Retirement and Financial Security: Whose Responsible?

Wednesday, November 12, 2010

Many authorities believe that most Americans are ill prepared financially for retirement. Whether due to poor planning, inadequate savings’ rates, job losses, poor investment returns or the demise of traditional employer sponsored pension plans; many workers will outlive their retirement. In addition, as we have seen, the income replacement ratios of Social Security for many US workers will do little to help the situation. Who then is responsible for prepare or helping the worker to prepare for retirement?

When all is done and said, the entity responsible for an employee’s financial well being now and in retirement must the EMPLOYEE. While employers can provide access to employee benefit plans, which may help the employee, tools to help them plan for the future, and even access to professional financial advisers, the employee must accept the role of their own financial controller. Unlike the employer managed and directed traditional pension plans of our parents, self managed and self directed plans such as most current defined contribution accounts are controlled directly be the account holder, the employee.

In her paper titled, “Preparing for retirement: The importance of planning costs”, Annamaria Lusardi, associate professor of Economics at Dartmouth College clearly makes a successful argument when she states:” The responsibility to save and contribute to a pension is increasingly left to the individual worker.” Lusardi’s focus in several articles is on planning for retirement. Certainly a key element in the preparation for retirement.

In one of my prior assignments, I would travel around to the various locations of my employer addressing groups of employees and answering questions on the company’s 401(k) plan. I was continually amazed to hear knowledgeable employee’s refer to participation in a 401(k) as akin to gambling. While there, is a certain degree of risk involved in any form of investing, gambling has no upside; the house will always win in the long run.

The key to any endeavor is arming yourself with knowledge. Fortunately (and unfortunately) in the world of retirement planning there are a magnitude of advisors who are ready to serve the future retiree. As so often is the watchword in these matters, “caveat emptor, let the buyer beware”. Many financial advisors are associated with financial institutions that would prefer to sell you more that advise you. You may well be advised to seek the council of others and demand someone with nationally recognized credentials, licensed you respective state, and someone who is willing to demonstrate their transparency.

One place to start is the Certified Financial Planner Board of Standards, Inc., whose mission is to benefit the public by granting the CFP® certification and upholding it as the recognized standard of excellence for personal financial planning.  Another organization, which could be helpful to both individuals and organizations, is the American Institute of Certified Public Accountants, which serves both CPA’s and the public interest.