By: Frank Armstrong, CFP, AIF
Sink or Swim Series – Introduction
The days when all you needed to do was show up reasonably often over your career to earn a guaranteed income for life at retirement are over! In the good old days, the entire cost and responsibility for providing that retirement was assumed by the employer. Just 15 years ago, 70% of Americas workers were covered by a defined benefit plan. And all workers and their families were covered by a generous Social Security system. Additionally, families were closer, and most expected to provide some intergenerational support. If it wasnt exactly cradle to grave security it did take a lot of the uncertainty out of life.
That world doesnt exist any more. Today, its the Ownership Society, a euphemism for sink or swim on you own resources. The basic American retirement plan is now a 410(k) that requires the worker to decide on an adequate funding level, contribute that amount from his own pocket, develop a rational asset allocation plan, choose from a bewildering menu of substandard investment options, and finally determine how to convert his nest egg into a lifetime income. And no matter what happens to the current Social Security debate, benefits going forward (in real terms) will be a fraction of what our parents enjoyed.
Meanwhile, theres plenty of evidence that most Americans arent up to the task of managing their retirement security in the sink or swim society. Workers are retiring earlier, often against their will. They will be living longer, and face health costs that were unimaginable for their parents. Yet, survey after survey shows that workers dont feel that they will be secure in retirement, havent saved enough to retire, and are not saving enough currently. A look at the average familys finances shows that they have every reason to be concerned. With the exception of home equity, there are precious few assets on the balance sheets.
To put it kindly, the American pension system is one giant disaster area, a tsunami cresting over our heads. The time to take evasive action is now.
And, helps not on the way! Investor literacy is almost non-existent. You can graduate from high school without knowing how to balance your check book, graduate from college without ever taking an investment course, and get a PhD without ever hearing of asset allocation. The 401(k) system is such a swamp that in many cases the employee rightly decides not to participate. The national savings rate hovers near zero. The great investment houses that might be expected to provide assistance are instead bent on the rape, plunder and pillage of their clients accounts.
So, there it is. We are entering an era of cradle to grave insecurity! You and only you are going to be responsible for securing your financial future. You are left to your own devices to figure this system out. Thats what the Ownership Society is all about. We are not moving toward a kinder, gentler society. The safety net and life line are disappearing. You will either sink or swim depending on your own skill.
You are on your own. You must educate yourself, take responsibility for your financial future, and design and execute a viable investment plan for yourself. If you dont, its highly doubtful that anybody else is going to do it for you.
Given all that, might I suggest that if you would like to survive in the new society, perhaps its time for some swimming lessons? Or maybe its time for you to start building your very own life raft.
If you cant swim and suddenly find yourself alone in deep water, the last thing you want to hear is a detailed lecture on fluid mechanics or how to calculate buoyancy. Someday you might get interested in those subjects, but the immediate need is to keep your head above water and get you moving toward safety. Likewise, Sink or Swim is not going to turn you into a financial economist, accountant, or analyst. We are going to be short on theory, but long on immediate benefits that will get you to a prosperous retirement. You will be able to simply, quickly, economically and effectively invest your retirement accounts and personal savings to meet your long term goals.
Sink or Swim will teach you those essential survival skills needed to navigate serenely to a safe harbor through the nastiest financial storms likely to be encountered on your journey.
A drowning swimmer is often his own worst enemy. Instead of conserving energy and floating comfortably, he flails around in total panic, quickly exhausting himself and insuring early demise. A tiny bit of knowledge and discipline would save many of them. In the same manner, most investment tragedies are self inflicted wounds, totally predictable, but completely avoidable.
Wall Street sharks are the most vicious kind, world famous for their remorseless search for unwitting prey. Fortunately, you dont have to be dinner for them. Sink or Swim will provide you with tested repellent to fend off these dangerous critters.
The pace of modern life doesnt give us time to do all the things we ought to do. Unfortunately, most of us are swamped with competing obligations. The average American considers investment planning almost as much fun as doing his taxes. But, taxes have an April 15th deadline and investment planning doesnt. So, its far too easy to push the planning process to the back of the desk for another day. The danger is that it will linger there gathering dust until we wake up one day to discover that time has passed us by, and we have neither a plan, nor any investments. So, the first goal of Sink or Swim is to make this process quick and easy so you can get on to the fun things in life while knowing that you will probably be in the top quartile of investors over your career.
So, can retirement planning and investment be easy, simple to understand, painless and quick to execute, effective and economical? I guarantee it. Read on. Sink or Swim is a work in progress with just those goals in mind. Tune in for new chapters every two weeks.