It seems we’ve ended this year’s third quarter with another decline in broad stock-market indices. Safe to say it hasn’t been a stellar year for equity investment returns.
I saw my friend Dave last weekend. He recently retired, and he’s a little freaked out by the market decline. He is in good shape money-wise, despite his anxieties. He has plenty of assets from his lifetime of work, and he’s worked with a financial advisor pretty extensively, so his asset allocation should allow him to weather this storm.
But he’s unusual.
First, he has assets. The median retirement savings for Americans 60-64 is about $225,000, which can reliably generate a bit over $10,000 per year in income. That’s not very much. Dave has a lot more, so he doesn’t need to eat into his principal. Eating your seed corn is only a good idea if you have no other choice.
Second, by working with a financial advisor, he’s balanced his investment risk tolerance with his desired returns. So he has investments that will provide him returns that might vary, but during times like this he should have enough cash-type assets to keep him from having to sell other assets at depressed prices.
Third, he is a frugal man. While he has hobbies, and he has an appetite for the whimsical purchase, none of that is particularly expensive. He doesn’t travel much, and when he eats out he’s content with good-quality fast food and local taquerias. He doesn’t drink to excess, his gambling is restricted to nickel poker with friends, and I’m pretty sure he wouldn’t even know where to source drugs outside a cannabis dispensary.
So he’ll be more than fine financially.
I’ve often felt that we are directed to oversave for retirement. It’s obviously not working if the median 60+ year-old has only $225,000, but I contend that’s because of low earnings rather than profligacy. Professionals suggest we save enough to allow us to live to 95 years old. Yet life expectancy is in the mid-80s for those of us already in middle age. Some of us will make it to 95, but most of us won’t. So we will have oversaved by several years, depriving us of those resources we could have used during our lives.
I get the moral hazard argument, but I’m not sure data supports the idea that people shirk their responsibilities. There are anecdotes, of course, because someone somewhere has done anything you can possibly imagine, but I think people are generally honest and have good intentions. Yes, we are lazy, and yes, we often take the path of least resistance, but I think we also see ourselves as team members, and we usually want to do our part for the greater good, especially when we think others are doing so too.
So perhaps we need to rethink our savings targets and enhance social security or some other public income program for those who live beyond their projected lifespans. It would free up resources, so people wouldn’t have to sacrifice as much, and it would help that $225,000 nest egg the average person has to use.
It won’t stop my man Dave from worrying, but it could let a lot of others sleep better at night.