Is There a Retirement Crisis?

In Nobel Prize winning economist Robert Merton's recent paper in the Harvard Business Review, "The Crisis in Retirement Planning," he says that putting complex financial decisions in the hands of people with little or no financial expertise is problematic, leading to a financial crisis.  

Morningstar Vice President, John Rekenthaler, says it's important for people to talk about their wealth and 401k's as future retirement income, because that's what it was intended for.  He agrees with Merton in that thinking about one's retirement income is likely to encourage better behavior and that the shift should be made from wealth accumulation to retirement income accumulation.  

John Rekenthaler  Vice President, Morningstar  source:

John Rekenthaler

Vice President, Morningstar


While Rekenthaler agrees on these points Merton makes in his paper, he just thinks he's "overselling his case too strongly."  He just doesn't see this "retirement crisis" that he's implied in his paper.  If you look at the real income of Americans over the age of 65, over the past 30 years, income in this age segment has grown faster than any other age segment, notes Rekenthaler.  "From an income perspective, retirees over the age of 65 have done better and proved that situation than any other demographic," he says.

To Rekenthaler, if you're going to make a claim of a "crisis," then you're implying that things are worse now than they were in our parents' generation.  He says that people's fears about retirement are nothing new.  The bleak picture that some retirees paint may be their own crisis but Rekenthaler doesn't see it as a public policy crisis.  

The trend of retirement income accumulation has been so for a while, says Rekenthaler, with people focusing on the basics of just how much money they need during retirement.  The industry, in various ways, has been de-emphasizing becoming an investment expert and emphasizing that once you're in an investment, if you're saving enough.  Merton's call is part of the direction the industry is already going and if we are in a crisis, "he doesn't have the solution by any means," Rekenthaler says, because he hasn't addressed people who don't have a 401k plan or can't invest in one because they don't have enough money or have credit card debt.  

The biggest issue, Rekenthaler believes, is getting people into plans and Merton is not doing anything to address the ten of millions of people who aren't doing anything for retirement right now.  "If the article was called "Improving the Experience of 401k Participants," then the article would have been quite different," Rekenthaler says.  

To read more about John Rekenthaler's article on this subject, click here.  John Rekenthaler is Vice President at Morningstar and spoke with Retirement News Today, providing online retirement news video content.  Retirement News Today is a featured network of Sequence Media Group.


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