Why We Can't Plan For Retirement.

The CFA Institute recently put out an entire issue devoted to retirement.  Specifically in the article below the question is asked, "After 70 years of fruitful research, why is there still a retirement crisis?"  The short answer, in my opinion, could be summarized as follows:  There is a crisis in retirement planning because the future is unknowable and we mortals are mostly incapable of dealing with matters that may never occur {we could die before we reach retirement age} or are too far off to be of a concern right now.  Most thoughts about the future tend to get crowded out due to our concerns with the here and now.  Never-the-less the author lays out below the primary issues of how we got to where we are today.  

We are not dealing with the answers here, just highlighting what's wrong. {My highlights.}

	Low saving rates: Many people prefer living for today over saving for tomorrow.
	Agency costs: Some of the people entrusted with other people’s money keep as much as possible for themselves or simply do not know how to do their jobs.
	Lack of knowledge: Accustomed to having employers save on their behalf, employees who must now provide for themselves do not know how much to save, how to invest, or how much to spend.
	Longevity: People are living longer but not necessarily working longer.

Most of the other causes of the retirement crisis concern market circumstances and policy errors:

	Poor market returns: Since 2000, markets have mostly disappointed, but those responsible for pension and retirement planning have generally assumed strong returns and have budgeted their contributions accordingly.
	Ordinary costs: Conventional investment management and advice are expensive, and indexing has only recently caught on as a near-majority strategy.
	Unskillful investing: Many investors buy when asset prices are high, after market gains, and then, in a panic, sell low in the next downturn to avoid further losses. They also chase manager alpha unsuccessfully, buying funds after they have performed well and experiencing the inevitable deterioration.
	Ill-advised regulations and taxes: In the United States, for example, tax laws favor DB plans, which allow a large fraction of income to be tax deferred. Meanwhile, caps on DC plan tax deferrals are set so low that most participants cannot realistically retire on tax-deferred balances alone. US tax laws also favor certain types of employee benefits over others, regardless of what is best for the employee, and thus many individual investors face high marginal taxes on savings.
	Poorly defined property rights: With DB pension assets and liabilities (benefits) not clearly belonging to anyone, they become a political football and an object of financial maneuvering.

That’s quite a gauntlet for workers seeking retirement security, through either DB plans or individual investing, to run! It’s no wonder that a sufficient and reliable retirement income is elusive.

The next post here will be Thursday.

Link:  CFA Institute: After 70 Years of Fruitful Research, Why is There Still a Retirement Crisis?