3Things 10-31

Thing One The Magic Number (For Retirement) Northwestern Mutual recently published the results of a survey that asked participants how much they thought they needed to retire comfortably. The answer, $1.25 million, is about 20% higher than the results from the same survey taken a year ago. Soberingly, the amount that the average retirement account has in it has declined by 11% - to $86,869. Somewhat consistent with that decline, the average expected age of retirement has ticked up a couple of years from 62 to 64. The mismatch in those numbers suggests that people will work much longer than they expected or see a significant reduction in their living standards in retirement. As to the question of whether $1.25 million is the right number, we agree with what Christian Mitchell, chief customer officer at Northwestern Mutual, said: “The amount of money a household will need to retire depends on many variables, including where they will live and their standard of living. Whether a person expects to care for parents or children in retirement are also factors to consider.” One of the variables Mitchell didn’t mention specifically may be the most significant. The average retired couple will have out of pocket healthcare costs of $11,400 per year. If we assume that they retire at age 64 and it lasts 20 years, that’s $234,000. Keep in mind that’s the average. Couples with acute health issues could spend significantly more. The healthcare cost variable makes retirement planning a difficult propostion for lots of us, but plan we must. Though it’s of little consolation to people at or near retirement now, the 60 million Americans with access to 401ks just got a $2000 raise in the annual contribution limit to $22,500. The results of the Northwestern survey should serve as a reminder to them, you, and anyone that you may be able to influence - especially if you know any 20-50 somethings - to put away as much as you can as early as you can.

Thing Two More Bad News On The Education Front We’ve spoken recently about the poor state of K-8 education in the US. Now comes the logically predictable news that high schoolers are faring just as poorly. The National Assessment of Educational Progress (NAEP) scores were released this week and they tell a sad and shameful tale. National ACT scores have dropped to 19.8 (out of 36) from 20.3 a year ago in continuation of an annual decline that is now up to five years in a row. Also, this is the first time the scores have been below 20 since 1991. Below is and excerpt from a recent Wall Street Journal article on the topic: “The decline is all the more worrisome because fewer students are taking the test since fewer schools require it. About 1.35 million took the test this year, compared with 1.91 million in 2018. Playing down standardized tests lets schools rely on more subjective measures for admission, such as race or diversity. ACT CEO Janet Godwin notes “rapidly growing numbers of seniors leaving high school without meeting the college-readiness benchmark in any of the subjects we measure.” These benchmarks, for math or science, say, try to predict whether students are prepared to succeed in college courses. More than 40% of seniors met none of the ACT’s benchmarks for college readiness. None. No doubt many of these students will head off to campus anyway, unprepared for basic English courses, much less calculus or organic chemistry. They can thank heaven for college grade inflation. The high schoolers in America doing the worst are from low-income families. Only 10% of students from households earning less than $50,000 met all four readiness benchmarks, compared with roughly half from homes with income north of $150,000. This is particularly depressing because education has long been an engine of upward mobility. This dumbing down of American youth should set off alarms, as students are learning less and less even as the world grows more competitive. U.S. K-12 education is failing, and it’s getting worse despite the hundreds of billions of additional dollars that politicians have shoveled into public schools.” If we don’t require that students objectively demonstrate a standard proficiency level in the the 3 Rs, these kids will also head off into the world unprepared to make sound financial decisions. That will lead to a negative compounding all along the road of their working careers which will likely ensure that the bad news about the poor state of retirement readiness continues for generations to come. One way to start down a better road is to make school choice a default. It won’t be a cure-all by any means, but a this point a cure-some is a completely acceptable alternative.

Thing Three Just A Thought "You and I are told increasingly we have to choose between left or right. Well, I'd like to suggest there is no such thing as a left or right. There’s only an up or down." - Ronald Reagan