Stop! Danger Ahead! The risks of NOT being diversified

After my last post, I thought I would do a follow-up post where I covered some of the risks of not being diversified in your investment account.  I am sure you noticed the picture above this post.  In 2001, Enron became synonymous with greed, corruption, scandal, and severe economic loss to their shareholders, employees, and overall stakeholders.  Why would I bring up Enron as an example of not being properly diversified on this blog?  I want to tell you a true story about a lady I met in a retirement planning workshop I was hosting many years ago.

I was conducting the retirement planning workshop for a company in Pensacola, FL.  As I finished my presentation, a lady approached me with quite a sense of urgency.  She boastfully told me that I, and all financial professionals, did not know what we were talking about.  She told me how we were just full of lies and greed, and most of all we just wanted to steal other people’s money.  Then she told me the real reason for her rant, she was not a psychic, had never met me before, but she made all of her assertions about myself and the financial planning profession based on four simple words-  “I’m an Enron victim.”  Now this was about two years after Enron finally crumbled into oblivion, but for her, the wounds and scars were still abundantly fresh.

I tried to listen with empathy to her story.  She had lost all of her retirement savings (I would have guessed her age to be in her 50s).  She was starting over financially, but she proudly proclaimed she would never invest one dime in a company’s retirement plan.  I say I was trying to listen with empathy because one question kept running through my mind – where was the diversification in her account?  You see, she violated one of the golden rules of investing – never have all you eggs in one basket.  She lost all of her retirement savings, but the really sad part is, she could have easily prevented this loss.  The financial planning industry and your humble blogger she was ranting to would have never encouraged her to put all of her money in one basket.  This was a truly stupid investment plan and strategy because the potential loss was far greater than the potential reward.

When she told me she was an Enron victim, in my mind – certainly not out loud where she could hear me- I thought, there really were not very many Enron victims.  Why would I say such a thing?  She and thousands of others had their retirement savings completely wiped out by the fraud that ultimately caused the bankruptcy.  They were just innocent victims, right?  Well, they probably did not know the company was a virtual fairytale of commerce, but they also took an insane amount of risk in having just one, literally one, investment in their entire account.

Warren Buffet, possibly the most successful investor of all time, says two things move the financial markets: fear and greed.  I am always amazed at how powerful these two emotions can become.  These emotions can completely remove all reason and rationale from totally reasonable and rational people.  This powerful emotion of greed played into this woman’s, and many other investors just like her, plan for saving for retirement, and it blinded them to one of the aforementioned golden rules of investing.

Let me illustrate my point like this: imagine we both work at Enron and it is March of 2001.  We both make the same amount of money, we both save the same amount in our respective 401k accounts, and we both have been participating for roughly the same time period.  There is one distinct difference in our accounts – the account balance.  You see, I have all my money in Enron’s common stock, and it has done remarkably well.  So well in fact, that my account value is more than three times greater than your account value.  You have the S&P 500 Index fund as your investment (by the way, at the time, I believe Enron ranked number 6 on the S&P 500).  You don’t have just one company that your money is invested in like I do, no, you have 500 different companies that your money is spread out among.  Hopefully before I go any further you already see the benefit in having 500 different companies than having just one.

Again, it is March of 2001, Enron’s common stock is roughly $70 per share, and I have over $1,000,000 in my 401k.  You on the other hand, have a mere $300,000 in your 401k.  If you recall, we have been doing the same thing in our retirement account with one glaring exception, the investment.  I come to you and let you know how stupid you are, how much money you are giving up, how much more my account is, and how much better of a retirement I am going to enjoy rather than the one you will have to endure.  By the way, this is exactly what was going on in the company based on the first-hand accounts of actual Enron employees.  Fast forward with me now in our hypothetical discussion to October of 2001.  Oh my, how quickly things have changed!  It is just seven months later in the calendar, not years and years, but now the amount we would have in our respective 401k’s could not be any different.

By October 2001, Enron’s common stock had collapsed to less than $1 per share from approximately $85 per share just seven months earlier.  My million dollar 401k, would now be worth a couple thousand dollars.  The money has essentially vanished into thin air.  Your account, on the other hand, is still worth roughly $300,000 – who was the smart one now?  How can this be?  Very simple.  This is the risk of not being properly diversified in your investment portfolio.  I had one thing – it went bankrupt and I was left with essentially nothing.  You had 500 different companies, one of which went bankrupt.  The difference was you still had 499 that were still operating.   

This is why I say there were very few real Enron victims.  Were they complaining in March of 2001 when the stock was $85 per share, not likely.  You cannot chase investment returns (investing in what is the current best performer) when you are saving for retirement.  You must develop a well conceived plan that includes a definitive retirement savings goal amount, realistic investment returns (20% or more a year is not realistic long-term whatsoever), and adequate contribution amounts to help fund your account.  Then you must stick to that plan and be extremely cautious about drifting from that plan.  Yes, you will have to make adjustments to the plan as you go throughout your working career, but that is normal and should be expected.  You must stick to your plan (and revised plan) and not worry about the high-flying returns that this stock or this particular sector is giving; because as any Enron “victim” can tell you, the stock or sector can take those gains back at any point.  Saving for retirement is not get rich quick, but it is get rich slow!

Advertisements

Don’t have all you eggs in one basket – Eliminate the Overlap

One of the golden rules of investing that you often hear (and certainly it is true) is do not have all your eggs in one basket.  In other words, don’t have multiples of the same investment over and over in an account.  In the investment world, this is known as being diversified.  Diversification is critical to having a well-balanced investment portfolio.  Most people can visualize the clear and present danger to one’s retirement portfolio by not heeding this rule.  It does not help you to hold the same investment in ten separate accounts.  This is not diversification, you still hold the same investment.  The interesting thing is how few people realize they do in fact have the same type or style of investments in their respective accounts.

Let me elaborate and explain.  I recently met with a gentleman that left his 401k at his previous employer.  He asked me to take a look at the investments because he thought he “had a pretty good mix,” but he wanted a second opinion.  After all, his returns were in the double digits over the past few years, and as a result, he was very happy with the account (of course the broader stock market was also up by double digits over that same time period).  When I looked at his account, I was not surprised by what I saw, because I see this investment strategy all the time.  He may have currently been enjoying strong, positive returns since that is what the market in general was doing, but I knew he had a diversification problem as soon as he pulled his account up on the screen.  How, you may ask?  Simple.  His retirement account consisted of five different mutual funds; however, all five had the exact same word somewhere in the title of the fund – Growth.

First, let me explain what the growth investment style means in simple terms.  Growth is an investment style were the companies classified as such are typically experiencing above average growth in sales/revenues.  The companies are growing faster than their peers and faster than the broader economy at large.  I am not implying there is something wrong with the growth style of investing – quite the opposite.  The problem is there are only so many companies that are considered growth companies.  You are already eliminating some of the potential diversification an investment could have by selecting a fund that will focus on a specific part of the market.

His issue was four of the five funds were large cap growth funds (including one that had some international companies in the portfolio, not just U.S.-based companies, also known as a global fund).  So what, who cares?  He has several growth funds, what is the big deal?  Here is the problem.  When we opened the link for each fund, I was able to show him how all five funds had the same three companies in the top 10 holdings of each fund (in fact, in most of the funds, the same three companies were in the top 5 holdings).  The three companies were Apple, Google, and Microsoft.  This is known as overlap – having the same investments over and over again in your total, overall portfolio.  I know what you may be thinking – have you seen the performance of Apple?  Yes, I have.  The one-year return as of yesterday was almost 38% – where is the problem?  Over the past five years, the price of Apple’s stock has risen from roughly $39 per share to roughly $120 per share now.

This is a perfect example of a growth company.  You are right, but here is the downside.  He has five different mutual funds, however, he has a fairly good chunk of his total money in the five funds in just three total companies.  What happens when the next market correction takes place?  He better hope it is not in large-cap growth.  He has no meaningful diversification.  Five separate funds, but they are going after the same sector of the stock market, and by definition, the same companies.  Remember, one of the golden rules of investing is to have different investments – diversification.  Not having proper diversification is the main reason people “loose their shirt” when the stock market goes down.  If all you have is one company, or one particular sector of the stock market, clearly if that company or sector goes down, you have nothing else to help balance the account value.

Diversification plays two key roles in one’s investment accounts.  First of all, diversification helps reduce the investment risk in a portfolio.  By default, if I have 500 different companies (think the S&P500), or if I hold just one company (think Apple), I have much less overall risk with 500 versus just one.  The second way diversification helps an investor is over longer periods of time you typically will see higher rates of return.  Apple may have a one year return of roughly 38% now, but just a couple of years ago the stock dropped almost 50% in 6 – 7 months.  That will get your blood flowing pretty quickly.

The message here is simple.  Diversify.  Eliminate the overlap.  Do not have all your eggs in one basket.  Do have your eggs in as many different baskets as possible.  Saving for retirement is not get-rich-quick, but it very much is get-rich-slow.  You have to save consistently throughout your working career, and you must make sure you are properly diversified in your overall portfolio.

The reason I chose to start blogging about this particular topic…

Some days you run across an article or see a news clip that really resonates with you on a deep, personal level.  Yesterday I saw an article on cnbc.com that addressed just how woefully underfunded many pre-retiree’s retirement accounts really are.  According to the article, a government study found that 29% of Americans age 55 or older have nothing saved for retirement.  Nothing.  I began to think about this fact.  Nothing.  Saved.

After thinking about this study for a few moments, I began to ponder on what the future would likely hold for such a wide segment of this age group.  The only retirement income they have will be Social Security.  As I mentioned in a previous blog post, Social Security provides an average monthly benefit of just over $1,300 in 2015.  I would have to assume many of this 29% with no retirement savings will receive a benefit that would be around the average monthly benefit.  What will they do for their income needs beyond what Social Security provides.  The only answers I can arrive at are: continue to work (this ties in to one of my posts – What does it take to retire – age or money?), rely on government assistance, and/or rely on the generosity of family members or friends.

What I find so concerning about this study is the long-term ramifications this may have on our economy.  Consumer spending is by far the largest contributor to our broad economy (the broadest measure of the economy is contained in a report released on a quarterly basis known as GDP – Gross Domestic Product).  If a worker is age 55 or older and they have $0 saved for retirement, that leads me to believe they use all of their income to meet their current financial obligations.  Well, that is fine for now, but what happens if they cannot work?  How do they pay for basic living expenses if that situation arises?  Here is a quote from the cnbc.com article that highlights my point:

“There hasn’t been a significant increase in wages, people have student loans and other debt, and many are continuing to struggle financially,” said Charles Jeszeck, the GAO’s director of education, workforce and income security, which analyzed the Federal Reserve‘s 2013 Survey of Consumer Finances to come up with its estimates. “We aren’t surprised that people have not saved a lot for retirement.” 

The line that I find most concerning is where he points out that many workers are still struggling financially.  The reason I find that line most concerning is we are not talking about 20 – 25 year olds, the context is still ages 55 & up.  In theory, they have been working throughout their adult life and should have already entered the period of time known as “peak earnings”.  They should be more prepared and on a much more solid foundation from a financial perspective.  They should have something saved for retirement, anything saved for retirement.  However, the sad reality is they have NOTHING.

By the way, the article goes on to discuss how much those who have amassed at least some retirement savings and the news, while obviously better than those with no savings at all, is still concerning:

“Even among those who do have retirement savings, their nest eggs are small. The agency found the median amount of those savings is about $104,000 for households with members between 55 and 64 years old and $148,000 for households with members 65 to 74 years old. That’s equivalent to an inflation-protected annuity of $310 and $649 per month, respectively, according to the GAO.”

The reason I chose to start blogging about this particular topic is we are seeing a real retirement savings crisis in the U.S., and while it gets some press and political coverage (especially around election time), each passing year the numbers continue to deteriorate.  It is high time Americans get serious about saving for retirement, or plan to work until they die.  Yes, that is a blunt choice, but I do not see any other alternatives.  The moral – save early, save often!

To rollover or not rollover, that is the question, Part 2

In my last post I began discussing one of the most talked about areas of retirement planning – whether or not to roll your old retirement savings plan (401k, 403b, 457b being the most common plan types) to your new company or a Rollover IRA.  This is a question that a majority of workers will be faced with at least once in their career.  I won’t rehash all the information from the last post, but I do want to point out what I believe is the correct answer to this question.  I believe it depends.  It may be more beneficial for you to roll your former plan over, or it may be more beneficial for you to allow it to remain right where it is.  The point being, you have to take the action that you think best benefits you-what is ultimately in your best interest is your primary concern.

Let me provide you with a few points that you should strongly consider when deciding whether or not you would want to roll your funds over to a new provider or Rollover IRA (by the way, I am not ranking these points in order of importance).

The first thing to consider would be fees (now some would probably argue this is the most important point to consider).  If you work for a sizeable company, chances are your retirement savings plan contains mutual funds or collective trusts shares that are known as Institutional class shares.  Why is this important?  Here is why – the Institutional class shares have the lowest internal fees, known as expense ratios.  An expense ratio is the annual fee the fund charges the shareholders.  This fee covers the management costs, trading costs, marketing costs, operating costs, and any other cost of maintaining that fund.  Clearly, the lower the better for you as the shareholder.  The lower the cost, the higher the relative performance of the fund (i.e. if a fund had a 10% rate of return and its expense ratio was 1%, you would see a 9% total return for that fund, but if the expense ratio was 0.50%, the return you would see would jump to 9.5%).  If you want to purchase Institutional class shares outside of an employer sponsored plan, you will typically need over $1,000,000 (sometimes several million $), or they are usually part of an account known as a wrap-fee or fee-based account.  Typically, you will have Institutional class shares in your wrap-fee investment account, but you will pay an annual fee, charged quarterly (the fee varies but is usually around 1% of the total account value, and it is an ongoing fee for as long as you have the account) in lieu of commissions.

Another point to consider is the investment options that are available to you.  In your employer-sponsored plans, you are limited to the investment choices provided by your employer.  Most employer-sponsored plans will have between 10 – 25 investment options.  What if you want to invest in something that is not part of their investment lineup?  You may have an option of opening a self-directed account with the investment provider of your employer-sponsored plan, but that option is not guaranteed.  Most likely, you are restricted to the specific investment choices of the employer-sponsored plan.  A Rollover IRA, on the other hand, can provide you with thousands of potential investment choices and options.  The “downside” if you will, is you may find you have to pay more (pay more in commission costs or higher expense ratio costs as previously mentioned) for having this additional flexibility.  One retirement plan I am assigned to has a low-cost Vanguard S&P 500 Index fund as an option.  The fund has an expense ratio of just 0.04% per year.  In order to purchase this fund outside the retirement plan, you would need a $5,000,000 initial investment, or it could be part of a wrap-fee fund lineup where you would have to deal with the additional costs of the wrap account.  It is very important to consider the investment choices in the respective plans when trying to decide whether or not to roll your account over.

One reason many people do in fact choose to roll their accounts over to one location is for the sake of convenience.  I believe this reason becomes more relevant the closer you are to retirement (or if you are already retired) and if you have several previous retirement plans outstanding.  I once had a client who was 72 years old, and his wife was 70 years old.  He had opened small IRAs with mutual fund companies and a couple of local banks over the past 25 years (23 different account to be exact).  He was doing this as a means of “diversifying” his holdings (although 21 of the 23 funds were large-cap growth mutual funds, look for a future blog post dealing with “overlapping investments”), and he thought it was wise to set “a little money aside whenever he had the chance.”  The issue now that he was older was his wife had literally no idea as to where the accounts where even located.  In this case it made complete sense to begin consolidating those accounts for beneficiary purposes to make things easier for his wife should something happen to him, but it also made sense from an investment management standpoint as well.

Again, there are both positives and negatives to both rolling over a retirement account or leaving it where it currently is.  My advice is do your homework, search out the best option for you.  It is your money and ultimately you are responsible for doing what is best for that money.  If you are so inclined, find a financial professional you can work with to help you reach your financial goals that you trust.  When I say trust, I mean you would trust them to do what is in your best interest at all times.  To place your interests above their interests and their companies interests.  That is a fiduciary standard, by the way, and while it is not required of all financial professionals, you should seek one that holds himself or herself to such a standard.  Until next time….

To rollover or not rollover, that is the question.

I want to cover a topic that has the potential to affect the majority of workers here in the U.S. today.  What should you do with an old 401k?  Should you roll it over, should you do something else, what should you do?  Well, first things first, I want to cover the four basic options you have for your employer-sponsored retirement plan (401k, 403b, 457b being the main ones) when you separate from service from your employer.

The first option a worker with an employer-sponsored retirement account has when he/she leaves the company is to simply cash-out the account.  This means you take the money in the account as a lump-sum distribution.  This is almost always the least desirable choice one can make with their retirement account.  The reason being, once you take the distribution, Uncle Sam gets excited because he can now tax you on that money.  All of your distribution will count as ordinary income in the year in which you receive the distribution.  This means whatever the amount of your distribution, it will automatically be added to your income from employment or any other sources of income you may have, and you will owe tax on that entire income amount (yes, this could potentially place you in a higher tax bracket as a result).  If you are under 59 1/2 (there is one exception to this for those age 55 and older, but you need to research that out yourself, I am not a tax advisor) you will pay an additional 10% early withdrawal penalty to the IRS in addition to the previously mentioned overall income tax.  This is why I say cashing the retirement account out when you leave employment is not usually the option you should pursue.

The second option is you may be able to leave the money where it currently is with your former employer.  You will need to check with your employer, but most companies now will allow you to keep your retirement assets in their plan provided they are at least a minimum amount (usually at least $1000 – $5,000).  The third option is you can roll your previous retirement account over to your new employer, assuming they offer a retirement plan and assuming that plan allows rollovers (most do accept rollovers but for certain types of accounts there may be a restriction).  The last option is you can possibly roll the funds over to a Rollover IRA.  In the last three options that I mentioned, you will not be assessed any taxes on the transaction because you were keeping the plan where it was, or you were rolling the funds over in order to preserve the pre-tax and tax-deferred status of the account.

Now the question-what should you do?  One thing any first semester MBA student will tell you is, if the professor asks a question, the best answer is – it depends. “It depends” is the correct answer to this question, in my opinion, and I will tell you why I believe that.  The longer I am in this business, the more I see examples of how the individual needs to do what is best for their unique situation.  Not what is best for a financial advisor or financial planner, not what was best for their Uncle Bob, not what was suggested to them in a magazine, or what they heard on a radio talk show.  No, you need to do what is best for your situation.

There is also a fair amount of misinformation out there as well.  I have met with dozens of people that believe they should roll their money over into just one account so they can get the power of compounding returns working stronger for them.  I hate to burst their bubble, but I do have to tell them, that only works if they have different investments in the respective accounts.

Here is an example.  I once met with a gentleman who wanted to roll over his former retirement account to his new employer’s plan.  That is fine, he can do that, no problem.  The problem was his reasoning.  He was invested in an S&P 500 Index fund in his old 401k plan, and his intention was to do the same in the new plan.  He told me he wanted all the assets in one place so he would make more money because of the affect of compounding returns.  I had to tell him this was not the case.  The S&P 500 fund was going to have the same return as the index minus the management fee (in this case it was literally the exact same fund, share class and all).  He argued with me for several minutes until I finally showed him the numbers.  Here was the example I showed him: if you have $1,000 in one account (since he was just starting the new job) and $100,000 in the previous company’s retirement plan, and the investment in the accounts returns 10% (remember, he had the exact same fund in both accounts, he just assumed having the money all together would magically produce a combined higher rate of return through compounding), his total return is $1,000 X 10% = $100 gain + $100,000 X 10% = $10,000 gain.  His total account value in the one account was now $1,100, and the other account now had a value of $110,000 for a new grand total of $111,100.

Notice this is the same return if the $100,000 account had been rolled into the $1,000 account producing a $101,000 single account.  The rate of return was the exact same because the investment was the exact same.  Rolling the former employer’s account over may have been the right thing for this gentleman to do, but not for the reason he gave me.  By the way, I asked him how he came up with the idea he would get a greater return on his funds even though it was in the same investment – his answer – his brother-in-law told him that was the case.  Another reason not to listen to your brother-in-law.  I can see this post is getting rather long.  I will continue this topic in my next post.  Thank you to those who have made comments, I appreciate your encouragement.

You think I should save how much?

One question I seem to be asked over and over again is “how much of my income should I be saving for retirement?”.  This is a question that has generated numerous articles online, in magazines and newspapers, on-air segments on CNBC, and even some radio shows.  There are many, many different opinions and answers to this particular question, including several standard, rule-of-thumb type answers.  One side note, I typically do not like rules-of-thumb since very rarely in retirement or financial planning will a one-size-fits-all approach work.  If you really think about it, we are all unique.  Each one of us has different like, dislikes, desires, goals, things we view as being priorities, etc.; however, we each have our own unique retirement savings goal.  There was a financial services company a few years back that launched an ad campaign highlighting everyone’s unique “retirement savings number.”  I thought the ads were very well done and helped drive home the point that retirement can appear very different depending on the individual.

The first thing I want to mention should be very obvious to anyone.  If the company you work for has a retirement plan that provides a match of your contributions, you should always contribute the maximum your company will match.  The reason for this is abundantly clear.  If you do not contribute to the maximum match, you are leaving “free money” from your employer, for your retirement, on the table.  I am going to assume that most people are doing that much. If not, start immediately.

Assuming you are doing that, the next question is – should I contribute above the company match?  Unless your company has an extremely generous match, and if they do, let me know who you work for, I believe you will likely still need to contribute additional monies for retirement.  The company I work for encourages clients to save at least 10% of their salary in retirement accounts. Saving this money in an employer-sponsored retirement account (401k, 403b, 457b, and the Roth versions of those accounts if your company has those options) is where most people choose to save for retirement.  If you participate in a traditional 401k, 403b, or 457b, the amount you contribute comes out pre-tax.  I am sure many of you already know this, but if you don’t, that is a huge advantage for savers (no matter what some commercials on talk radio will tell you).  Here is the reason why-part of the money that goes in to your retirement account would have gone to Uncle Sam in the way of taxes if it had not come out of your paycheck as a pre-tax deduction.  In other words, if you did not participate in the plan, you would not see your paycheck increase by as much as your contribution.  Again, that money would have to run through Uncle Sam’s hand first, and he has a pretty strong grip and always gets his portion.

Dave Ramsey, a best-selling author, business owner, and TV and radio host suggests that individuals save 15% of their income for retirement after you have paid off all debts except the house.  I have read other articles suggesting numbers from 8% – 20%.  So what do you do?  Remember what I said earlier in this post?  Your situation is unique.  I have met with some younger workers that could reach their retirement savings goal by putting aside less than 10%.  I have met with some workers in their 40s who were just getting started and needed to set aside over 20% of their income if they were going to retire in the next 25 – 30 years.

Here is my suggestion: I would do a little homework, a little research, some in-depth thinking about how you view your retirement, and some calculations before having an idea of what your contribution rate should be.  There really is no one-size-fits-all save this exact amount and you will be able to retire in X number of years. The reason is your situation is unique and specific to your situation.  What I do may not work for you and vice versa.  I would look for a retirement calculator, much like the one in the link, where you can enter in your specific data – i.e. how much you already have saved, how many more years you are planning to work, how long do you think you will live after retirement (yes, that is the hardest question to answer because none of us know that answer), what type of return you expect to receive from your investments, etc.  If you will take the time to do a little bit or work now, you will most likely see much improved results in reaching your retirement savings goal.  You can do this!

Where might your retirement income come from?

yTo6ozATE

If I asked you from what sources you thought your retirement income would come from, what would you say?  Most people say Social Security, a pension (if they have one, as I mentioned in my last blog post, many companies are doing away with traditional pension plans due to the costs associated with maintaining the pension plan), and/or personal retirement savings.  This would be a correct answer for many Americans.  In fact, if you notice closely, those three items are all included in the infamous 3-legged stool for retirement income that many financial planners have used for years to describe the sources of retirement income.  But something interesting has occurred recently as many retirees are finding that two of the three legs in their retirement stool are inadequate to cover their living expenses.

For many Americans, the personal savings and pension pieces of their retirement picture are not producing the level of income they need them to produce (in a future blog post I will discuss how much someone should realistically expect to withdrawal from their retirement accounts each year while trying to make the account last throughout their retirement).  In 2013, AARP’s Public Policy Institute released the research they completed in 2012 regarding the issue of income for older Americans.  Some of their findings were expected; for instance, Social Security is still the largest income source for retirees, however, some of the research findings were a little more surprising and continue a trend that started in the late 1990s.

According to AARP’s findings, the average income replacement percentages for those 65 and older here in the U.S. were: Social Security – 38% (although they found the number was closer to 80% for low to moderate income retirees), Pensions and Retirement Savings – 19% (this number has been trending down since the late 1990s), Income from assets – 11%, and Government Transfers – 2%.  So far these four sources have accounted for 70% of the income sources for those over age 65 on average – so where do you think the other 30% of income would come from?  You probably guessed it-Employment Income accounts for the final 30%.  I know what you must be thinking: I thought those age 65 and older would be “retired”.  As I mentioned in one of my previous blog posts, what does it take to retire – age or money?  Here is a real-world example of how it truly does take money to be able to retire in the sense that most people view retirement.

I believe this trend we are seeing, where those of retirement age must continue to work to provide for their income needs, will continue.  By the way, did you know the average Social Security benefit is approximately $1,300 per month (the link shows the average Social Security benefit for 2013, I could not find data on 2014 numbers, but it would be close).  In perspective, the average new car payment in 2014 was $471, while the average used car payment was a little lower but still came in at $352.  I hope you can see now why Social Security alone will not be enough to live on, you will need some additional retirement income sources.