Financial advisors do a lot of things, but retirement planning is pretty much on the top of their list. That is because of all of life's financial milestones, retirement has the biggest price tag. Whatever a client's "number," the lifelong quest to save and invest for an uncertain future is quantitatively the zenith of the advisor-client relationship.
But, as is generally known, things have changed since the time retirement rose in popularity in the postwar era. Average life expectancy at birth in the U.S. is 75 for men and 80 for women, according to the Social Security Administration (using 2009 mortality rates). For men, that is 14 years higher than it was in 1940 when the Social Security Administration began issuing monthly checks to those who reached the retirement age of 65.
(In fairness, it should be noted that the average life expectancy for a man who has already reached age 65 has risen not 14 but just 5 years, to 17 more years of life from 12 more years, since the advent of Social Security.)
Rising longevity, advances in health care and increasing affluence made current conceptions of retirement possible: images of graying but physically fit couples at the beach or energetically wending their way through a golf course became regular features of Madison Avenue's ad portfolios.
But America's affinity for high-end consumption that this image of the good life represents is in jeopardy. First of all, it is hard to promote private savings in a culture that views consumption as society's cherished goal.
Secondly, the declining base of taxpayers makes an already dubiously financed Social Security system fatally vulnerable. At the latest possible moment, the government will be forced to lessen the generosity of Social Security benefits for workers under 50 years old or massively increase taxes on the working population.
Thirdly, America appears to have entered a stage of protracted slow growth. According to data from the World Bank, America's GDP growth rate for the past 5 years has been 2.2% (2012); 1.8% (2011); 2.4% (2010); -3.1% (2009); -0.4% (2008).
Mean-reversion optimists might argue that it's time for a new wave of economic growth that will lift private and public funding levels. But the tepid economic activity of recent years has occurred amidst a backdrop of historically unprecedented fiscal and monetary stimulus programs. They don't seem to have worked and may actually have crowded out productive uses of capital.
What's more, sophisticated analyses — taking into account an aging population, low birth rate and diminished immigration — suggest that 1% or less than 1% growth is the new normal.
What all this means is that American views of retirement are outdated and unrealistic for most. The average 401(k) balance is somewhere around $80,000, according to Fidelity Investments.
