The Median Account May Not Be <$1k, But It Is Still A Crisis!

By: Russ Kamp, CEO, Ryan ALM, Inc.

There has been some debate within the investment industry related to National Institute on Retirement Security's (NIRS) recent release of their report titled, "Retirement in America: An Analysis of Retirement Preparedness Among Working-Age Americans". A report that claimed that "across all workers (21-64), including those with no savings, the median amount saved was only $955."

Those complaining about the findings cited as issues the inclusion of young workers, while also citing that the information used in the analysis was self-reported. Furthermore, there was mention of the fact that there is an impending massive wealth transfer from both the Silent and Baby Boomer generations to Millennials that will act to mitigate retirement savings shortfalls. Really? Let's explore.

Including young workers will skew the results, as most haven't had the chance to establish households and begin to save. Let's focus on more mature workers, such as those age 55-64. How are they doing? According to Vanguard, the median (I hate averages) 401(k) balance for participants in that age cohort is only $95,642, as reported in Vanguard's How America Saves 2025 report. That certainly doesn't seem like a significant sum to carry one through a 20+ year retirement.

Furthermore, >30% of eligible DC participants are not contributing at all, while only 2% (according to Fidelity) have account balances exceeding $1 million. If one applies the 4% rule to an account balance with only $95,642, that participant can "safely" withdraw $3,826 per year to fund their retirement. That coupled with an average Social Security payout ($24.8k annually) is not going to get you too far. Heck, my property taxes in Midland Park are >$32k per year.

How about the impact of the great wealth transfer? Millennials must be set to receive a significant windfall - right? Not so fast, as the typical millennial can expect little or nothing from the “great wealth transfer”. For those who do receive something, amounts in the low five figures are a reasonable estimation: that certainly is not a life‑changing windfall. But aren't the estimates regarding the transfer ranging from $84-$90 trillion with some estimates as significant as $100 trillion? Where is all that wealth going?

• Fewer than one‑third of U.S. households receive any inheritance at all; 70–80% inherit nothing.​
• Inheritances are disproportionately a feature of affluent families: in one analysis, inheritances are passed in about half of top‑5% households versus only 12% in the bottom 50%.​
• Wealthier boomers are more than twice as likely to leave inheritances as poorer Americans, implying the transfer will largely reinforce existing inequalities.​
• Across all households that receive something, the average inheritance is about $46,000, but this is heavily skewed by very large bequests at the top.
• For the bottom 50% of households that receive an inheritance, the average is around $9,700.
• For those in the broad “middle” (roughly the next 40% by wealth), the average inheritance is around $45,900.

So, in terms of expectation for the typical millennial, a large share will receive nothing, as their parents lack assets, too. Unfortunately, the “headline” trillions mostly reflect very large transfers to a relatively small share of already‑wealthy households. In short, the great wealth transfer is real in aggregate, but for the median millennial it looks less like a solution to a retirement shortfall!

The demise of defined benefit plans and the nearly exclusive use of defined contribution plans is creating a crisis. The current situation may not be as scary as the headline that the median amount saved is only $955, but $95,642 (or <$4k/year) is not going to help one navigate through a long retirement, especially as inflation associated with healthcare costs continues to rise rapidly.

Again, asking individuals to fund, manage, and then disburse a retirement benefit without the necessary disposable income, investment acumen, and NO crystal ball to help with longevity issues, is poor policy, at best. Everyday expenses are overwhelming family finances. The prospect of a dignified retirement is evaporating. Debating whether to include private/alternative investments and cryptos in 401(k) offerings is certainly not the answer. We need real solutions to this crisis. Where are the adults in the room?

Housing: A Major Impediment to Saving for Retirement

By: Russ Kamp, CEO, Ryan ALM, Inc.

The demise of defined benefit (DB) pensions is putting great financial pressure on individuals to save for retirement through a defined contribution (DC) program. I've often railed about asking untrained individuals to take on the responsibility to fund, manage, and then disburse a "benefit" through a DC plan, arguing that most Americans don't have the necessary disposable income, investment acumen, or a crystal ball to help with longevity issues.

Many (most)Americans are financially strapped and there are many contributors to this crisis, including student loan debt, monthly childcare expenses, food, medical insurance, car/home insurance, and housing costs to name but a few. I could address each of these and the impact that they have on the average American worker, but let's focus on housing today. The cost of buying and maintaining a residence is suffocating. Property taxes often add the equivalence of a monthly "mortgage" on top of one's monthly mortgage, especially if you live in high tax states such as New Jersey.

Here are some startling facts when comparing the impact of housing costs on families from the 1950s to today's circumstances. It wasn't unusual to have only one member of a couple (mostly the male) working outside the home in the 1950s. That ability has nearly vanished today. Why? Well for one, the average home was <$7,400 in the early '50s and the average family income was roughly $3,300. So, for slightly more than 2Xs one's family income you could own your roughly 1,000 square foot home.

Today, the median home is priced at $431k according to Redfin, while the median household income is <$80k. Maryland leads that way at just over $94,000, while Mississippi trails all states at $44k. It now costs more than 5Xs one's family income to purchase a home in the U.S. By the way, the "average" home in the '50s would be worth about $98k in today's $s so about 23% of what it actually costs to buy today. Oh, my! The housing market has dramatically outpaced inflation during the last 7 decades, and there doesn't seem to be an end to the escalation despite the greater home prices and today's interest rate environment.

Just the housing costs alone are a great burden of the American worker. Add to this expenditure all that was mentioned above and then some, and you shouldn't be surprised that median 401(k) balances are as anemic as they are. Let's work together to bring back traditional DB plans so that most Americans will have a decent opportunity to retire before their 80th birthday!

DC Participants: "Just Say No"

By: Russ Kamp, CEO, Ryan ALM, Inc.

Most everyone who lived through the '80s will remember the slogan "Just Say No". The slogan was created and championed by Nancy Reagan during her husband's presidency. As you'll recall, the slogan was part of the U.S.-led war on drugs.

I'd like to reuse the slogan of JUST SAY NO as it relates to using alternatives, especially private equity and credit in defined contribution (DC) plans. DC plans are proving to be a failed model for the vast majority of participants given the anemic median balances, as asking untrained individuals to fund, manage, and then disburse a "retirement" benefit with little to no disposable income, investment acumen, or a crystal ball to help with longevity is just silly policy. Trying to push alternatives onto these folks is maddening! They don't need more offerings providing complicated structures, little transparency, high fees, and poor liquidity.

Importantly, what happened to being a "qualified or accredited" investor? As you may recall, private investments are restricted in most cases to individuals who meet certain financial thresholds that have been established by regulatory authorities. These considerations included minimum income levels (>$200k for some period of time and sustainable), net worth considerations at >$1 million not including your primary residence, and finally, investment knowledge, in which individuals need to demonstrate sufficient knowledge and experience in financial and business matters to evaluate the risks and merits of a prospective investment. Do you honestly think that the average 401(k) participant qualifies under any of these considerations?

The alternative suite of product offerings is proving to be challenging for many institutional investors/boards, often requiring the retention of a specialist consultant to support the plan's generalist advisor. Given that reality, does it really make sense that an untrained individual will truly understand the potential risk and reward characteristics? Furthermore, these investments are NOT the magic elixir that they are made out to be. Performance results range far and wide and liquidity (capital distributions) is proving illusive. Do providers of these products really believe that more assets are needed at this time given how difficult it is to invest the current dry powder?

I put a similar comment to this post on LinkedIn.com earlier today. Somebody commented that a simple NO without exploration perhaps would violate my fiduciary responsibility. My answer: Someone needs to be the grown up in the room trying to keep our industry's greedy hands off DC plans. I believe that I am acting very much in a fiduciary capacity.

I could apply the "Just Say No" slogan to so many practices within our pension industry, but for now I'll restrict it to this one area of concern. This one rant!

The Joke's On Us!

By: Russ Kamp, Managing Director, Ryan ALM, Inc.

According to a P&I article, the ECB has undertaken an “exploratory review of bank exposures to private equity and private credit funds in order to better understand these channels and to assess banks’ risk management approaches.” According to P&I, the overarching message was that “complex exposures to private equity and credit funds require sophisticated risk management."

Yesterday, there was a FundFire article that questioned the effectiveness of the "Yale Model" given the heavy dependence on alternatives and the weak performance associated with those products in recent periods. According to the article, the greater the alts exposure the likely weaker fiscal performance.

In a recent article by Richard Ennis, founder and former chairman of investment consultant EnnisKnupp, he estimates that Harvard University, with about 80% of its endowment assets in alternative investments, spends roughly 3% of endowment value on money management fees annually, including the operation of its investment office.

Given the concerns noted above with respect to fees, risk management, and the overall success of investing in alternative strategies, one would believe that a cautionary tone would be delivered at this time. But alas that isn't the case when it comes to forging ahead with plans to introduce alternatives into DC plans where the individual participant lacks the necessary sophistication to undertake a review of such investments. According to yet another FundFire article in recent days, Apollo and Franklin are plowing forward with plans to make available alternative investments to the DC participant through a new CIT. Shameful!

I've commented numerous times that it is pure madness to believe that the average American worker has the disposable income, investment acumen, and/or the necessary crystal ball to effectively manage distributions upon retirement through a DC offering. Given this lack of investment knowledge, I find it so distasteful that "Wall Street" continues to look at these plans as just another source of high fees and revenue. Where are the FIDUCIARIES?

If the ECB doesn't believe that their banks have the necessary tools in place to handle these complex investments, how on Earth will my neighbor, family member, former teacher, etc.? Can we please stop this madness!

We Are # 29 - WOW!

By: Russ Kamp, Managing Director, Ryan ALM, Inc.

The  16th annual Mercer/CFA Institute Global Pension Index report was released on Oct. 15. I want to extend a big thank you to Mercer and the CFA for their collective effort to elevate retirement issues, while celebrating those countries who are getting it right. According to the survey, “the overall index value is based on three weighted sub-indices—adequacy (40%), sustainability (35%) and integrity (25%)—to measure each retirement income system. Adequacy looked at areas such as benefits, system design, savings and government support. Sustainability examined pension coverage, total assets, demography and other areas. Integrity encompassed regulation, governance and protection.” There are more than 50 indicators that support these three broad categories.

The United States was given a score of 60.4 (63 in 2023's study), which placed our retirement readiness at 29 of 48 countries that were evaluated. That 29 is 7 spots lower than 2023's rank. According to the Mercer CFA study, a score of 60.4 places us slightly below the average score (63.4) among those ranked and we were given a letter grade of C+. I don’t know about you but if I had scored a 60 (scale of 0-100) during my school days, my letter grade would have likely been an F. Based on how I feel that we are prepared as a nation, I think that an F is much more appropriate than a C+. What about you?

I'm not trying to pick on the U.S. retirement system, which scored 63.9 on adequacy, 58.4 on sustainability and 57.5 on integrity, with Integrity being the poorest ranking as it trailed the worldwide average score by >16 points at 74.1. Our retirement system was evaluated based on the Social Security system and voluntary private pensions, which may be job-related (DB or DC) or personal, such as an IRA. Other systems with comparable overall index values to the U.S. (60-65) included Colombia (63), Saudi Arabia (60.5) and Kazakhstan (64.0). I don’t know about you but being ranked among those countries doesn’t make me feel warm and fuzzy about our effort or achievement. Systems scoring the highest were the Netherlands (84.8), Iceland (83.4), Denmark (81.6), and Israel (80.2) – they were given an ‘A’ grade.

Anyone participating in our industry knows that can AND MUST do better. The loss of DB pension plans within the private sector is a very harmful trend. Leakage within DC plans makes them more like glorified savings accounts rather than retirement vehicles, and Social Security provides small relief for a majority of recipients. As I've uttered on many occasions, asking untrained individuals to fund, manage, and then disburse a “retirement benefit” without the financial means, investment skill, and a crystal ball to forecast longevity is just silly policy.

Mercer and the CFA institute recommended a series of potential reforms to improve the long-term success of the US retirement system. I just loved this one:

“Promoting higher labor force participation at older ages, which will increase the savings available for retirement and limit the continuing increase in the length of retirement;“

A truly amazing suggestion – if you never retire then you don’t have to worry about whether or not your system will provide an adequate benefit! Problem solved! Many Americans would welcome the opportunity to extend their careers/employment opportunities, but some jobs require physical labor not easily done at more mature ages, while many American companies are anxious to rid themselves of higher priced and experienced talent in favor of younger workers (ageism?).

When I wrote about this survey last year, I'd hoped that the higher US interest rate environment would begin to improve outcomes for our workers whether their plans are a defined benefit or defined contribution offering. Unfortunately, current trends have US rates falling again. That just puts more pressure on DB plans and individual participants in DC plans and encourages (forces) everyone to take more risk. That development isn't going to help next year's score!