Effective January 1, 2021 we are reducing our investment management fees for all of our clients. In 2020 our clients with larger accounts benefited from lower fees. Beginning in 2021 all of our clients (including larger accounts) will benefit from further fee reductions.
Retirement. What about it? Most often the primary reason someone contacts our office is to discuss questions about their retirement from full-time employment. They want to know when they can close the book on a stressful situation, when they can be financially free to pursue other activities. Perhaps even to rest a bit more. I recall a conversation with one of our favorite client couples during which the wife expressed concern that her husband’s work required too much time traveling and allowed too little time for him to rest, to which he replied, “They don’t pay me to sleep!” These good folks are now happily retired and the husband has more time available for sleeping, except when the grandkids are over.
It’s not like it used to be. What used to be normal about work and retirement is changing. This was pointed out in a report published recently in the Wall Street Journal. The report is called, The End of Retirement, and I would like to include some excerpts from it along with some comments in this writing. In addition, I will include some excerpts from other sources, including a very interesting and informative page taken from the Social Security website concerning the historical background and development of our social security system.
A brief history of economic security. The idea of providing some sort of economic security goes back centuries. In 1601 the English Poor Law provided for taxation to fund relief activities for both the “deserving” and “undeserving” poor. The English-speaking colonists arriving in the New World adopted “Poor Laws” for the “worthy” and the “unworthy”. The first full-fledged pension system developed in America was the Civil War Pension program for casualties of the Civil War. As early as 1882 some private companies withheld a portion of each employee’s pay to fund a retirement program. Unfortunately, in some cases the companies failed along with the promised benefits. This problem has persisted and today most companies do not offer defined benefit pension plans, instead offering various types of profit-sharing plans. One result of this change is that employees are now responsible for managing investment risks. Germany became the first nation in the world to adopt an old-age social insurance program in 1889. The United States established the new federal Railroad Retirement System in 1934, and the Social Security retirement income system in 1935.
Why 65? In the 20th century it was common for workers, mostly men, to work for the same employer for 30 or 40 years, retire at age 65, get a gold watch and live the remainder of their lives supported by their Social Security retirement income benefit, savings, and perhaps a union or company private pension. So, why age 65? At that time Germany and many of the private and state pension systems that existed in America, and the federal Railroad Retirement System used age 65 as the full retirement age. As well, actuarial studies indicated that age 65 would provide a manageable system that would be self-sustaining. However, as time progressed retiree lifespans expanded. In 1935 the average American life expectancy was about age 61, a bit less for men and more for women. Presently, US life expectancy is about age 79. In consideration of this trend it is obvious that the sustainability of the system could be in question. Also, new benefits such as cost of living increases and disability income benefits have been added to the system. In order to maintain adequate funding the Congress has made modifications including increasing the full retirement age for younger participants. For participants born in 1960 or later the full retirement age is 67.
So, Social Security and company pensions have changed. What else has changed? The nature of work has changed. Today’s workers are likely to have changed jobs, companies or careers several times before reaching retirement age. Global events result in furloughs, pay cuts or terminations for some, new opportunities for others. Many work in the “gig” economy without benefits and without a steady paycheck. More workers are able to work from home. Relatively high paying physical labor is often performed by machines instead of humans. For some, today’s work is enjoyable and rewarding. For others it is not.
Is there a point? Yes. The 20th century formula for financial success is no longer sufficient. Most workers today cannot count on reaching their retirement goals just by showing up, participating in a company pension plan and receiving social security benefits. Instead, they must consider the effects of irregular income, investment risks, inflation, healthcare costs, etc. In addition, they must consider the costs associated with longevity risk. According to economist Olivia Mitchell, a professor at the University of Pennsylvania’s Wharton School of Business, “Actuaries are now projecting people entering the workforce could live 125 years…some demographers say the baby who will live to 200 years old is already born”. Success today requires that workers chart their course, manage the variables and risks and make adjustments along the way. The need for planning – early and often – is vital.
Speaking of work, consider the work of Katalin Kariko. An immigrant from Hungary, Dr. Katalin Kariko, has devoted her career to researching synthetic messenger RNA. Messenger RNA is the technology behind the COVID-19 vaccine that is now being distributed to healthcare workers. This technology has the potential to be adapted for use with future pandemics and diseases including cancer. I came across an amusing feature about Dr. Kariko recently. You can view it here.
And a joke.
I won $3 million on the lottery this weekend so I decided to donate a quarter of it to charity. Now I have $2,999,999.75.
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