Dissecting fact and fiction from a recent report on retirement savings

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As somebody who spent a decade working in employee benefits and now practices employee benefits law, I have an understanding of the employee benefits industry. When I saw WFAA in Dallas covering a report about retirement savings I couldn’t pass up the opportunity to fact-check. Predictably, the piece mixes a little truth with a lot of scare tactics and misdirection. (You can read the WFAA story here.)
Let’s get right into the thick of it. The first thing we should note is who conducted the study involved in this news story. The study comes from the Employee Benefits Research Institute (EBRI). Although EBRI has an innocent sounding name and refers to themselves as “objective” and “unbiased” that’s more than a little dishonest. EBRI is a think tank created and operated by the employee benefits industry. Its founders come from the who’s who of the industry, representing big names in employee benefits like AonHewitt, Milliman, Towers Watson and Mercer. Like most information from the employee benefits industry, it’s really all about how to make them rich.

Employee retirement plans

The employee benefits industry is a massive financial services industry. These people are not far removed from Wall Street. There is an enormous volume of money filtered into this industry that comes out of your pocket for the premiums and savings you put towards your benefits as well as the funds your employer puts towards those benefit plans. To be fair, this industry serves a valuable purpose. Most employers do not have the human resources infrastructure to internally service every aspect of each of their plans. However, the employee benefits industry has successfully lobbied themselves into a position where they are often free to capture ridiculous fees from benefit plans. This is true whether we are discussing ERISA-governed retirement plans like 401k or group healthcare plans. So one should be particularly careful about merely accepting the gospel according the the EBRI.
The major issue of the report is that 36% of workers have less than $1,000 set aside for retirement savings and 60% have less than $25,000. Let’s dissect the fact from the scare tactics about this unsurprising result. Yes, it is a problem that so many workers lack preparation for retirement and have little in the way of any type of savings. It is dangerous that an increasing percentage of workers are entering their late adulthood with so little in savings or other sources of income at a time where their ability to work is increasingly at risk. It is also a problem that these workers will likely continue to work into what would be retirement years.

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The study excluded the value of the workers’ homes and defined benefit plans, which are two of the most common sources of retirement income for workers, although the number of workers with access to pension plans is quickly shrinking. That’s kind of like saying your house is small because we only counted the living room space. That’s not very meaningful information. The purpose of producing data in that manner is to make people seem more broke than they really are so you’ll dump more money into your 401k or IRA and give the financial services industry access to more of your money. This whole report is suspect. Defined benefit pensions are absent from the report.
It’s not like the companies that subsidize the EBRI don’t have access to this information. The report also makes the fairly obvious conclusion that if workers had a better sense of their retirement needs then they would be more likely to plan for retirement and do a better job of committing to retirement savings. That is obvious. People who understand their needs are more likely to plan for them. Fortunately, the report offers a really good solution: just save more money. It’s a great solution, if you have the money to save. However, the attitude from the employee benefits industry is that you need to save an enormous amount of your income regardless of how much or how little you make. That will just magically cure the problem.

Retirement plan problems

There’s a huge blindness to the reality that real wages have stagnated and fallen for most workers and many are still reeling from the housing market collapse and recession over the past several years. The WFAA story offers this from TFG Wealth Management: “When I see these numbers I have ask the question. How did we get here? We need more financial education in the schools, in the media, in the workplace.” Yes, Mr. Fried, what workers really need is just more education. Not more wages; just more education on how to give you what little money they have. The financial services industry doesn’t think advocating for raising wages or increasing employer contributions to retirement plans are effective. Just more education and more saving. The WFAA story goes on:

If possible, people 40 and older should try to save up to 20% of their income, he says. “If you can’t afford to do that right now then set this as a target, and as you get annual raises put aside part of each raise until you reach the 20% number,” Fried says.

Thankfully, you don’t need that twenty percent of your income for anything else. You were probably tired of wasting all that extra money on things like food and electricity.

Garbage like this is part of the reason why workers don’t take saving for retirement seriously.

People should focus on putting what they can into retirement savings and do some serious planning for retirement. Employers should do a better job of educating employees about how to plan for retirement. Or I guess you could just be more rich and that could fix the problem.

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