Key Points:
- Retirement Crisis
- Flawed Solutions
- Growth Strategy using Openvest
Backdrop & Statistics
The U.S. is facing a retirement crisis, with millions of Americans unprepared to sustain their lifestyles after leaving the workforce. The Social Security fund base is projected to deplete by 2033. Around 39% of working Americans don’t have access to 401K and IRA accounts. A 2023 AARP survey found that 20% of adults over 50 have no retirement savings. At least 61% of Americans have concerns about their financial readiness for retirement. Bottom line, Traditional 401K and IRA solutions will not save you.
How is this possible in a developed country like the US? The failure of the traditional path to retirement hasn’t just started, it’s been happening in front of our very eyes for the past 15 years.
We have a savings crisis and a retirement crisis in this country. 40 percent of Americans have squirreled away only 5 percent or less of their annual income to meet certain financial goals. Even more shocking, less than a third of all Americans have saved at least 11 percent or more.
The survey, conducted by Bankrate in late February and early March, is just the latest indication that the U.S. faces a major retirement crisis. The number one reason why most Americans are not able to take advantage of a booming US economy is because they have too many other expenses. 16 percent say that they simply haven’t gotten around to it, but this implies that they simply do not understand the opportunity cost of not growing asset values to help beat the likes of inflation. Even though total US consumer debt now stands at $4 Trillion, only 13 percent of those surveyed by Bankrate cited debt as the reason that they are not saving much. Thus, if debt is not the main issue, then what is the holdup?
Scope of Retirement Crisis
Here are some facts regarding the retirement crisis. Nearly half of Americans have less than $100,000 saved for retirement. Many rely solely on Social Security, which may not be sufficient to cover basic expenses. Healthcare, housing, and inflation erode retirement savings faster than anticipated. People are living longer, which increases the need for sustained financial resources.
Even if you, as an American, happen to have a 401(K) or IRA account, more than 30% of the account by the time you reach retirement could be eroded by fees and maintenance costs. According to Motley Fool, the average fee is approximately 0.45% of assets, though this can vary based on plan size and investment choices.
In 2024, 57 million Americans don’t have access to a workplace plan. Makes it harder for those people without access to a workplace plan to get such access. Getting access is one piece, but beyond access, Blackrock has worked on features such as including annuities within Target-Date Funds. Is this really helpful? Will this add any value?
Target-Date Funds pose many problems.
First, all Target-Date Funds are not created equal. Some have 93% in equity and others have less. However, more critical is what the equity is invested in! For instance, the Fidelity Freedom 2045 Target-Date Fund has 51.78% in US equities and 41.16% in international equities even though most of the growth in the world comes directly from the US. Does this make any sense?
Second, expenses can add up. Each fund differs in terms of expenses. Since each is a fund of funds, the portfolio you buy into consists of multiple underlying mutual funds, each of which has an expense ratio. Thus, fees are always an important consideration.
Third, the biggest Target-Date Funds have underperformed. Had Target-Date Funds simply not been created, investors would be a lot wealthier today. Thus, in some ways, inventions such as the Target-Date Fund have exacerbated the retirement crisis by sticking investors into low-growth options. If you can save $10,000 and invest that money over 20 years on a platform like Openvest, then each $10K will become $62,000 in 10 years and $383,776 in 20 years. For most Americans, this would provide enough to not only cure the retirement crisis (buy growing out of the problem) rather than simply sitting back letting the problem become worse.
How to Prepare
Start Early. The power of compound interest makes even small contributions impactful over time.
Cut Expenses. Prioritize savings by reducing discretionary spending or downsizing.
Delayed Retirement. Extending work years increases savings and reduces the years you’ll need to rely on them.
Unique Platform Offering
Technology and financial innovations can bridge the gap for Americans struggling to save.
Platforms like Openvest provide a direct solution to grow out of the crisis. As discussed above, one of the best ways to tackle fiscal challenges is to grow your way out of them. With the low-cost platform offering the same returns as the best PE and Hedge Funds (big firms usually charge 2% management and 20% performance, expensive!), then it is important to take advantage of this offering and take action!