What’s the job of a financial planner? While there is probably no consensus of the job of a financial planner in general, one part of the job, I think most people could agree on, is to help investors achieve their retirement goals. Saving for retirement is one of the most important financial planning exercises we all have to do, and it gains in importance as government and corporate pension funds become increasingly thinly stretched. Even more so, we live in a world where employees of a company no longer have access to defined benefit plans but have to make do with defined contribution plans, which means that the employee bears the investment risk of the pension plan. Making the right decisions with your pension fund investments is crucial as is the effort to make the right decision in how much to save etc.
Great article as usual Joachim. This resonates with my pet peeve that we are moving into defined contributions yet there is no commensurate effort to educate financially the masses (from grade school).
By educating fifth or sixth graders I estimate we will have a generation of at serious planners. Not just for retirement but for actually managing debt and finances from the time they sell lemonade or do their paper route ($50/month in an index fund in a ROTH account from earned income babysitting or lawn cutting at 14 years of age is going to be nontrivial at any of these future dates: college / post graduate / first time homebuyer / actual retirement)
My issue with financial planning as it is today is a.it comes relatively late in our lifetime b. The average age of a financial planner is 50-ish which means they have no real experience with other market regimes and might fail to advise about hedging certain scenarios c. Only certified financial planners paid independently are generally objective in recommending paper investments d. There is almost 95% tendency to invest in paper (stocks, ETF, MF) because that’s what is “easy”. There should be more retirement plans we can contribute to and SELF DIRECT for investments non-correlated or weakly correlated to stock markets. Like farming or real estate or crypto - especially if that’s our expertise or day job anyway.
It is easy to show an improvement from non-planning because the bar is low. But we can or maybe the government can do more by improving the situation proactively. Heck we may even be able to reduce need for entitlement benefits like Social security if we can educate the majority
The conclusion. Saving instead of spending is the most important part of planning for retirement. The earlier we start the more comfortable we are likely to be in later life. I think you missed a most important part of this story. - Young people have no sense of their mortality; this usually kicks in around our mid 30's. By then we are ten years behind with our savings potential and only 30 years away from drawing on the retirement fund. i.e. We missed 25% of the opportunity. We all do it because we are young and it appears that any amount of financial education will never be enough to outweigh the hubris of youth.
Another great article, as usual, Joachim! I love how you almost always manage to add a graph into your articles and that really helps put things in perspective.
Great article as usual Joachim. This resonates with my pet peeve that we are moving into defined contributions yet there is no commensurate effort to educate financially the masses (from grade school).
By educating fifth or sixth graders I estimate we will have a generation of at serious planners. Not just for retirement but for actually managing debt and finances from the time they sell lemonade or do their paper route ($50/month in an index fund in a ROTH account from earned income babysitting or lawn cutting at 14 years of age is going to be nontrivial at any of these future dates: college / post graduate / first time homebuyer / actual retirement)
My issue with financial planning as it is today is a.it comes relatively late in our lifetime b. The average age of a financial planner is 50-ish which means they have no real experience with other market regimes and might fail to advise about hedging certain scenarios c. Only certified financial planners paid independently are generally objective in recommending paper investments d. There is almost 95% tendency to invest in paper (stocks, ETF, MF) because that’s what is “easy”. There should be more retirement plans we can contribute to and SELF DIRECT for investments non-correlated or weakly correlated to stock markets. Like farming or real estate or crypto - especially if that’s our expertise or day job anyway.
It is easy to show an improvement from non-planning because the bar is low. But we can or maybe the government can do more by improving the situation proactively. Heck we may even be able to reduce need for entitlement benefits like Social security if we can educate the majority
The conclusion. Saving instead of spending is the most important part of planning for retirement. The earlier we start the more comfortable we are likely to be in later life. I think you missed a most important part of this story. - Young people have no sense of their mortality; this usually kicks in around our mid 30's. By then we are ten years behind with our savings potential and only 30 years away from drawing on the retirement fund. i.e. We missed 25% of the opportunity. We all do it because we are young and it appears that any amount of financial education will never be enough to outweigh the hubris of youth.
Another great article, as usual, Joachim! I love how you almost always manage to add a graph into your articles and that really helps put things in perspective.