Monday, April 30, 2012

Joe Nocera's Faith-Based Retirement

A column which had people talking over the weekend is Joe Nocera's op-ed piece at the New York Times, "My Faith-Based Retirement." 

The title confused me, since I associate "faith-based" with completely unrelated policies (I thought it was about a post-retirement career as a missionary or something), but he just means that people are relying on faith that their retirements will work out, despite not saving enough.

Currently I'm working on my next Advisor Perspectives column, which will provide a more detailed look at the Dimensional Managed DC pension and life-cycle finance.

Since this is fresh in my mind, one of the important points coming from life-cycle finance is that the focus of retirement savings should not be on the wealth accumulated in one's 401(k), but rather on how much guaranteed lifetime income this wealth will be able to provide. 

If more plan sponsors provided such information, it might help end the faith-based attitude. Wealth accumulation is a bit abstract, since it isn't clear how that will translate into retirement income. A $150,000 balance might seem like a lot, but being told that this translates into a real annual income of $5,000 or $6,000 might help serve as a wake-up call. That's a reality-based retirement.