10 Pet Peeves About the Retirement Industry

  Life is full of annoyances – all the better to appreciate the blessings that surround us. That said, there are things about the retirement industry that really bug me. 

I recently had the privilege of being part of the Leafhouse National Retirement Symposium. The theme was unfiltered – the unvarnished truth.  And it seemed an appropriate forum to share some of the things about the retirement industry that really bug me. 

Here’s the list:

Using the average or median retirement balance as a proxy for retirement readiness.

Generally speaking, retirement plans are comprised of a myriad of individual circumstances – participants of ages that run from late teens to beyond traditional retirement, savings behaviors based on income – and age – and company match… Not to mention that this might be only a half dozen years of a worker’s accumulation, with the rest on some other recordkeeping platform…

Why any rational person would think that combining those disparate elements and then either dividing them by the number of parts, or looking for some kind of middle grouping – well, it defies logic. And yet, this happens with distressing regularity. It’s worse than mush – it’s a mess – a nonsensical number that is easy to calculate, and completely meaningless. 

Asking people who have never tried to do a retirement needs calculation how much they’ll need for retirement – and then publishing that as an actual target.   

There is perhaps of some modest value in knowing how much people think they need for retirement – even if they have never actually sat down and tried to figure it out. Indeed, in recent weeks at least two major providers have done just that with headlines proclaiming that “magic” number. Setting aside for a moment the reality that it’s completely uninformed – the reality is that we know NOTHING about the incomes, lifestyle, health or residence of the individuals behind that “guess” (though USA Today actually took the time to ascertain the political affiliation of the respondents). 

And since we know nothing about their circumstances – and less about how they derived that number (much less how the uninformed choices of the survey population was construed into that final number) – well, why would anybody care? But while this COULD be a teachable moment – where the survey writers point out that the number might be wildly overblown, and the importance of doing an actual assessment…and then there’s…

Using survey results of people who have never done a retirement needs calculation to “prove” there’s a retirement crisis.

The aforementioned “reports” instead choose to present those “pulled out of their…” guesses as a valid conclusion, and one that not only confirms that (a) there is a retirement crisis (and just in case that point was missed, asking them AFTER they provide a retirement number), but that (b) there’s a crisis precisely because folks are never going to be able to achieve that made up number based on the average savings amount (see above).   

Saying there’s a retirement “crisis” without ever defining what that means.

“Crisis” is a word much bandied about these days, most particularly as a label applied to retirement — by foes and fans alike. Indeed, while not so long ago headlines posed that premise as a question (“Is there a retirement crisis?”), it is now generally posited as a current reality (often accompanied by an exclamation point) — even though an examination of objective data and a clinical application of the term “crisis” suggests otherwise.

For most in the retirement industry, it’s meant as a call to action – built on the notion that time is a valuable asset in helping retirement savings grow. But the dictionary definition is of an event or situation where disaster is imminent – something that calls for immediate, and potentially drastic action. And that is how the critics of the 401(k) see it, as they call for immediate drastic action to replace the 401(k) with some alternative (or to defund the 401(k) in order to build an alternative).  Those who claim there is a retirement crisis without context are, quite simply, fueling their fire.

Pretending that everybody used to have a defined benefit plan/pension – and that those who did received a full pension.

This is a hugely exaggerated myth – actually one built on another – and one invoked with growing frequency by those who claim that the 401(k) is an inferior model. One that was “never intended” to be a full retirement plan unlike its defined benefit pension cousin. What gets overlooked is just how few Americans in the private sector were actually covered by a defined benefit pension (29% at the peak), and even among those who were covered, how few actually worked for that employer long enough to qualify for a “full” pension (something on the order of 12% of those who were covered). 

Quite simply, only a very small minority of individuals (in the private sector) who were covered by a pension actually collected a full pension. If that was a plan design INTENDED to be a retirement plan, it didn’t do a very good job of it for most.

Next time: the rest of the list.

- Nevin E. Adams, JD