Practical analysis for investment professionals
08 May 2014

In Search of a Secure Retirement

Posted In: Drivers of Value

Confusion about how to save and invest is the biggest impediment to effective retirement planning. Understanding some common principles and practices can be invaluable.

A significant fear for many people is not having enough money to live throughout their golden years. Since 2001, the Gallup Poll has reported that the biggest financial concern for most Americans is not having enough money saved for retirement. This suggests the apprehension is constant and remains in both good economic times and bad.

However, the worry about outliving one’s assets has not been enough of an impetus to get people to analyze their retirement needs and to save enough to cover them. According to a recent study conducted by the Employees Benefit Research Institute (EBRI), 57% of the Americans surveyed had $25,000 or less saved and only 46% had tried to determine their potential retirement liabilities.

People that are not appropriately preparing for retirement are not lazy, nor are they ignorant of the potential consequences of their inaction.

Their anxiety surrounding retirement planning doesn’t develop solely from unfamiliarity with financial concepts and uncertainty about their investing proficiency, but also from inertia. They are unsure how and when to start saving and investing.

A Global Issue
These same issues are evident and equivalent in many parts of the world. This is because retirement security is not an American issue but a global one that affects people of all nations and from every walk of life. In fact, the US and Great Britain have some of the world’s lowest savings rates and pension systems that are only rated average in comparison to other jurisdictions (according to the Melbourne Mercer Global Pension Index), demonstrating that advantages in retirement planning are not a question of developed vs. emerging market or rich vs poor.

Even countries with well-constructed and, in very rare cases, well-funded public pension systems don’t expect to cover 100% of their constituents’ retirement needs, putting the onus on individuals to cover the difference with employer sponsored or private savings and investment plans.

In an attempt to introduce consumers to some principles and best practices in retirement planning, the CFA Institute Future of Finance Team has created the “Essentials of a More Secure Retirement.” This document is meant to help people become savers and then grow into investors. It provides the knowledge and advice necessary to build wealth over the long term.

A New Approach
This document focuses equally on forging a fiscal discipline and building investment acumen. Many products take the opposite approach and place disproportionate focus on investment products and expected return. This is a mistake. Capital preservation and financial willpower are essential to achieving a secure retirement, because reaching one’s financial goals is not all about the return on capital but is also about managing risk and optimizing the amount of capital one can save continuously over the long term.

More simply stated, a key to retirement planning is systematically marrying the best ideas in personal finance with those in investment management.

In the keynote address at this year’s CFA Institute Annual Conference, Carl Richards, author of the “Behavior Gap” and master of using simple diagrams to explain complex financial concepts, presented some pragmatic ways to edify individuals about financial concepts and their finances.

One is to talk about money in a way that does not always frame the discussion around finance and investing. Although money is means to accomplishing our dreams and goals, Richards argues that people are highly emotional and often fearful when discussing their finances which can cause them to avoid speaking or learning more about it altogether. This suggests that in order to engage people in thinking about their finances, we should focus on a specific problem dear to them.

Richards also advocates “talking about the right things.” So much of the financial information available is noise which can be overwhelming, making it even more difficult for people to determine what is important. For this reason, it is necessary to concentrate on those topics or issues that really make an impact on people’s finances and lives.

Practical, Accessible Advice
Unlike a lot of financial education material, the Retirement Essentials is conscientious about meeting readers where they are and consequently abstains from using, an undue number of technical examples or industry jargon. It strives to explain some complex financial concepts in a simple, easy-to-understand manner that does not overwhelm but instead provides the reader with practical insights that can be acted upon.

Individuals that are not sure where to start and what to do in relation to their retirement, can use the retirement essentials as a guide to point out the principles and behaviors most likely to help them achieve their retirement goals. Links to additional content on specific practices and retirement themes provides investors with added clarification on saving and investing tools.

By following the instructions, individuals will be better suited to meet the challenge of providing for themselves in retirement, or as the document says, to “Get Started, Keep it Going, Invest Wisely, and Retire Well.”

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Please note that the content of this site should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute.

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About the Author(s)
Robert Stammers, CFA

Robert Stammers, CFA, was director of Investor Engagement for CFA Institute and was responsible for increasing the use and distribution of Future of Finance and CFA Institute content by various audiences. Prior to joining CFA Institute, Stammers was the principal for his founded company where he consulted for real estate owners, lenders, and syndicators to develop and analyze structured real estate investments. There he devised strategy for obtaining debt and preferred equity capital and created finance-related marketing materials and research papers for various clients. Stammers has authored over 100 articles on various financial and investment topics for such investment periodicals as Forbes and Investopedia. He served as a senior equity analyst, where he was responsible for the creation of new investment tools and instructional products to provide the revenues for two new investment education companies. As a senior executive for several institutional fund managers, Stammers was the portfolio manager for a $1 billion enhanced real estate fund, a $1.2 billion private timber fund, and several pension fund separate accounts.

1 thought on “In Search of a Secure Retirement”

  1. Hi Charles and group, thanks for the invitation to share. I will be quick. I am not a professional financial advisor or tax expert, so let me state that from the jump. From my perspective, you either keep your money under your pillow and accumulate savings and never enter the markets, or you seek to invest for retirement, utilizing all the tools available to you today. If you do choose the latter, you enter a world dominated by professionals/institutions globally, and you must realize this fact quickly, and fully outsource any of your investment decisions to someone who, first, you trust with your life. If you cannot find that person, do not invest.
    I am not in the camp that you can watch Jim Cramer and expect to make money over the long term. Professional traders monitor and access media information and systematically destroy retail investors who attempt to use these outlets a reference point. Nor am I am in camp that you can half-a-s(excuse my language) or moonlight in investing. I believe this is at the core of the problem for people today who have trouble saving for retirement and anticipate trajectory of this issue. Unfortunately, I do not think folks learn this lesson until the market teaches them, which is a harsh lesson. Sometimes, this takes multiple cycles, and by then, as we learned in 2009, it is too late for many, who ultimately leave the markets, never to return, for piece of mind.
    I truly respect the capable financial adviser who provides appropriate, holistic guidance over the long term for her or his clients. I believe this is an honest profession, when handled with the best intentions. This is a subject I have thought about over my 16 years career as a professional trader, analyst, and executive on the Street in New York. I have not witnessed much adaptation in investor sentiment, their ability to actively manage retirements, or demonstrating the ability to apply cyclical defensive strategies over that time horizon, people are not professional investors, bottom line. Nor do not see evidence in my historical studies of market, as a Chartered Market Technician that would indicate the masses will adapt to the issue you have raised. People seem destined to make the same mistakes time and time again. I hope, somehow, this can change though, but I am not holding my breath.
    You may not realize after reading my comments here that I am actually a glass have full type of guy who enjoys giving back to society in many ways, so sorry for the bearish sentiment. Its simply my honest opinion. I look forward to reading any responses. Best regards to all and good luck with your portfolios! Scott M. Khourie CMT LRPC Market Technicians Association, Brandeis University Wall Street Committee-NY

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