Interview: The Evolution Of Retirement

I discussed the concept of retirement and how it has changed in recent decades in an interview with NewRetirement.  Here are some excerpts:

Today, Americans look at retirement as an entitlement – a reward for a lifetime of hard work – but that wasn’t always the case, says CFA Charles Lewis Sizemore, principal of Sizemore Capital Management.

“Workers started getting retired during the industrial age as a way of avoiding industrial accidents and to make way for younger workers with stronger backs,” he says.

And with today’s service- and knowledge-based economy, retiring at 60 or 65 doesn’t make as much sense. Charles says this is a good thing because, frankly, the money won’t be there anyway.

“We are an older country now, and we have comparatively more people taking money out of the system via Social Security and Medicare payments than we do paying into it,” he adds. “This means that young people today need to plan on working longer or saving a lot more than previous generations.”

NewRetirement: What do you think are some of the biggest problems or misconceptions that Americans have about saving, investing, and money management in general?

Charles: Risk. Our human brains can be rather primitive at times in how we approach risk. Studies have shown that we hate losing roughly twice as much as we like winning, and as a result, we seem hard-wired to make bad decisions involving risk. We put undo emphasis on the risks we see and not enough on the risks that we don’t.

For example, stocks are considered “risky” because their prices fluctuate wildly, yet government bonds are considered “riskless” because you get your principle back at maturity. But considering that most bonds are currently priced at yields that are lower than the rate of inflation, you are virtually guaranteeing losses in inflation-adjusted terms.

Meanwhile, a portfolio of well-picked stocks will all but guarantee a rising stream of dividend payments. Over a reasonably long time frame, I would argue that bonds are riskier than stocks.

NewRetirement: What’s one piece of advice you find yourself repeating to clients over and over again?

Charles: Focus less on the precise value of your account and more on the income it produces. After all, it is income that will pay your bill in retirement. One exercise I often do with clients involves asking them to first give me a dollar amount that they would need to cover their expenses in retirement. Then, I subtract their expected Social Security payments. The amount left over is the income that their portfolio needs to generate. Once you secure that income with the right mix of securities, you have a lot more flexibility with the rest of the portfolio. I find that this exercise goes a long way to alleviating client anxiety about having enough money in retirement.

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