Retirement, re-imagined

The company that I work for recently launched a #SeeYourRetirement Twitter campaign. While many of the tweets are what you would expect — relaxing on the beach, daily rounds of golf, and traveling to foreign countries — there are also a number of tweets that go something like this: “What’s retirement?”

The Social Security deficit is projected to be $337 billion by 2032. 45% of working-age households have squadoosh in retirement savings. The statistics don’t get any better with age — the average household retirement savings is only $12,000 for those between 55–64. And, the number of years we need to save for is continuing to increase: the life expectancy for someone in their mid-20's is 86.

Add it all up, and you end up with a result far from the traditional idea of “retirement” that the Baby Boomers and previous generations imagined. So what has changed? For one, it is extremely rare for an employer to offer a defined benefit (traditional pension) plan to employees which would pay out a monthly annuity in retirement. Instead, defined contribution plans (401K’s) have become the norm — employees can defer a certain % of their salary and choose their own investments. Employees bear the investment risk and are ultimately responsible for putting enough money away to fund their retirement. It may feel like 401K’s have been around forever, but the truth is, they’ve only really become mainstream in the past 15–20 years. Based on the statistics cited above, I would say that the jury is still out as to whether 401K plans truly “work.”

In addition to a lack of guaranteed income from employers, we, as human beings, are guilty of pursuing instant gratification — making it difficult to sock $1,000 away for a so-called retirement 40 years in the future vs. buying a new TV today. And, I believe that the younger generations are taking the concept of living in the “now” to a whole new level. Personally, I am not sure if I ever even want to retire. I am trying to live my life in a way that allows me to do the majority of what I’d want to do in “retirement” while I’m in my 20's… 30's… 40's… and not stop until I physically or mentally can’t anymore. Who says you have to wait until you’re retired to travel? With sites like AirBnB, Sharedesk, and Kayak, working remotely has never been easier.

But it’s more than that. It’s not just about traveling and having fun. I also believe that it is becoming more and more important for people to truly engage and enjoy in the work that they do. The numbers support this hypothesis, with self-employed workers now making up 10% of the workforce, and nearly 13% of all tax returns include income from freelance work. Maybe the side-hustle is the new retirement savings vehicle.

Bottom line:I don’t want to think of “work” with a negative connotation. I honestly want nothing to do with a work/life balance. If I enjoy what I’m doing, have the ability to knock off my bucket list items as they come, then why would I ever retire? Honestly, I think I’d be bored as hell.

So what does that mean for the concept of a 401K? The advisors that sell the plans? The companies, like the one I work for, who provide the record-keeping? The investment managers who oversee the funds you and I invest in?

My hypothesis is that the 401K as we know it today will evolve into something new. The primary reason being that it is expensive, to everyone involved, to manage one. Before fee disclosure, many employees viewed their 401K as “free.” Even with fee disclosure, most plan sponsors have no idea how much they’re really being charged either. Now, the DOL is cracking down even more on what it means to be a “fiduciary” and class action lawsuits are costing big names even bigger settlements.

Bundled financial services companies are being scrutinized. Traditionally, these companies made their money from assets under management (AUM) and revenue sharing. But with plan sponsors and participants smartening up to true cost of both investments and other services, the margins for recordkeeping are compressing in a hurry. Some predict more consolidation of the big names, which definitely has merit. Overall, financial services companies need to re-invent their value proposition as it relates to the new concept of “retirement.” Robo-advisors like Betterment and Wealthfront offer a compelling story — low cost investments, an easy to use technology-based platform, and an algorithm that truly has the best interest of the consumer in mind. Of course, this is just the story that is propogated — there is still money to be made. However, being new start-ups have allowed these companies to avoid the legacy infrastructure that is plaguing the older incumbents as well as create processes driven by technology instead of a spiderweb of manual processes.

Ultimately, there is still a massive problem that needs to be solved — every single person needs to save money for the future efficiently, intelligently, and easily. It will be interesting to watch how the concept of “retirement” continues to evolve and likewise how the financial services industry will react to this change.

So I ask you — how do you #SeeYourRetirement?

P.S., if you enjoyed this random, rambling post, I’d love for you to Recommend.

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