Security of Income in Retirement is Our Secret
Venture Capitalists often want to know — what deeply held belief do you have that others don’t yet? For us, that answer has always been simple — retirement security is about the security of income. Let me say it again — retirement security is about the security of income.
It’s a simple idea, but the security of income flies in the face of the way the retirement industry is organized. Unlike the conventional wisdom of today, retirement security shouldn’t be about IRAs, 401(k)s and accumulating assets.
Let me explain what I mean and why the implication of shifting the paradigm in this country is so far reaching. When you’re working, your focus is on income and expenses. Hopefully you make more than you spend and the remainder can go towards an emergency fund, paying off debt, or buying future income.
But we’ve been taught that, unlike when you’re working and focused on income – expenses, your retirement is actually all about assets.
To us, that makes no sense. Why should life during retirement be any different than life during your working years? The answer is it shouldn’t.
Saving (in an asset) for retirement doesn’t make a ton of sense. Shouldn’t you be putting money for retirement towards the security of income in the future (since that’s what you actually want?).
You might want that future income to have market upside (in return for higher risk) or be fully guaranteed. You might want that income to carry a death benefit with it or not. You might want to pay more for inflation protection. But at the end of the day, it’s the security of retirement income that’s way more useful than retirement assets.
So what does it shift retirement from an asset-focus to an income-focus?
It means less present bias and higher saving rates because people are better able to conceptualize what they’ll need and how to get there.
It means lower savings needs. It’s easier to smooth share volatility risk in an income-based retirement system and when you pool those things (rather than self insure) you don’t need to hold as much in assets.
It also means lower fees to the middle man.
And most importantly of all, it means more retirement security. When we talk to people about retirement, the most common feeling we find is the one of feeling overwhelmed. People just want to know where they stand relative to their goals or to their peers and how to get the rest of the way. It’s a simple request, but one our present retirement system doesn’t readily address.
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