Financial security challenges require united efforts

An intersection of crises threatens the financial well-being of millions of American families and carries stark implications for the U.S. economy. In short, Americans are not prepared to face inevitable financial setbacks, they are woefully underprepared for retirement and they lack the professional help they need to navigate these challenges.

Americans traditionally relied on a combination of Social Security, employer-provided pension plans and personal savings to provide financial security in retirement. Yet each of these pillars of support is under strain or fading away entirely. 

Social Security, by design, would replace only about 40% of an average retiree’s pre-retirement income. But Social Security benefits aren’t what they used to be. Since 2000, cost-of-living adjustments have failed to keep pace with inflation, meaning that the Social Security supplement has lost approximately 34% of its buying power. 

Defined benefit pension plans, meanwhile, are going the way of the dodo. In 1980, nearly 40% of private employers offered pension plans to employees. Today the percentage has fallen to less than 15%. In place of defined benefit plans, defined contribution plans such as 401(k) accounts, have shifted the burden of financial planning to employees.

This is not necessarily a bad thing, but unfortunately the average American is a terrible financial planner.  The typical working-age household has a meager $3,000 in a defined contribution plan, according to the National Institute for Retirement Security, and nearly 40 million households have no retirement savings. Legislation such as the SECURE Act and SECURE 2.0 will help, but they still rely on workers to make good retirement planning decisions. 

Meanwhile, personal savings are not making up the shortfall. The Federal Reserve reports that the average household has $41,600 in savings. When we look at the median, that total falls precipitously to $5,300. According to the Employee Benefit Research Institute, a staggering 47% of households are at risk of not having enough money to cover basic expenses in retirement. 

Help is available, but not everyone is taking advantage of it. Only about 35% of Americans work with a financial advisor while nearly two-thirds say that their financial planning is inadequate, a Northwestern Mutual study revealed. Those who receive professional assistance have much greater confidence in their personal financial security. They are much more likely to say they are comfortable with their ability to achieve long-term financial security, plan for retirement and weather unexpected financial emergencies. That’s why it is vital that NAIFA opposes policy proposals such as the Department of Labor’s efforts to revive its fiduciary-only service model for advisors, which would limit the ability of financial professionals to serve consumers.

We also face a looming shortage of financial professionals. The average financial advisor is 55 years old, and about 20% of the profession is 65 or older. More than a third of financial professionals plan to retire within 10 years. Attrition is taking a toll, and not enough young professionals or career changers are filling the ranks.

How do we confront these challenges? 

For more than 130 years, NAIFA has been the advocacy voice of insurance and financial professionals on Capitol Hill and in every state capital and has long served as the advocacy arm of the Society of Financial Service Professionals and Life Happens. With a professional lobbying team and highly engaged grassroots membership, NAIFA has been influential on all manner of legislation and regulations to promote an environment in which advisors are able to effectively serve the American public. Successful advocacy is another crucial means of building the strength of the industry, ensuring that Americans’ financial needs are met and spreading consumer awareness. 

The leadership and membership of these three organizations have made a historic decision to come together in a merger that will bolster the finest attributes of each. Their combined resources, membership and talent will create synergies in the areas of political advocacy, advisor recruitment and retention, and consumer education. 

The merged NAIFA, FSP and Life Happens will be more effective at addressing many of the challenges facing both the American public and the insurance and financial services industry. Coming together and working as one creates energy and awareness. It will attack looming financial crises from both the advisor side and consumer side and strengthen our advocacy influence with policymakers who can help solve these problems.