Boom to Bust, Financial Planning A Must

Wow! We continue to hear some amazing things about the financial times we areliving in. Unemployment is at record lows with overall unemployment hoveringaround 4%, and skilled worker unemployment at less than 1%.

The capital markets (until very recently) were hanging in at historically high levels, with the Dowin the 11,000 area and the NASDAQ continually playing with 4,000 plus. Homes arebeing purchased in record numbers and it seems that everyday we read aboutanother 20-year-old who just became a millionaire.

I want to know who is going to take responsibility for the fact that, whilewe are going through these great economic times, the average American is savingat a record low. One study I recently read said the average 40-year old has only$46,000 saved toward retirement. Assuming that 40-year old has been in theworkplace for 20 years, he/she is saving only $2,300/year.

If my calculations are right, and I make a few conservative assumptions, ifthey continue saving this amount through age 65, they will only have only$180,000 — inflation adjusted. Assuming at age 65 they can get 3% interest (netof inflation) and they live another 15 years, they’ll need to be able to liveon what amounts to $14,638/year or little more than $1,200 per month! Twelvehundred dollars! In Texas, half of that goes to the air conditioning bill.

From a workforce perspective, this is not good. For unless you are hoping fora large inheritance, winning the lottery or being the next “survivor,”the average American isn’t going to have enough money saved — at age 65 — toretire. To make matters worse, Social Security as we know it may not even be inexistence.

And if, as a logical result, a person decides (i.e. needs) to stay inthe workforce, imagine the bottleneck with regard to career progression. Forexample — a company has an “up-and-comer” who is counting on apromotion to a job presently held by someone about to turn 65. That’s OK untilthe 65-year-old informs everyone they cannot retire just yet because they havenot saved enough. The up-and-comer is stunned and threatens to leave if he/sheis not promoted.

How does the company react? Terminate the 65-year-old? An age discriminationlawsuit will probably result. Don’t like that? Then you lose the up-and comerand have the news spread throughout the company that advancement is limited, ifnot non-existent. Imagine how that’s going to impact your ability tosuccessfully attract, retain and motivate talent needed for the future.

What’s the solution? I believe financial planning for your whole workforce(not just for senior executives) could prove the answer if done right. Imagine aworkforce that truly understands their company benefits, the 401(k), lifeinsurance, Section 125 plans, etc. A workforce that understands the differencesbetween stocks, bonds, mutual funds; a workforce that comprehendsdiversification and asset allocation based on one’s goals and objectives. Aworkforce not susceptible to predatory phone calls promising riches if theyinvest in Hades.com.

Companies can begin with quarterly gatherings where financial planningeducation is stressed. The human resources department could take the lead andbring in the appropriate experts. They could tape the meetings and disseminatethe information discussed either via video or cassette. They could even put iton the corporate Web site.

To the extent we can proactively address this issue, chances are we canalleviate some of the “would be” logjams of the future. But a companyneeds to incorporate this into their overall work experience or culture. It hasgot to be seen as a key necessity and put into place like othercompany-sponsored training programs.

And think about the “splash benefits”of such a move. A moreeducated employee is a more productive one. Their trust and appreciation of thecompany will increase multi-fold. In addition, imagine the retention savings,since it costs anywhere between one and two times one’s base salary to replaceand re-train for a vacant position.

I actually believe that Fortune magazine should not hold anyone up asa “Top Company to Work For” unless they are addressing this issue. Ithink this issue, along with programs centering on diversity, and men and womenin the workplace, are critical to a company really being “tops.”

You see, companies are a lot like politicians — they can get a lot of publicrelations to make them look good. But really caring about the future of theirpeople — and not saddling someone else (or this country) with unmanageableliabilities — is the mark of someone (some company) having substance overstyle. That is the mark of true leadership. Let’s just hope and pray that we,as Americans, can win on all counts, soon.