Should the Retirement Industry Accept Some Blame for the Retirement Crisis?

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What retirement crisis?
What retirement crisis?
What retirement crisis?

Social responsibility has been a buzzword in corporate America for decades, but nowhere has it been more conspicuously vacant than in the recent stories about the pending retirement crisis that is currently facing millions of Americans.

At issue is whether the retirement industry, comprised of investment, mutual fund and insurance companies, 401(k) plan administrators and banks, should assume some responsibility when millions of Americans have failed to accumulate enough assets to enjoy a financially secure retirement.

While the retirement crisis ranks as one of the top-most politically-charged policy issues in the current presidential campaign, it is an issue which has been festering for decades and certainly should have been a top-priority issue for the trillion dollar retirement industry whose sole focus is on retirees and retirement assets.

So while the retirement industry has so far avoided sounding any public alarm about the issue of the financial security of an aging population, others have not.

Consider this summary of the situation from Bloomberg news in May 2015:

“The rapid and near-total disappearance of defined-benefit pensions has left many U.S. workers unprepared. Almost one-third of all workers have no savings at all. Those who do save don’t save much. Median household retirement savings for people aged 55 to 64 in 2013 amounted to $14,500. Consider that the average 65-year-old in the U.S. can expect to live almost 20 more years.”

Similar and more detailed academic studies about serious retirement deficiencies have been sounded by the Center of Retirement Research at Boston College, the University of Michigan Retirement Research Center, and Teresa Ghilarducci from the New School in New York. Similar studies about the need to save more and invest in a diversified portfolio have also been produced by banks and insurance companies as part of a broad educational marketing campaign tied to selling products.

But as an industry, the sophisticated investment professionals working in the retirement industry certainly know that what is needed  for a secure retirement is not the based on educating the public about the basics of compound interest and portfolio diversification.

Avoiding the Real Issues

The real issues, and the ones which have emerged as the most salient and emotional, are the issues of wage stagnation, income inequality, tax avoidance by corporations and the most wealthy and the growing gap between rising social and economic expectations and the realities of today’s workplace.

And it is these critical issues that are shaping the outcomes of every working person saving for retirement.  And it is these issues which are not being raised by the corporations in the retirement industry because they are class-sensitive, politically provocative and can easily call into question whether they current capitalist system is working on behalf of millions of Americans, many of whom are actual clients of the retirement industry corporations that claim to be working diligently to make their retirement futures more secure.  And that is a hollow promise.

Wage Stagnation. Pew Research center
Wage Stagnation. Pew Research center

Asking for a raise should be the paramount question foe millions of workers who have suffered wage stagnation for decades.  According to a 2014 Pew Research Center study, “after adjusting for inflation, today’s average hourly wage has just about the same purchasing power as it did in 1979, following a long slide in the 1980s and early 1990s and bumpy, inconsistent growth since then. In fact, in real terms the average wage peaked more than 40 years ago: The $4.03-an-hour rate recorded in January 1973 has the same purchasing power as $22.41 would today.”

But no 401(k) educational administrator has the backbone to tell employee-investors in their basic 401(k) education class that they should do so if they want to invest more into their retirement plan. It would be bad etiquette.  It would also be the truth.

Instead, the mantra is that employees who have not had a raise in years should “just save more.” If they don’t, they are profligate spenders without any discipline.  It’s the dominant evangelical message and it also blames the victim for not having enough assets in their old age.

So Where is the Retirement Industry?

So where does the retirement industry stand on the retirement crisis issue?

Admittedly, there is no answer since the retirement industry is so diverse. But what the largest retirement investment corporations do have in common is that they are faceless and unaccountable. They are active contributors to the biggest financial lobby in Washington that has consistently worked against their own customers on such recent issues as defeating the fiduciary standard and de-funding the Consumer Financial Protection Bureau. They favor secrecy over transparency, hard-sell tactics over education, hate regulation and even sell more expensive, underperforming proprietary mutual funds to their own employees when cheaper funds with better returns are readily available.

So the original question is whether the retirement industry should accept some blame for the nation’s retirement crisis? Of course, the answer is “yes,” but in a business-as-usual world with minimal individual accountability, no corporation will step forward to share the blame.  And that’s why the nation’s retirement crisis will only get worse.

 

 

 

 

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Chuck Epstein has managed marketing communications and public relations departments for major global financial institutions and participated in the launch of industry-changing financial products. He also has written by-lined articles for over 50 publications, five books and served as editor and publisher of nation’s first newsletter on the topic of using the PC for personal investing and trading. (“Investing Online, 1994-1999). He also is a marketing consultant, writer and speaker on topics related to investor protection and opportunities in the very dynamic cannabis industry. He has held senior-level marketing, PR and communications positions at the New York Futures Exchange, Chicago Mercantile Exchange, Lind-Waldock, Zacks Investment Research, Russell Investments and Principal Financial. He has won national awards from the Mutual Fund Education Alliance (MFEA) and his web site, www.mutualfundreform.com, was named best small blog in 2009 by the Society of American Business Editors and Writers (SABEW).

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