Foresight is 20/20
The company that set out to solve the looming retirement crisis sends a warning signal
The world looked a lot different 20 years ago. We were approaching the start of a new millennium. Myspace was officially rolled out, PayPal was just making its way onto the map and you were probably tuning in to the first episodes of SpongeBob SquarePants.
We’ve seen dramatic advancements in a number of areas since then, including social media networks, online payment methods and, yes, even cartoons. But there’s one industry that’s been stuck in a static state — retirement.
In 1999, I set out to make a difference in this field. With the advent of the internet, I founded Ubiquity Retirement + Savings (formerly The Online 401(k)) to help the widely underserved small business market save for retirement. Through a web-based service, we were able to reach thousands of businesses across the country to offer affordable, flat-fee savings plans designed with their specific needs in mind. This ability to customize plans for small businesses was truly revolutionary for the industry. However, looking at the big picture, it wasn’t and still isn’t enough to end the looming retirement crisis in our country.
The current system is flawed
The lack of retirement preparedness in America has perpetuated throughout the years due to a monumental shift in the makeup of our retirement system. For a good chunk of retirement’s history, workers relied on company pensions to ensure some savings for their future.
Additionally, more and more people started relying on Social Security as another stream of retirement income. Then, in the late 1970s, the 401(k) as we know it today was introduced. These three pillars of savings and income make up what we call the ‘three-legged stool of retirement,’ which now, unfortunately, is broken. Instead of being able to rely on your company or the government to help you save for the future, it’s almost entirely up to you.
In 2012, I took a six-week road trip across the country with fellow retirement industry experts and some of the most well-respected names in video production to capture the reality of our looming retirement crisis and broken three-legged stool. We were prepared for bad news, but it was worse than we thought.
Released in 2014, “Broken Eggs Film” shined a spotlight on personal stories of financial hardship and how ill-equipped our system is to help average people save for retirement. Not to mention, how woefully underprepared savers are financially. Five years later, this issue continues to exist for many people and virtually nothing has changed in terms of the burden individuals undertake in the battle to save for their future.
Baby steps
Placing the responsibility of saving for retirement in an individual’s hands is dangerous, and a big reason this crisis exists in the first place. The financial services industry has recognized this and taken action in more recent years to protect and arm consumers for their fight to a secure retirement. However, it wasn’t always this way.
I started my career as a financial advisor in the mid-1990s and the majority of my clients happened to be small businesses. I quickly realized how un-accommodating the financial industry was at the time to their unique retirement savings needs. From high fees to plan inflexibility, these businesses were stuck with unsuitable tools to take on the already burdensome task of saving for their futures. Around the time I started my company, similar providers popped up as well, trying to solve for the same issue. It was refreshing to have people on my side in this battle, but it still wasn’t enough.
Since then, the industry has introduced changes in fee disclosures and prioritized the fiduciary duty of financial advisors so savers have a shot of establishing a nest egg. However, the personal savings landscape is still an uphill battle no matter how you slice it.
A reality check
Even with these consumer protections and improvements in the investment space, only 42% of small businesses offer a retirement savings plan, according to a recent study by LIMRA. The situation for sole proprietors or gig economy workers is even worse. Not only are independent contractors under intense pressure to earn a living in a non-salaried compensation structure, but many lack a savings vehicle in the first place. Recent compensation strikes orchestrated by Uber drivers surfaced the harsh reality of the financial struggles independent contractors face.
With this population comprising 10% of our workforce, something has to change. The nature of work today has become much more fluid than in the past. Back in the day, you worked for a company for your entire career and parted with a pension and maybe even a defined contribution plan. Today, it’s become the norm to job hop, have a side gig or even start your own business. The broader retirement savings system hasn’t kept pace with this seismic shift in our work culture. Now, workers are left in the dust to figure out retirement savings on their own.
Looking ahead with optimistic eyes and pessimistic lenses
As someone who’s seen almost 30 years of the retirement industry firsthand, I can tell you that where we are now isn’t a good place. Looking back on the last 20 years of Ubiquity’s history has made me realize that, despite our successes, we’ve made tiny improvements. Helping one client at a time has changed people’s financial lives for the better and it has been extremely rewarding, but it’s sort of like fixing a dam leak with your finger when looking at the big picture.
Not much has changed to improve the retirement system in the grand scheme of things, and now, it’s time to wake up. Despite my pessimistic view today, I am hopeful for the future. It’s going to take a perfect storm for things to improve, including government intervention, changes to the tax code, technological improvements and societal shifts. But if we work together to solve the looming retirement crisis, it’s only up from here.
