It’s National Retirement Security Week!

Roddy MarinoRoddy Marino, CIMA, Executive Vice President
National Accounts & Distribution

It’s National Retirement Security Week!

Doesn’t sounds familiar?  You’re not the only one.

This week kicks off the sixth year celebration of National Retirement Security Week (formally National Save for Retirement Week), sponsored by the National Association of Government Defined Contribution Administrators (NAGDCA).  While this is not a Hallmark-holiday, this important week marks a national effort to raise public awareness of the importance of saving for retirement.  The goals of this week are to:

  1. encourage employees to save and participate in their employee-sponsored retirement plans
  2. educate employees about how saving for retirement is crucial to security during retirement years
  3. increase awareness of the various retirement saving options

With the American life expectancy currently at 78.8 years1 and children born today expecting that nearly one-third of their contemporaries may live to see 100 years of age2, we are living lives with greater comfort and more free time than any other point in history. It is truly an incredible time to be alive, but even the best advances can have unintended complications. Such is the case with ever-increasing longevity and the reality of preparing for a retirement of unprecedented length. Successful retirement planning requires a great deal of forethought, tolerance for uncertainty and consistently delayed gratification. This can be challenging for some facing retirement because individuals must invest in risk assets if they are to retire comfortably and most individuals are emotionally and psychologically ill equipped to invest in risk assets.

So, why must you invest if you are to retire? As of today, the median wage in the U.S. is $26,695 and the median household income is $50,500. Let us suppose for illustrative purposes, however, that you are four times as clever as average and have managed to secure a comfortable annual salary of $100,000. Let us further suppose you set aside 10% of your gross income each year until the first day of your retirement. Assuming you begin saving at age 25 and retire at age 65, your efforts will have yielded a nest egg totaling $400,000.

While $400,000 may seem like a decent sum of money, it hardly provides much for someone who could easily live another 30 years in retirement. At $13,333 per year, you would be living near the poverty line by today’s math, to say nothing of how dramatically inflation would have eroded the purchasing power of that figure 40 years on.

If we turn back the clock 40 years from now, we see that roughly $90,000 in 1975 money would get you $400,000 in purchasing power in today’s dollars. A little back of the napkin math tells us that even though $400,000 may seem alright today, we will need more like $1.5 million 40 years from now to maintain that same level of purchasing power.

Remember too that the average American couple currently spends an estimated $245,0004 in retirement on health-related expenses above and beyond their monthly premiums. Factoring in even modest inflation over the next 40 years, the money spent on medical bills alone would far outstrip your savings on the high-earning-always-saving model.

While you could complicate the assumptions above to greater reflect the reality of the average worker (most people don’t make $100,000 right out of college, most people get raises over the course of a career, most people don’t save 10% of their income), the basic math is the same. You simply aren’t going to get to the necessary savings target by age 65 without a little help from risk assets whose returns exceed the insidious and corrosive power of inflation.

As Burton Malkiel said far more succinctly, “It is clear that if we are to cope with even a mild inflation, we must undertake investment strategies that maintain our real purchasing power; otherwise, we are doomed to an ever-decreasing standard of living.”3

While 2/3 of U.S. employees are saving for retirement, according to data from the 2015 Retirement Confidence Survey conducted by the Employee Benefit Research Institute, they are not adequately saving to fund their retirement.  In the coming days, we will examine three behavioral impediments to retirement preparation that many plan participants experience and ways to overcome them. This week serves as a great time to remind employees of the importance of saving for retirement and provide them with a realistic picture of how to get to their goals.

For 10 years, Brinker Capital Retirement Plan Services has been working with advisors to offer plan sponsors the solutions to help participants reach their retirement goals.  The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, Inc., a Registered Investment Advisor.

 Sources:

1 Centers for Disease Control and Prevention. http://www.cdc.gov/nchs/fastats/life-expectancy.htm

2 Live long and prosper, The Economist, June 4, 2016.  http://www.economist.com/news/books-and-arts/21699886-how-plan-long-long-life-live-long-and-prosper

3 A Random Walk Down Wall Street, Burton Malkiel.

4 “Health Care Costs for Couples in Retirement Rise to an Estimated $245,000,”  Fidelity Investments, October 7, 2015.  https://www.fidelity.com/about-fidelity/employer-services/health-care-costs-for-couples-retirement-rise

Money Missteps to Avoid in Retirement

frank_randallFrank Randall, AIF®, Regional Director, Retirement Plan Services

 “Good decisions come from experience,

and experience comes from bad decisions.”

By the time you feel ready enough to retire, you have likely had your fair share of blunders along the way. Now seasoned with experience, the realization that mistakes are inevitable, and having the ability to recover can make the difference between success and failure.

Here are some of the most common missteps in retirement:

  • Focusing on the wrong factors. Many people decide to retire when they reach a certain age, job fluctuations or business cycles. While these factors may have influence, your emotional readiness, savings, debt, future budget and income plan to sustain your desired lifestyle must also be considered.
  • Overlooking the importance of your Social Security election. Some experts say the difference between a good Social Security benefit election and a poor one could equate to more than $100,000 in income.[1] The biggest decision retirees face concerning Social Security is when to start collecting. Just because you can start receiving benefits at age 62 doesn’t necessarily mean you should. If you delay your election until age 70, you may receive 32% more in payments so it may make sense to delay receipt of benefits as long as you can meet your expense obligations.
  • Underestimating the cost of retirement. Most people estimate retirement expenses to be around 85% of after-tax working income. In reality, however, many retirees experience lifestyle sticker-shock as the realities of retirement. One common problem retirees have when budgeting for retirement expenses is that they overlook items like inflation, future taxes, health care, home and car maintenance, and the financial dependence of their loved ones (e.g., sandwich generation costs).
  • Retiring with too much debt. A simple rule of thumb is to pay off as much debt as possible during your earning years. Otherwise, debt repayment will cause a strain on your retirement savings.
  • Failing to come up with an income strategy. Saving is only part of the retirement planning process. You also have to think about spending and decide where and in what order to tap investments. When thinking about cash flow needs throughout retirement, one must also consider how retirement funds can continue to generate growth. An effective way to solve retirement income needs is to have a liquid cash reserve account tied to your portfolio.  The reserve is tapped to deliver a “paycheck” to help you meet predictable expenses. The cash withdrawn is replenished by investments in dividend- and income-producing securities.
  • Dialing too far back on investment risk. As many workers near retirement, they become fixated on cash needs, thus dialing back risk and becoming more conservative in their investments. Unfortunately, the returns generated by ultra-conservative investments may not keep pace with inflation and future tax liabilities. Because retirement can last upwards of 20 years, retirees must set both preservation and growth investment objectives.
  • Not validating the assumptions made during the retirement planning process. You make certain assumptions about investment performance, expenses, and retirement age when you initially create your projected retirement plan. At least annually, you should reconcile your projections against reality. Are you spending more and earning less than anticipated? If so, you may have to make changes, either to your plan or your lifestyle.
  • Providing financial support to adult children. Over the last decade, the number of adult children who live with their parents has risen 15% to a historic high of 36%. Providing financial support to anyone, particularly an adult child, is stressful. It could strain retirement savings and ultimately could create long-term financial dependency in your child.
  • Going it alone. While your financial mission in retirement may seem straightforward—don’t outlive your money—the decisions you make along the way can be complicated. An experienced financial advisor can give you piece of mind for many reasons. An advisor can help you manage your retirement portfolio to meet your preservation and growth objectives, help you establish an income strategy that is matched to your spending needs, and track your spending versus assumptions. If a crisis arises, a trusted financial advisor will already know your financial history and can help make decisions that are in your best interests. Similarly, it is extremely helpful to have a trusted advisor relationship solidified in the event your cognitive abilities decline and you need help with decisions.

[1] http://www.cbsnews.com/news/a-great-new-tool-for-deciding-when-to-take-social-security/

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, Inc., a Registered Investment Advisor.

Reaching Beyond Bonds for Income

John CoyneJohn Coyne, Vice Chairman

There are many places besides bonds to generate income. Through broad diversification across and within six major asset classes, we at Brinker Capital seek solutions that will generate good yield, not necessarily high yield, for clients. We believe that you can derive income from a variety of sources so that you are better positioned to meet your investment goals and objectives.

In this audio podcast, John Coyne explains three instances where generating income may be possible:

  • Generating Income in an Absolute Return Environment
  • Generating Income in a Rising Rate Environment
  • Generating After-Tax Income

Click here to launch the audio recording.

Investment Insights Podcast – July 1, 2014

Bill MillerBill Miller, Chief Investment Officer

On this week’s podcast (recorded June 30, 2014), Bill addresses some of the things we don’t like first, then gives greater insight into what we are doing about it:

What we don’t like: Interest rates are stubbornly low; expectations were that they would rise over the first-half of the year; low interest rates hurt retirees ability to generate income

What we like: How we are handling this financial repression

What we are doing about it: Emphasizing three themes in fixed income: yield, shorter maturity bonds, and inclusion of absolute return

Click the play icon below to launch the audio recording or click here

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change.

Demographic Changes Looming (Part Two)

10.17.13_BlogRyan Dressel, Investment Analyst, Brinker Capital

Part two of a two-part blog series. Head here to read part one.

Urbanization
Another noticeable change has been the amount of people living in urban versus rural areas.  The world is undergoing the largest wave of urban growth in history.  For the first time in history, more than half of the world’s population lives in towns or cities.[1]  In 1970, 73.6% of the population lived in urban areas in the U.S., compared to 79% in 2012.  In China, the shift has been even greater; 51% of people live in urban areas today, compared to just 20.6% in 1982.  Other major nations have experienced similar degrees of urbanization (percentage of population living in urban areas below)[2]

10.17.13_Demographics_Part2

Cities provide numerous economic benefits and challenges; some of which include: entrepreneurialism, education opportunities, traffic congestion, pollution, and poverty to name a few.  Perhaps the biggest challenge as a result of this trend will be a spike in food, water and commodity prices, which are already high.[3][4]  Some Governments, scientists and environmentalists are already working on solutions to these problems (such as China’s plan for a massive new desalination plant[5]), but in many areas resources are limited and solutions are inefficient on a large scale.

Wealth Inequality
Finally, the trend of wealth inequality in the United States is approaching an all-time high.  For perspective, in 1928 the top 1% of the population earned nearly 20% of all income.  The wealth gap was at its lowest in the 1960s and 1970s, but has been steadily widening since then.

Demographics_Part2

This trend has been made public in the U.S. as demonstrated by the Occupy Wall Street movement in 2012.  Regardless of your opinion surrounding the subject, wealth inequality has created noticeable economic challenges.

Some of the nationwide problems associated with wealth inequality include deteriorating health,[6] the potential for corruption (in many different facets), and a relatively weaker middle class which has historically fueled the most economic growth in the U.S.

The income gap has been blamed on everything from computers, to immigration, to global competition, but simply stated there is no clear consensus regarding the cause.[7]  This needs to be kept in mind by investors, economists and especially politicians before we spend public dollars on initiatives that aren’t effective at reducing the problems previously mentioned.

These changing demographic trends will no doubt provide challenges, but can also present exciting opportunities for generations to come if they are properly prepared for.


[1] The United nations Population Fund.  http://www.unfpa.org/pds/urbanization.htm  May, 2007.

[2] Population Reference Bureau, 2012 World Population Data Sheet, 2012.

[4] New York Times Online.  http://www.nytimes.com/2006/08/22/world/22water.html?_r=0  Celia Dugger. August 22, 2006.

[5] China Daily.  http://usa.chinadaily.com.cn/china/2011-04/09/content_12298084.htm  Cheng Yingqi.  September 4, 2011.

[6] American Medical Association.  http://www.who.int/social_determinants/publications/health_in_an_unequal_world_marmott_lancet.pdf Michael Marmot.  December 9, 2006.

[7] The Great Divergence.  Timothy Noah,  2012

Yield in the Time of Cholera

CoyneJohn E. Coyne, III, Vice Chairman, Brinker Capital

I recently reread the Gabriel Garcia Marquez novel from the 80s, Love in the Time of Cholera, and as I found myself being warped back to that decade, it naturally led made me reflect on the current municipal bond market! I’ll explain.

Because romance is nowhere near as risky as this market is today, it is easy to see how we can fall in love with the exciting, attractive yields in the after-tax world (around 8.5% on the long end). Nevertheless, there is something to be said for stability and safety in a time of incredible uncertainty especially with continuing interest-rate increases and, even more unnerving, a frightening credit risk landscape.

The rising-rate environment of the late 70s and early 80s played havoc on both the value and purchasing power of bonds held by individual investors. So whether for income or safety of principal, the holder was punished. And the credit markets were not nearly as challenged as today. Rates topped out in 1983, and we began the 30-year bond rally that has recently unraveled. I would imagine that during that extended period, an argument can be made that a passive-laddered approach might have been acceptable as opposed to active management—particularly in the bygone days of credit insurers like MBIA and AMBAC.

8.28.13_Coyne_Yield in the time of CholeraWell, not today. If investors want to navigate the treacherous credit markets while capturing these currently attractive yields they need a steady, experienced guide to help manage their portfolio. Advisors should be working with their municipal managers to craft strategies that can balance out their needs for income, safety and maintaining purchasing power.  Now that can make for a wonderful romance.

The Magic Number Is…

Sue BerginSue Bergin

There was a time when someone earning a six-figure salary was said to be doing well.  Is that the case today?

Towards the end of 2010, in a survey by WSL/Strategic Retail, we learned that 18% of American households earning between $100,000 and $150,000 said they could only afford the basics.   Another 10% in that salary range reported that sometimes they couldn’t even meet their obligations.

The conclusion of the survey identified a magic number—$150,000.  This was the level with which the vast majority of consumers (88%) said they could buy what they need while still being able to afford extra items and have some savings.

A more recent study by Pew Research Center puts the $150,000 figure at a higher standard of living than just being able to meet basic needs and afford a few extras.  According to Pew, $150,000 earns a family of four the status of “rich”.  This is geographical; Northeast and suburban respondents upped that amount to $200,000 while their rural counterparts said that a family making more than $125,000 could be considered wealthy.

Whether the income level is $125,000, $150,000 or $200,000 doesn’t really matter.  Incomes this high are out of reach for the vast majority of Americans.  In fact, according the Census Bureau’s September 2012 report, annual household income has fallen for the fourth straight year to an inflation-adjusted $50,054.

Let’s assume for a moment the majority of your clients earn more than $150,000.  Do they all feel rich?  Many probably do not, particularly if they are among 29% of Americans underwater on their real estate.[1]

In fact, that rich feeling is fairly elusive.  Many millionaires don’t even feel rich.

According to Fidelity Investments’ latest report on millionaires’ attitudes towards investing, 26%of millionaire respondents said they did not actually feel rich, and that they would need an average of $5 million of investable assets to begin to feel wealthy.

Politicians, economists, sociologists and even our brethren in the financial services industry continue to confuse comfort and net worth, and perception and reality.  The fact of the matter is that the words “wealthy” and “rich” more aptly describe an emotional state than a statement of net worth.


[1] The Week, Real estate crisis:  Americans Underwater 12.2.11