Systematic Relative Strength

Today’s WSJ reports another signal that retirement planning is increasingly up to the individual.

AARP, the powerful lobbying group for older Americans, is dropping its longstanding opposition to cutting Social Security benefits, a move that could rock Washington’s debate over how to revamp the nation’s entitlement programs.

Why the change? Apparently, reality is finally beginning to sink in.

Social Security, which was created in 1935, is facing a demographic challenge as the baby-boom generation retires with fewer younger workers to support it. The program’s actuaries say that by 2036, the program will have exhausted its reserves and will only be able to pay 77% of promised benefits. Between now and 2036, the government, which has spent the money held in reserve, will have to borrow to meet those obligations.

I had to re-read to statement above to make sure that I understood (i.e. the program will have exhausted its reserves by 2036, yet there are no reserves now…). At any rate, the fact that even the AARP is coming around to the fact that Social Security cuts are on the way is significant.

Couple this development with the several decade-long trend away from defined benefit plans (where the employer is responsible for the saving and investing decisions) to defined contribution plans (where the employee is responsible for the saving and investing decisions) and we have a situation where it should becoming increasingly apparent that building and managing sufficient wealth to provide a comfortable retirement is up to the individual and nobody else.

(Click to Enlarge)

(Click to Enlarge)

These trends underscore the critical role of a financial advisor today and in the years ahead. Without competent guidance from an advisor, I highly doubt most individuals, including highly-paid individuals, will embrace a savings and investment discipline that will get the job done.