Season Investments


Wishful Thinking

Posted on May 21, 2019

Wishful thinking could be one way to describe many Americans' expectations about retirement.– Steve Vernon

2019-05-21_dandelion.jpgThese past few weeks we have been taking a look at what we feel is a crisis in retirement expectations. Every day roughly 10,000 baby boomers are turning 65 years old, and according to a somewhat depressing report from the Wall Street Journal they are the first generation to be entering retirement in worse financial shape than the previous generation since Harry Truman was president. As Shakespeare once opined, “Expectation is the root of all heartache.” It appears to us that there is a large amount of retirement heartache on the horizon for many Americans as a result of misplaced and unrealistic expectations.

In our last two posts we have looked at two specific areas where this is the case. First, we talked about the country’s social security program which is nowhere near sustainable in its current form. Politicians and retirees will both be disappointed if they think that ignoring the problems will simply make them go away. Structural changes will need to be implemented at some point to put the program back on course.

Secondly, we dug into the severely underfunded status of public and private pensions across the country. In order to address this issue there will need to be some combination of benefit cuts or increased contributions. No one wants to take the hit, of course, so in many cases an open hand will be held out to State and Federal government agencies in search of a bailout. Again we see that misplaced expectations have been allowed to run out of control for too long, and now nobody wants to be the one to make the hard adjustments.

The third area where we see flawed expectations setting people up for disappointment is in the disconnect between personal savings rates and retirement lifestyle expectations. For most peoples’ anticipated retirement lifestyle, social security income and/or pension income is not going to be enough, yet the average American has very little saved in personal retirement accounts. A recent study from the Insured Retirement Institute shows that roughly 45% of baby boomers have no retirement savings at all, and the majority of would-be retirees drastically underestimate the amount of money they will need each month to cover expenses.

As the chart below shows, the personal savings rate is as low as it’s been in a long time, so it doesn’t appear that most Americans are aggressively trying to plug the gap, either.


Despite low balances and savings rates, this chart from the Retirement Confidence Survey shows that about two-thirds of working Americans are confident in their ability to retire comfortably. The upward trend in sentiment is most likely due to the wealth effect of a rising housing and stock market over the past decade.


A thoughtful analysis of the above data would suggest that there is a disconnect between expectations and reality. These false hopes are setting people up for serious disappointment. The Saint Louis Fed recently concluded the obvious,

...for many American households, the total balances of their retirement accounts may not be sufficient to ensure a solid life in retirement.

We’ve all heard the old adage, “plan for the worst, hope for the best.” It seems that in far too many cases, Americans appear to be hoping for the best and not planning at all. As our clients know, our vision statement is to provide our clients with the “Freedom to pursue what makes life truly rich.” We believe true freedom can only be found in a well thought out, conservatively constructed plan. It’s incredibly fulfilling to see the planning process beginning to lift the fog of uncertainty and instill confidence and peace of mind for our clients. There is a certain level of comfort and contentment in knowing that all the pieces are in place for meeting long term objectives and obtaining financial freedom and security. In our clients’ case, we hope that expectations are not only met but exceeded over time. Life gives us plenty of reason for heartache; poor retirement planning doesn’t need to be one of them.

david_headshot_bw.jpgAuthor David Houle, CFA is a founding member of Season Investments. He serves as the firm's Chief Compliance Officer as well as sitting on the investment committee overseeing the management of client assets. David spent nearly ten years in various roles primarily managing individual client assets prior to co-founding Season Investments. David graduated with a degree in Finance from Colorado University in Colorado Springs in 2003 and earned the Chartered Financial Analyst (CFA) designation in 2006. David and his wife Mandy have three children and spend most of their free time with friends and family.

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