According to the latest report from the Employee Benefits Research Institute (EBRI), 18% of workers are “very confident” about their financial future in retirement. (Question: How confident are you?) This is an improvement from the 2013 results when 13% of those surveyed reported that they were optimistic. It seems that the improvement in the balances of 401(k) plans, IRAs and other savings vehicles is buoying confidence.
While these results are better than last year’s, the optimism occurred only with those with a formal retirement plan (401(k) plan, IRA, etc.) and it still leaves 72% of workers in some state of mind less than “very confident”. The other warning signs of a coming retirement crisis have not abated. For example:
- 60% of workers have less than $25,000 in total savings and investments
- More than one in three workers have not save ANY money for retirement
- Only slightly more than half (57%) are actively saving for retirement (meaning 43% are not!)
How do today’s workers plan to cover retirement living expenses? They will keep on working beyond age 65 it seems. In 1991, 16% of workers planned to work beyond age 65; in 2014, that number soared to 50%. This is the biggest shift that EBRI has recorded in 24 years of this survey.
Every year when the annual EBRI Retirement Confidence survey results are published, I am disturbed by the lack of retirement savings among workers. One final statistic: only about 40% of workers have even tried to figure out how much they need to save for retirement. Please be among the 40% who know how much they need to save in order to retire comfortably. Use an on-line calculator from EBRI, T. Rowe Price or Fidelity. Or give us a call so we can do a full-fledged Retirement Readiness Check-up for you. Please do something so your only plan for retirement is to work as long as you can. That’s not a plan worth following.
Check out the full survey results and other information at the EBRI website.
In the last two blog posts, we noted that the latest figures from the SPIVA® scorecard show that passive beats active investing in the short and long term. Only intermediate term bonds (both corporate and government) active mutual fund managers provided better results than their passive counterparts on average over five years. So why does this matter?
First, because you cannot tell which active manager is going to fall below or above the benchmark in advance, how would you choose an actively managed mutual fund? You would be guessing or taking a chance and the probability is that you would choose a mutual fund that will end up doing poorly compared to a passive approach. Why would you want to choose a mutual fund that has a mathematical probability of failing?
Second, let’s assume that you choose an active mutual fund that is lucky and beats its benchmark in a year. Or even two years in a row. Then it falls below its benchmark in year three. What do you do? Most people would wait another year to see if the underperformance continues. But let’s say that this mutual fund falls below its benchmark again in year four. Then what? Do you stay or do you go? And if you choose to go, with what do you replace the now under-performing fund? You’re back to guessing which fund will do better in the future and the chances of that are poor (see point #1).
This is my favorite argument when someone tells me that their mutual fund beat its index last year. I give them this “what will you do when it doesn’t beat its index” speech and I usually get a blank stare. Most people don’t know what they would do if their fund underperforms and hope their current fund continues to outperform the index and hope that they don’t have to choose. But as I like to remind investors, hope is not a plan. Creating a diversified portfolio of passively managed mutual funds (or ETFs) is a plan. One that has consistently and over the long term provided superior returns for portfolios.