0:00 spk_0
I think people are trying to make an estimate of saying, well, I don’t have enough now and I’m going to need more and more. But I think that’s the problem we face with a lot of retirement is it’s not being done in a systematic way that folks are getting advice that they need to really set realistic goals and set the plan that are going to get them there.
0:20 spk_1
Imagine for a moment, you’ve been saving diligently, planning for that dream retirement, but there’s a massive gap between what you’ve saved and what you’ll actually need to fund your desired standard of living. In fact, you’re about a $50 million short of achieving the retirement you’ve been dreaming about.So how can you turn your retirement from a distant dream into an achievable plan? Well, that’s what we’re going to talk about in this episode of Decoding Retirement. My guest is Dave Goodsell. He’s executive director of the Nixis Center for Investor Insight. Welcome, Dave.
0:51 spk_0
Hey, Bob, nice tosee you today.
0:53 spk_1
So, uh, you’ve produced a boatload of research lately, one of which shows that there’s nearly a $450,000 gap between what Americans have saved and what they think they’ll need for retirement. Uh, what I read was that they have about a million dollars saved, and they say they need about $1.5 million. So, first, like, why does this gap exist? Like, and, and what do you see are the biggest drivers behind it?
1:16 spk_0
Well, I think one of the biggest problems we have is, you know, retirement is kind of this um complex mathematical equation in which none of the variables are defined. We don’t know how long we’re gonna live. We don’t know how much things are gonna cost. We don’t know how long that money’s gonna have to last. And that leads to a lot of people to ballpark what they think they need. And I think people are trying to make an estimate of saying, well, I don’t have enough now and I’m gonna need more and more.But I think that’s the problem we face with a lot of retirement is it’s not being done in a systematic way that folks are getting advice that they need to really set realistic goals and set the plan that are gonna get them there. Otherwise they’re left devices,
1:53 spk_1
you know, it’s essentially Bill Sharp, I think, has called retirement planning, uh, the thorniest financial problem that he’s ever encountered, and this from a Nobel Prize winner, right?So what chance do us, right? What chance do us mere mortals have if Bill Sharp can’t get it right?
2:09 spk_0
Exactly. I mean, the one thing we do know, right, is it, it takes discipline. It takes time. We’ve got to be invested in making this a success over a long period of time. That in itself makes it difficult too, because life has a way of throwing curveballs at you, changing, you know, what you’re able to do, what you’re gonna do in the future.Um, so all the variables become even more variable, and it makes it hard to really figure out the right steps. Yeah,
2:33 spk_1
I sometimes think that the mistakes that you make when you’re planning for retirement, saving for retirement, you won’t know until it’s too late to make up for those mistakes. And, um, and when you think about this gap, $450,000 is a big gap to make up, especially if you’re on retirement’s doorstep. There’s just hardly any way you’re going to be able to save that much or invest that aggressively to make up the difference. AndIt strikes me that for folks who get to that point of retirement, and there is a gap, 450,000, let’s say.Uh, that they have toExperience, uh, a reduced standard of living or work longer, right? The, the options are few.
3:09 spk_0
I mean, there aren’t many options that you have on that front. And we, I always try to be very empathetic with this. The number one fear that people in our survey told us they have about retirement is they’re not gonna have enough to enjoy their retirement. Right? And I think over time, we’ve all been given an image of what retirement is, you know, we’re gonnaUh, I think there was a, a guy in the 90s, Banana Joe, who used to barefoot, uh, water, um, water ski, in all the ads for things. And like, well, that’s not really what most people are looking to do for their life. But it does mean you’ll have to think carefully about what kind of lifestyle you’re gonna have, how you can make that happen. Um, you know, I mean, part of this is, you know, being able to go from dream to reality, and really being practical on that. And that’s evaluating what you can do.And some of that might include things like downsizing, uh, looking at what for many people is the 2nd or largest asset they have, their home, and how can that be put into the plan as well, while still being able to provide a shelter and a place to live and be comfortable, um, but that’s part of, I think, what people have to consider.
4:12 spk_1
Yeah. So when you think about people who might be very far behind, um,What are some things in addition to that, that they can do to sort of make up the difference to catch up, uh, without blowing maybe their current lifestyle or, or maybe they need to blow up their current lifestyle. I,
4:27 spk_0
I think, I think they’re, you know, if it’s that far behind, maybe there is some sacrifice that needs to be done, or you reconsider what retirement is, and it’s not this case of, um,Stopping work and staying home all day and going to the golf course and doing other things, maybe you transition into a different type of career. Maybe it’s going to work at a nonprofit or maybe it’s going to work, uh, using your business skills to, uh, translate into some sort of consulting. It’s gonna take work, but it could be rewarding in that sense too to be able to kind of leverage what you’ve done throughout your career and be able to find a place for it in retirement.
5:01 spk_1
I think, you know, the lot of us.Yeah, so they don’t publish it anymore, but the Social Security Administration used to publish this chart that looked at the uh income of retirees based on income quintiles, and they showed that those in the highest income quintile had a mix of income from personal assets from Social Security, and also from earned income.And it strikes me maybe that’s what people, I mean, maybe people don’t want to work in retirement, but it strikes me that if what you need to do is to make up for the gap that you’ve experienced, uh, or to make up for the need that you might have for social, you know, socialization, is working in retirement for pay is a good option.
5:40 spk_0
I, I think it is, actually. I think also the idea of uh retiring, well, now at 67.5, uh, at 65 is a little outmoded at this time too. I think people are living healthier, longer lives. Uh, they have more vitality at that age than I think back to my grandmother, and what she was like at that point. Um, so maybe it is a good thing to be thinking that way. And you raise a good point about socialization too, of being active and engaged. So there’s more than the financial reward, there’s that personal reward that goes with it as well.
6:10 spk_1
Yeah. So the other thing that, uh, I, I think when Bill Sharp, and you just mentioned it too, is this notion of you don’t know how long you’re going to live, how long you need to fund your desired standard of living. We’ve seen life expectancy creep up and uh we know that 5% die before life expectancy and 50% die after. Yet most people seem to sort of use that life expectancy age as their planning horizon, but you would advise against that, I’m guessing.
6:34 spk_0
Uh, well, I, I, I would assume you’re gonna live longer rather than shorter. Um, you know, we saw the average, you know, lifespan go up to about 78 years now. They’re being different depending if you’re a man or a woman. But that’s a good long time. Even if you’re retiring and living to that line, you’ve got to fund yourself for 1112, 15 years. Many people living longer, well into their 80s, into their 90s.I will give you a case in point. Um, I’ve had my mother living in an in-law apartment at my house for 18 years. She turned 94 this month, and she is still in great shape and still going. So it’s a question of longevity. I mean, we’re seeing it on a daily basis of how people are really kind of extending that envelope, and you really need to be able to plan for that.
7:17 spk_1
Yeah. So when you think about planning for, uh, uh, a, a, a retirement that may last 30 years.Uh, I think there are some factors that people need to contemplate. One is like, what is the cost of living? How that will that increase over the 30 years, right? And, and how will, will your investments need to keep pace with or outpace inflation to make sure that at the end of 29 or 30 years, you still have enough money to fund your, at least your, your essential expenses.
7:44 spk_0
Yeah, absolutely. It’s interesting, I was just thinking about this, you know, as we approached this data that we had this year. Inflation wasn’t part of the picture for most of the beginning of this, this century. It was very low, it was moderate, the gains weren’t as dramatic as we saw it. But the past 5 years have been a wake-up call in terms of just how fast and how far prices can go up. And I think that that’s a really good motivation to think about, one.How much you’re really gonna need to save if you’re not near retirement, that’s a good motivation to say I need to save more. If you are near retirement, how am I going to be able to account for that? Part of that will be, what’s the asset mix like? Um, how am I gonna define risk for myself as I go into this? What level am I willing to take? Because you’re probably gonna need something that gives you that alpha or that added return above inflation, and that’s a real challenge.
8:38 spk_1
You know, one of the stats from your survey suggests that 26% of millennials believe it will take a miracle to retire securely. That’s a little depressing. You know, I often tell people that I have the most depressing job in America, Dave, because all I ever do is tell people that you’re not going to be able to retire. You’re going to have a lower standard of living retirement than you did when you were working. And yet, and the stat seems to suggest more of the same, that it’s going to take a miracle for me to retire successfully.
9:03 spk_0
Well, you know, there’s good news in that number actually. Cause when we asked that question two years ago, 40% of investors in the US with $100,000 or more in assets, said it was gonna take a miracle. 30% of millionaires said it was gonna take a miracle to do that. And I think the one big difference between 2023 and this year,The S&P returned an average of 25% 2 years in a row. We’re in double digits still. People feel a lot more confident about their, you know, their prospects when their investments are growing in a substantial way. I also think that number tells us a lot about how people feel about Social Security. Is it gonna be there to support them? Um, are they gonna be able to kind of ride a wave like we have since, you know, the past.Great financial crisis where there’s been consistent growth, market returns have been attractive. Um, that’s an unknown variable. What is it gonna be able to generate for you? So, I kind of think that goes hand in hand with this idea of the complexity of it. Um, particularly younger investors who are hearing about Social Security and seeing the aging population and what the impact is.They are feeling the stress of what could be ahead of them. And, you know, as generations have been told about the three-legged stool of retirement, right? We’ve got our pensions. Well, we don’t have pensions anymore. We’ve got, you know, Social Security, well, that’s in question right now. So, now you’re looking at really your personal savings in mostly in a 401k. How are you gonna be able to maximize that?
10:35 spk_1
So, you know, as you mentioned that the market is up and granted, it’s probably up, what the historical average is 10 to 12%. And now we’re up twice that. And to me, I’m thinking, well, I can’t depend on the market to bail me out of my retirement savings gap because you’d live by the sword, die by the sword, right? For, in any given year, it may be up 25%, but it could be down 25%. So I can’t really, right, depend on.Do it 25%, you know, per year returns to bail out my retirement gap,
11:05 spk_0
right?Well, you brought up the, the idea of like, uh, forecasting what’s gonna be there. I always think of the, the, the term that it’s a Monte Carlo simulator. Right? What are the odds of reaching there? They call it a Monte Carlo simulator because that’s where the casinos are. And it’s really, what are your odds of doing this? Now, it makes sense to do that kind of forecasting on it, but it does recognize that there’s no guarantees.
11:29 spk_1
Yeah, there are no guarantees, which means, uh, that, uh, that you have to sort of, uh, I guess, over, you know, there, there are some people who, who say you should oversave, right? To sort of make up for the possibility that you, all right, you can’t, if you undersave, you’re gonna have a, an undesirable standard of living. But if you oversave, at least you’ve eliminated the odds of having that undesirable standard of living.
11:52 spk_0
Yeah, I, I think that’s a challenge too, because, uh, you know, as we go through our life, there are other challenges to savings as well. Um, you know, I, I, if I think about someone, uh, mill here’s an idea, millennials are gonna start, first of them will turn 45 in 2026. And if you think about it, that’s like, yes, peak earnings years, but it’s also peak spending years.This is when you’re buying a home, you’re managing your, your educational savings, you’re raising a family. You have all these new financial responsibilities that add on to just living your life as you have. That makes it really difficult to, to think about over-saving when you’re trying to get through doing what you have to do today. Um, the good news is, you know, you never hurt yourself by over-saving, but if you don’t know how much it’s gonna be,How do you know what oversaving is too?
12:43 spk_1
Yeah, Dave, we’re gonna take a short break and when we come back, we’ll pick up where we left off and talk about other elements of the survey and research that you’ve done. So don’t go away.Welcome back to Decoding Retirement. I’m talking to Dave Goodsell. He’s the executive director of the Natias Center for Investor Insight. Dave, before we left, I, uh, for a break, I said we would pick up where we left off. And one of the things that I want to talk about now is this notion of the big expenses in retirement, healthcare and long-term care, uh, care costs being among them. Uh, one of the things that we know from the Bureau of Labor Statistics is that healthcare costs generally average 5 to 15% over the course of someone’s retirement.Uh, but the big idiosyncratic risk is whether you’ll have to have long-term care costs in the form of assisted living or nursing homes or home health aides or whatever the case may be. How, how do you, uh, advise people in terms of planning for healthcare costs and especially the idiosyncratic risks?
13:40 spk_0
Well, Bob, I’m, I’m not an expert on healthcare. Um, but I, you know, I have some personal experience with this through family members and how they’ve, uh, had to navigate this. Long-term care insurance is becoming more and more important as the costs are going up. Um, seeing how if you don’t have that coverage, you don’t have the assets in place.It becomes a big challenge financially because it’s going to start to impact the spouse who maybe doesn’t need that. You may be seeing some assets and lost to that. You may be seeing some spend down of assets on its own and then maybe not being able to get the services you need if you leave more assets in the impossible. Now, I know they, they, they don’t ever try to make a spouse go bankrupt for it, but it definitely has a significant impact on their finances.
14:21 spk_1
Yeah, it seems like for folks who are going at it alone, uh, you’re putting at risk the possibility of, of enjoying, uh, retirement. Whereas if you are having a financial planner, if only as a sounding board, uh, at least maybe you have a better stand a better chance of saving enough and having the appropriate products and investments in place.
14:41 spk_0
To, to me, it’s an insurance, uh, policy in and of itself. You’re getting a second opinion, and you’re getting one that’s not your own opinion. So you’re gonna be biased in what you’re trying to do because you know all these other pressures on you. You’re getting this third party to be able to look at what your circumstances are, what you’re trying to achieve, and give you a genuine evaluation of what you have now and what you need to do to move forward.
15:03 spk_1
Yeah. Uh, speaking of insurance, I’d like you to address Social Security. A lot of people advise David Blanchett among them.Advised, uh, delaying the claiming of Social Security to at least age, uh, if, if possible to age 70, uh, which gives you the best chance of increasing, having the highest possible benefit, the highest possible survivor’s benefit. And I’m curious, when you think about people delaying the 71, is that a good idea from your perspective? And then 2, how would you incorporate that strategy with your financial capital, let’s say.
15:34 spk_0
I would say this, you know, you’ve got to be able to look at the balance of these things. In terms of delaying Social Security, a lot depends on that, that isn’t financial. Are you going to be able to keep working? Are you gonna be able to be employed, even, you know, just in terms of, we always look at it this way, some retirement isn’t always a choice. Many times it’s a late career layoff or someone’s stepping out of the workforce to take care of a sick family member, a parent, a child, or maybe they’re in, you know, getting infirmed in some way.That tends to impact that that Social Security decision earlier on it. So, to me, it’s like you have to look at it in cohesively with what you’ve saved, that idea of the, the two pieces of the stool now, and what is the best way to maximize that benefit. Uh, I’ve seen reports that say sometimes it’s better to take it earlier at a certain age where you’re gonna actually maximize the benefits to a greater extent because you’re gonna be living longer and getting from it. Um, it really comes down to that individual, as far as I can tell.
16:30 spk_1
Yeah.All right, so if we have a three-legged stool that is now a one-legged stool, and you’re thinking that the responsibility for you funding your retirement is almost entirely on, on you, it means then you need to develop some financial habits that means that you’re saving, uh, enough that you’re investing wisely enough and that you are retiring perhaps at the right age to, uh, make your retirement successful. So, what are the habits that you see as being essential?
16:59 spk_0
Well, I mean, the glib answer on this is always, you know, start saving early and save as much as you can. There’s a lot of truth to that, but I think there’s a lot of variables and a lot of opportunities you have to enhance that over time. So, first, just look at, know your 401k plan. Know what the features are, know what the benefits that you can get from it. How large is the employer match? Is there an auto escalation feature that will make increasing your contributions kind of thoughtless? It just happens automatically for you.Um, are you taking, uh, advantage of IRAs outside of your workplace savings? Are you even just saving on your own and investing on your own? All those things have to come into play. But I’d say the one thing that you can’t replace in any equation is time. And the earlier that you start, the better off you’re gonna be, regardless if if saving just a little at the beginning and increasing over time.That to me is the, the magic variable when you look at that. Someone later in my career looking at it, that, that time is really, um.Becoming more and more valuable and scarce, uh, in terms of how to get tothat.
18:01 spk_1
So for younger workers who may be entering the workplace and who are for the first time have the ability to invest in a 401k, oftentimes the default choice is a target date fund. Is that something that you think is a good place to start, or should they invest differently?
18:17 spk_0
Uh, well, to be honest, I think any, you know, you’ve got to know the options that are inside of that plan. Um, target date fund may be fine. It’s kind of a set it and forget it, you’re able to put into it. Um, but there may be other options that you want to, you know, deploy. You may have enough time that you wanna think of like growthier investments that’ll provide higher returns earlier on, which gives you more money to compound over time. I always come back to it this way, is getting advice, um, from a professional.Even getting advice from, um, well, one of the things we find interesting, I was gonna say friends and family. People, um, trust their advisor more than they trust their family with these financial decisions. So, that’s one of the most important relationships you can start, any way you can get to that. Now, I’d say that, the part that is missed in this equation right now, we have millennials at the young end, we have boomers who are gonna start turning 80 in January. So we’re at the far end of things.The Generation X, uh, uh, individuals are the ones that I think have the most.Pressing need and the most complicated decision to make. You know, I always think of this, they’re kind of trapped in the middle. I, I always say that they’re the, the Jane, uh, Jan Brady of generations, right? They’re, they’re not Marsha, they’re not Cindy. Everyone forgets about them. And the truth is, they’re truly living the sandwich sandwich, um, experience right now. They’ve got older parents that they’re trying to care for. They’ve got kids who are still in college. They’re trying to figure out how they’re gonna maximize savings. And I think there was a lot of good news in secure 2.0.Particularly for this generation. Um, the catch-up contributions are going up to $8000 next year for anyone from $50 to 59. More importantly, from those who are $60,000 to 63, it goes up to $11,200. And that’s a significant amount that you can add into above your, if you’re maxing out your 401k, you can add this on top of it.Um, the other part of it too is to think about, you know, Roth contributions as well. The limits that you and your employer can put into a plan are pretty significant. They’re pretty large. So any chance you have to maximize that in the most kind of simple, painless way, makes the most sense tome.
20:25 spk_1
So the, the survey also suggested that there’s a good many people who fear that they will become a financial burden on their, uh, children.And I know this is a big fear, regardless of which generation you’re in, whether it’s millennial or boomer or silent generation, people are always expressing this notion that I don’t want to be a burden on my children. What advice do you have for folks to avoid that?
20:46 spk_0
It’s a good motivation to save. It really is a good motivation if you’re worried about that. Um, you know, the, the US we’ve moved away from the multi-generational household for the most part, but I, I think that, that many people live within it. I grew up within one.I’m also like heading one right now as well. So, to me, it’s like being able to be as financially independent as you can, as long as you can, is the goal here. If you simplify what retirement savings, it’s. This idea of being a burden to someone.Well, we saw it in earlier surveys that millennials, the same group you just mentioned, thought that they would move in with their kids when they retired if they didn’t have enough money. So, you know, as we were saying, they started out in the garage or in the basement, they’re going to wind up in the garage in a, you know, family situation. So to me, it’s, it’s this idea of working together with your, your family unit to figure out what you want to do, being aware that you’re going to have higher costs along the way.You’re going to have greater healthcare needs. You’re going to have long-term care needs. All these pieces. Are you doing everything you can do to not have what you’re fearing, that being a burden to yourkids?
21:53 spk_1
So you’ve mentioned the complexity of retirement planning.Uh, and I’m curious, like we’ve had guests on the show where we’ve talked about something called decision fatigue, right? You, it’s just overwhelming, the number of decisions you have to make, the complexity of the decisions that you have to face. And I’m wondering, do you have at least one piece of advice for folks who might be overwhelmed by, uh, by this retirement planning process?
22:19 spk_0
Yeah, I, I mean, for me, it’s break it off into small pieces. You, you’ve got this big undefined goal. The way you can go about this is really saying, what can I do this year?Is that part of that, starting the year by rebalancing your portfolio inside your 401k? Are you doing that and putting yourself there? Are you doing the steps like auto escalation to ensure you’re increasing it? Are you trying to manage your household budget in a way that you can free up more cash to do it? And you’re doing this at a point where inflation is telling, uh, people are telling us that that makes them worried about their security in retirement. Uh, people are also telling us 57% told us that, uh, inflation is eroding their investment gains.Which can be defeating over time to think about you’re not making up the ground you wanted to. To me, it’s just break off every little step and just take one decision at a time, because the more you try to do it and holistically, the bigger challenge you’re gonna have. Yeah, and I’d say when it comes to that,get advice.
23:13 spk_1
Yeah, Dave, I’m afraid we’ve run out of time, and I wanna thank you for sharing your knowledge and wisdom with our listeners and viewers. It’s, uh, greatly appreciated. Thank you.Thank you.So that wraps up this episode of Decoding Retirement. We hope we provided you with some actionable advice to help you plan for or live in retirement. And don’t forget you can listen to and subscribe to Decoding Retirement on all your favorite podcast platforms.
23:36 spk_2
This content was not intended to be financial advice and should not be used as a substitute for professional financial services.