Wall Street Just Doesn’t Get Retirement

As a retirement economist — not to be confused with a retired economist, which are rare — I often find myself talking to Wall Street types who happen to be in charge of a lot of other people’s money. The conversations vary, but the takeaway almost never does. As a senior executive at a large asset-management firm recently said to me, with surprising candor: “We don’t know how to solve the retirement problem.”

By “problem,” he was referring to the declining share of Americans who view their retirement plans as on track. And by “we,” he was referring to the financial industry — which, to be fair, has made some progress in offering various kinds of accounts and ways of saving. But it is still getting the big things wrong.

People have no idea how much money they need to retire. Their estimate of the costs of retirement increased 50% in the last four years, even though life expectancy barely changed. If anything, they should have revised their estimates down, because higher interest rates mean they need less money to retire. This shows how poorly the financial industry has educated people on what retirement costs and what kind of assets they need.

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There is some good news. More employers than ever offer retirement benefits, and automatic enrollment has increased worker participation and improved how investments are made. The 2022 Secure Act should expand coverage even further. Today’s Americans have more money saved than previous generations.