IMHO: “Conversation” Starters

March 16, 2011 ( - There’s been a lot of talk coming from Washington of late about the need to have “an adult conversation” with the American people.


That conversation ostensibly includes discussion around the need to make changes to how this country spends its money and/or how much it needs to take it to fund that spending.  Almost certainly that “adult” conversation means decreasing entitlement benefits and/or increasing the tax “contributions” we make to fund those entitlement benefits.  The politicians wonder if we’re ready for it – personally, I think the politicians are the only ones who aren’t.   

Still, when someone talks about the need for an “adult” conversation, what they mean is that we need to talk about things you’d probably just as soon not think about, much less talk about.  Those are generally serious topics with painful choices.

 Regardless, we’re only just beginning to have those “adult conversations” with retirement plan participants.  Sure, we talk about the need to save as much as they can, beginning as soon as we can – but still, for the very most part, the goals (and goal line) are vague and ambiguous.  Here’s the adult conversation I think we should be having:

1. Social Security won’t be as much as you think it will be.

The Social Security Administration notes that for a worker retiring at age 66 in 2011, that maximum benefit amount is $2,366, a figure based on earnings at the maximum taxable amount for EVERY year after age 21.  In other words, that’s probably more than most of us would get.  Note that the maximum benefit depends on the age a worker chooses to retire, among other things (1).  And that, of course, assumes that the current questions regarding Social Security’s longer-term financial viability are addressed, and/or that current benefit levels aren’t reduced.

In sum, the odds that you’ll get that current maximum aren’t large – and the odds that current benefits will be reduced seems pretty good.

2. Everybody doesn’t have a pension, and you probably don’t.

Now, by “pension”, I mean the traditional defined benefit pension plan, one that, in the private sector, anyway, was largely employer funded.  According to EBRI, in 2008, 31% of all private-sector workers participated only in a 401(k)-type defined contribution plan and 3% participated only in a defined benefit pension plan, while 12% were covered by both.  So, only about 15% of private-sector workers were covered by a pension plan (coverage is much more common in the public sector). 

The rest?  Well, they didn’t have any kind of workplace retirement plan.

Despite this, studies pop up every so often that indicate that a remarkably large number of workers think they DO have a pension.  Where do you fall out?

3. You won’t be able to work as long as you think you will.

According to the U.S. Census Bureau, the average retirement age in America is 62 (the average length of retirement is 18 years).  Several years back McKinsey & Co. did a survey and found that while nearly half of baby boomers expect to work past 65, only 13% of current retirees surveyed actually worked past that age. Forty percent of current retirees were forced to stop working earlier than they had planned (being laid-off was the most common reason, and the survey was taken well before the recent downturn).  The average age when current retirees left the workforce, according to McKinsey: 59.

Think you’ll work past 65 (2)?  You may, but perhaps not in the job you think. 

4. You aren’t saving enough.  That goes double if you’ve been automatically enrolled in your retirement savings plan.

How much you need to save is, of course, a matter of personal circumstances and even preference.  It’s also impacted by things like the amount of support provided by Social Security, how old you are when you retire, and more importantly how – and how long – you live after you quit working.  That said, if you’re only saving up to the level of the employer match (at least at most companies) and you don’t have a pension (see above), then it’s likely you’re not going to have enough saved at retirement to last you through your retirement.  In fact, many workers don’t even save to the level necessary to receive the maximum employer match. 

As for those who are automatically enrolled, they typically start their savings at a rate much smaller rate than those who have taken the time to fill out an enrolment form.  So you’ll have even less.

As for how much you need, last year a study by Hewitt Associates (now Aon Hewitt) said that the average U.S. employee would need 15.7 times their final pay in retirement resources to maintain their current standard of living during retirement. 

How much do – and will - you have?

There you have it – the makings of an adult conversation with American workers.  Have you had it with the participants you work with?


(1) Not that Social Security isn’t an important source of retirement income.  The biggest source of retirement income for Americans has been Social Security, and many older Americans (age 65 or older) rely entirely on their monthly Social Security checks.  According to the Employee Benefit Research Institute (EBRI), in 2009, Social Security accounted for 49.0 percent of elderly women's income, compared with 35.9 percent of elderly men’s income.  Compare that to pensions and annuities, which in 2009 accounted for 21.2 percent of elderly men's income, compared with 16.6 percent of elderly women’s.  MORE at

(2)One of the most common responses of workers who know – or suspect – they haven’t saved enough is to assume that they’ll just keep working a few years longer.  After all, these days most of us have jobs that can be done well beyond the traditional retirement age.  And would that we could – working, and saving – five years longer will “cure” a surprising number of inadequate retirement savings situations.