You sit your client down, look that company manager squarely in the eye and say, "I've got some news for you. And I don't know how you're going to take it."
He or she sits forward, wide-eyed. What fresh hell is this? You sit back in your chair, letting the silence linger. Go ahead, enjoy it. We won't judge you. Then you deliver the news.
"Tell your workers to spend some more of their money," you tell your client, whose eyes have started pin-wheeling. "They've worked hard all year. And so have you. Besides there's some new research that shows they might be saving too much. So go ahead and live a little."
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Last Wednesday, Morningstar Investment Management announced, after taking a good, hard look at the price tags we all put on estimating costs in retirement and decided they were maybe a little, well, over-zealous.
"When we looked at actual retiree spending patterns and life expectancy … we find that these assumptions don't hold true for many people," said David Blanchett, head of retirement research for Morningstar Investment Management, in a news release.
"While a replacement rate between 70 and 80 percent may be a reasonable starting place for many households, we find that the actual replacement rate can vary considerably," he continued. "Take for example a high-income couple, living in a high-income tax state like California, and saving a significant amount for retirement each year. If that couple retires in Florida or Texas, where there is no income tax, the replacement rate might be closer to 60 percent. By contrast, a low-income couple saving very little for retirement and retiring in California could have a replacement around 85 percent."
The simple truth is that the amount of money needed by different families over a 30-year retirement time horizon can vary by more than 20 percent.
The same reasoning might hold true for some municipalities. Even in troubled states like California there might be more light at the end of the tunnel. For example, the California state auditor in a report last year stated that San Jose's "annual retirement costs could increase to $650 million by fiscal year 2015-16 was unsupported and likely overstated."
So I'm not saying that every institution and its workers in your Outlook will be able to let down its/his/her guard. I am suggesting, however, that retirement needs vary for workers, and therefore, vary for the organizations that hire time.
No doubt, 2014 is going to be a scary year for state and local government as they go through their respective come-to-God moments regarding defined benefits. There will be blood, oozing from coast to coast. Changes will be made. I am suggesting, however, that that one solution won't fill all. And that good retirement advisors will take the time to individualize plans for clients.
If that happens, some might have the surplus to let employees surprise the kids with an Xbox One or a Malibu Barbie. That would a good feeling for all — the kids, the workers and management. And it might very well earn you a seat at the table next time your contract comes up for renewal.
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