The U.S. is headed for a retirement crisis which could wipe out the dreams of most workers and business people. And John bogle Believes we are headed for a massive financial disaster.
John Bogle founded The Vanguard Group in the 1970s and built it into the second largest mutual fund company in the world with current assets of $2 trillion. Bogle is also largely responsible for making Index Funds available to small investors. When it comes to providing an expert opinion on investing for retirement, he is at or near the top of every list. So when John Bogle is worried, we should all be worried. He believes that the retirement system in the U.S. is headed for disaster unless radical changes take place immediately.
From Bogle’s perspective, retirement in the U.S. has several critical problems:
1. Expected rates of return aren’t realistic. Pension funds and many retirement calculators assume an average rate of return of eight percent. That provides very lofty projections that give a false sense of comfort. After fees and taxes, and based on current experience, a one to two percent rate of return is more realistic. That’s less than inflation and leaves pensions with a massive shortfall.
2. Social Security has no fix in place. Millions of Americans rely on Social Security as their sole source of retirement income. The program was never intended to serve this purpose and simply doesn’t have the resources to pay the promised benefits beyond the next few years.
3. Investment choices are based on past performance. When most consumers make a decision about retirement investing, they look at past performance and historical track record. The problem is that the past has no bearing on future returns. It’s a gamble to chase yesterday’s winners.
4. Many retirement advisory firms have refocused from the client to their fees and aren’t putting the best interests of retirees first.
