In a short, but illustrative “thought leadership” report from Prudential, the $1.4 trillion in asset insurance and retirement planning firm, three major sources of financial stress were identified as affecting the future financial security of millions of retirees.
The report, Preparing for Longevity: Overcoming Financial Wellness Challenges, is part of a series on “thought leadership” from Prudential Insights that provides “thought leadership that drives conversation.” This is a gross overstatement since none of the suggestions in this small report are new.
At first, the fact that there is nothing new in this report would be surprising since Prudential Financial is the nation’s largest insurance company, with total assets of $1.456 trillion. One would expect new information, or at least, some better suggestions from the experts for alleviating the nation’s acknowledge retirement crisis.
But this is not the case. Instead, Prudential cites some old, chronic causes about why millions of Americans will face financial insecurity after they stop working.
In the report, Prudential cites the following challenges that impair the ability of millions of Americans to retire. These factors are:
- Saving for retirement. Prudential cites an old study from the Center for Retirement Research at Boston College found that if a worker wants to retire at age 62 while maintaining their current standard of living, and sustain their lifestyles, a 25-year-old now working needs to consistently save 15% of their income. The bad news is that most workers only save about half of that, despite employer 401k contributions.
- Declines in homeownership. Millennials and Gen Z workers cannot afford a home, much of it due to student loan debt. Homeownership is a key to wealth creation.
- Unequal wages between men and women. The report noted the importance of gender inequality in salaries and how it impacts retirement. In the article, Prudential found that “women are more likely than men to carry student loan debt (25% versus 18%). Women are also less likely to have saved for retirement (54% versus 61%) and, on average, have lower retirement savings ($115,000 versus $203,000).”
For a $1.4 trillion-dollar expert in retirement and financial services, Prudential is either intentionally blind to the realities affecting future retirees or just wants to avoid the real discussion affecting retirement.
My bet is both. The reason: the solution to the retirement crisis is political. It has nothing to do with asset allocation, boosting savings rates as wages stagnate or risk management. The real solutions are political and the huge financial firms pretend they don’t know how to solve it. In short, they are lying to their clients.
Hating Your Clients
Prudential spent $6,050,000 in 2018 and $8,130,000 in 2017 on lobbying. This sum made Prudential 73rd out of 4,273 corporations followed by the site, Open Secrets. Since Prudential is a rational corporation, we can assume that Prudential spent these huge sums spent on lobbying for passing or influencing rules, regulations or legislation at the state and federal levels to protect Prudential’s business operations worldwide. The money was also spent on supporting politicians and parties.
Prudential’s limp “thought leadership” paper shows many that this firm, and many others in the financial planning and retirement industry, are intellectually dishonest. They also are avoiding their fiduciary responsibilities to act in their clients’ best interests. This latest paper is just another part of the industry’s faddish emphasis on “financial wellness” programs that avoid addressing the real and attainable political solutions to the perpetual retirement crisis.
For the first time since the New Deal, some of the 2020 presidential election candidates have new ideas and viable programs that address the retirement crisis. Prudential and other firms in the industry see this, but predictably will fall back to their default position and say they do not engage in political discussions. If that is the case, why does Prudential spend so much on lobbying for legislation that disadvantages their own retirement clients?
Prudential is just one good example of the retirement industry’s intentional neglect of its clients. Papers on “thought leadership,” “financial wellness” and pushing target-date funds and mandatory 401k enrollments all benefit retirement service providers more than individual retirees.
Correcting the “Thought Leadership” Vacuum
But here’s a modest suggestion: the nation’s largest financial advisory and retirement firms can do some original analysis that would get national attention. They should publish reports on how “Medicare for All,” a fair regressive income tax, revenues generated from closing tax loopholes, and foregoing student loan debt will each financially affect their clients. These would be original examples of “thought leadership.” Such studies would advance political discussions about policies and programs that would put undoubtedly put more disposable income into their clients’ pockets.
However, if the corporate or marketing communications directors of these large firms want to protect their jobs and maintain the status quo, they should avoid the embarrassment of issuing “thought leadership papers” on the obvious.
It’s also time for financial planners and advisors who work in the retirement industry to acknowledge that their well-intentioned efforts are being derailed by their own employers.
Individuals savings for retirement should recognize that only a national political effort will prevent them from facing a lower standard of living in retirement or even worse, prevent them from retiring at all. The 2020 election is the last hope of finding the far-reaching national solutions to the chronic retirement crisis. Americans should realize the very real possibility that after a lifetime of work, they will descend the economic ladder and live on less than they have now. This is a bleak potential reality, but there are positive, real political solutions in the 2020 election that can change this. Push for your own secure financial future. It’s clear your financial advisory firm will not.