This Is Why Saving for Retirement Is So Hard

I usually err on the brighter side when talking about money management. Many articles are all doom and gloom and I don’t think that helps to motivate people – particularly those who know they’re in a bad position financially, but a straight talking professor of economics at the New School for Social Research, Teresa Ghilarducci, penned a scathing OpEd in The New York Times recently, and I can’t get it out of my head.

It was called “Our Ridiculous Approach to Retirement” and it outlines a number of confronting issues facing the collective American population. I like her use of the word “ridiculous” – as in “how the heck did we ever think this was a realistic or sustainable system?”

Here’s a quick list of Ghilarducci’s gripes:

• People are not successfully saving for retirement. Need evidence? Almost half of middle-class workers, 49 percent, will be poor or near poor in retirement, living on a food budget of about $5 a day.
• Too many people rely on advice from “their guy” without fully understanding the nature of the relationship: whether their guy has a fiduciary loyalty to them as a client, or even how much he costs.
• It’s hard to know your number: how can you understand how much money you will need in retirement? How can you prepare for the unknown?
• It’s hard to know your date: many people will end up retiring earlier than anticipated because of family illness or because they are laid off. Working into old age is a privilege:

“The chance to work into one’s 70s primarily belongs to the most well off. Medical technology has helped extend life, by helping older people survive longer with illnesses and by helping others stay active. The gains in longevity in the last two decades almost all went to people earning more than average.”

In short – it’s really hard to plan ahead and it’s really hard to save. It’s crazy that we expect people to do these things on their own.

Ghilarducci’s solution calls for mandated retirement accounts for all: “These accounts would be required, professionally managed, come with a guaranteed rate of return and pay out annuities.”

Betterment’s plan is to create products that help people tackle the issue [note the two are not mutually exclusive]. We agree that majority of the products out there expect too much of people – too much knowledge, too much time, too much trust, and too much reliance on rational behavior.

Financial products shouldn’t expect individuals to make decisions like institutions (the knowledge and access is not the same), financial products should be time efficient – most people have full time jobs already, why expect them to take on a second managing their money? Financial products should be transparent in fees and practices, and they should automate good behavior.

We do a lot of this already. We think we can do a lot more. As we develop enhanced advice in our product we’ll be thinking about how to help people answer the all-important question: “am I okay?”. Because, really, that’s what it’s all about.