Apparently only 6% of retirement fund members enjoy financial independence in retirement now. This is up from 5% FORTY ONE YEARS ago. If its true there is something very wrong with our retirement processes. We have excellent investment managers, excellent retirement fund trustees and an entire swath of prosperous financial advisors. Why then do we have a 94 percent failure rate.
The problem is that the people to whom all this activity is directed mostly hasn’t got a clue about how to get retirement right. They place their entire trust in the hands of the above-mentioned fiduciaries and yet the results are abysmal. And the bit that they don’t get is that they are actually responsible for the result.
Part of the problem is that the fiduciaries do not have the same objectives as the end user. The individual wants enough money to afford a financially independent retirement. No-one else is incentivised towards the same outcome. So they all work in their own cocoons.
Investment managers improve their reward by increasing the assets that they manage because their fees are a percentage of those assets paid annually.
Retirement fund trustees work to make sure that their funds comply with the laws while ensuring that their investments perform well.
Financial advisors generally work to increase the assets that they introduce to asset managers because their fees are a percentage of those financial assets. While there are competent financial planners many use financial planning as a technique to encourage individuals to place more money with asset managers via them.
What you as an individual don’t seem to understand is that you and you alone, are responsible for the success of your retirement provision. No one else will ever care as much about your financial accumulation as you will. And if it doesn’t work out too well, as it often doesn’t, you have only yourself to blame.
To acquire useful skills people need training! Little retirement training is available to the public because we are expected, to trust anyone who is licenced as a Financial Services Provider. Nowhere in financial services do we see education of laypeople being used as much more than a marketing tool.
Unless people are trained in these skills they will always be at someone else’s mercy. The system as it is works for a few. Cast your mind back to the 94% of retirees who don’t have financial independence when they retire! The “professionals” happily take fees from people while they are saving and investing but do they make restitution when they get it wrong?
Landmarks in my mind are the names Masterbond, Sharemax, Cambist! Those are the names of schemes sold to the unsuspecting public. These were sold by “professionals” who either didn’t know enough to understand the problems, or worse, cynically took advantage of individual ignorance. A little bit of financial education might have a lot of people from terrible consequences including their own suicide.
Individuals who aspire to a decent retirement need training in how to do it. When they understand the overall picture they are able to make use of the professionals to their best advantage.
An individual needs to be like the conductor of an orchestra in managing his retirement plan. The piccolos provide a certain quality to the performance, percussion is necessary, but not too much, trombones also have a role. If the sound is too soft they need to increase their volume and so on.
People save in different ways. They could have money invested in retirement funds, unit trusts, retirement annuity policies and rent-producing properties. They need to know how to draw these diverse elements together to work out how well they are placed for a financially independent retirement. Only if they can monitor progress objectively can they see if they are running on the right track. And that needs to be taught.
Pension funds no longer guarantee levels of pension so you need your own clear goals to measure your progress against. A bit like a GPS. If you are not keeping up you need either to save more or to change direction. But if you have no objective way of measuring progress you are in the dark.
The answer is for individuals to be trained to prepare for their retirement. The main requirements for such training must be that the training resource is neutral, technically competent and skilled at communicating the necessary concepts. No such source can be neutral if it is part of a financial institution or if it earns fees or commissions that are determined by the amount of money invested.
D.L. Crawford CFP®