plan (10% in 2013, 9% in 2014 and 12% in 2015).
Workers reporting that they or their spouses have money in a defined contribution plan or IRA or have a defined benefit plan from a current or previous employer were more than twice as likely as those without any of these plans to be very confident (24% with a plan vs. 9% without a plan in the 2014 RCS).

Figure out how much you’ll need.

The RCS has found that workers reporting that they or their spouses have a DC, DB or IRA plan are twice as likely as those who do not have such a plan (60% vs. 23%) to have tried to do a calculation to estimate what they will need to finance their retirement.

And despite higher savings goals, workers who have done a retirement savings needs calculation are more likely to feel very confident about affording a comfortable retirement (33% vs. 12% who have not done a calculation). Moreover, worker households with a retirement plan are more likely than those without such plans to report having saved for retirement (90% vs. 20%).

That said, as recently as the 2015 RCS, fewer than half (48%) of workers report they and/or their spouses have tried to calculate — even a single time — how much money they will need to have saved by the time they retire so that they can live comfortably in retirement, a level that has held relatively consistent over the past decade.

In other words, while many have (or had) a retirement plan, they don’t seem to have a plan for retirement.

Talk with an advisor.

Anecdotally, when you ask someone about their interest in engaging the services of an advisor, they are likely to tell you that they will wait until they need one — by which most seem to mean that, once they have accumulated enough savings to make it “worthwhile,” they’ll consider getting some help. What’s often overlooked is the role that a financial advisor — particularly one whose expense is covered by an employer plan — can play in helping make that account growth a reality.

In the 2015 RCS, more than three-quarters (78%) of respondents who had talked with a professional financial advisor about retirement planning were either somewhat or very confident that they will have enough money to live comfortably throughout their retirement years, far more than the 49% who did not use an advisor. The 2013 RCS found that nearly two-thirds (65%) of those who used either online calculators or asked the advice of financial advisors were either somewhat confident or very confident that they will have enough money to live comfortably through their retirement years.

On the other hand, nearly half (44.6%) of those who simply guessed were also somewhat confident or very confident.

It seems that, as noted above, the calculation/determination itself has a positive impact, though the kind predicated on real assessment clearly does more for confidence (and probably for the actual basis of that confidence as well).

Retire.

One might expect that the financial realities of being in retirement might well shatter the fragile levels of confidence expressed ahead of crossing that threshold — and yet the RCS has consistently chronicled that retirement confidence is higher among those already in retirement than among those still working. In the 2015 RCS, 37% of retirees were very confident about having enough money to live comfortably throughout their retirement years (up from 28% in 2014 and 18% in 2013), and a third were somewhat confident.

This is despite a consistent finding that individuals are frequently forced to leave the workforce earlier than planned, and that they are less likely to work in retirement than pre-retirees anticipated (in the 2015 RCS, 67% of current workers plan to work for pay in retirement, compared with just 23% of retirees who report they have actually worked for pay in retirement. In the 2015 RCS, 37% of retirees were very confident about their prospects, up from 27% in 2014 and 18% as recently as 2013.

However, as one might expect, workers who are not confident about their financial security in retirement plan to retire later, on average, than those who express confidence.

Save for retirement.

Retirement confidence, like confidence generally, is a state of mind, and one not always grounded in an accurate assessment of reality. As noted above, the mere act of guessing about retirement needs seems to be enough to provide a boost in confidence, certainly in the short run.

Regardless, it’s hard to deny that the best, most secure, means of assuring retirement confidence is establishing a solid foundation for that belief by:
  • taking advantage of the opportunity to save and having the discipline to do so;
  • establishing a goal and revisiting that goal on a regular basis; and
  • enlisting the help of professionals in establishing those goals and in making sound, diversified investments.
Because ultimately, of course, what really matters is not how confident you feel, but whether you have a reason to feel confident.

- Nevin E. Adams, JD