In a short but illustrative “thought leadership” report from Prudential, the $1.4 trillion asset insurance and retirement planning firm, three significant 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.
It would be surprising that this report contains nothing new 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 acknowledged retirement crisis.
But this is not the case. Instead, Prudential cites some old, chronic causes of financial insecurity among millions of Americans who 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 that found that if a worker wants to retire at age 62 while maintaining their current standard of living and sustaining their lifestyles, a 25-year-old now working needs to save 15% of their income consistently. 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).”
That’s it.
For a $1.4 trillion expert in retirement and financial services, Prudential is either intentionally blind to the realities affecting future retirees or wants to avoid the honest discussion affecting retirement.
My bet is both. The reason is that 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 vast financial firms pretend they don’t know how to solve them. In short, they are lying to their clients.
Prudential never says whether it would benefit from privatizing Social Security or supports making that established retirement program more financially stable. Is Prudential using its lobbying money to destabilize Social Security?
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 huge sums lobbying to pass or influence 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 that this firm, like many others in the financial planning and retirement industry, is intellectually dishonest. They also avoid fiduciary responsibilities to act in their client’s 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 2020 presidential election candidates have new ideas and viable programs addressing the retirement crisis. Prudential and other firms in the industry see this, but predictably, they will fall back to their default position and say they do not engage in political discussions. If so, why does Prudential spend so much on lobbying for legislation that disadvantages their retirement clients?
Prudential is just one 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 undoubtedly put more disposable income into their clients’ pockets.
However, suppose these large firms’ corporate or marketing communications directors want to protect their jobs and maintain the status quo. In that case, 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 employers.
Individuals saving for retirement should recognize that only a national political effort will prevent them from facing a lower standard of living or, even worse, prevent them from retiring. The 2020 election is the last hope of finding far-reaching national solutions to the chronic retirement crisis.
Americans should realize the genuine 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 secure financial future. Your financial advisory firm will not.
