Things You Don't Learn in School

Life has many lessons to teach us, some more painful than others—and some we’d just as soon be spared. But the graduates of 2021—well, they’ve been through a lot, arguably more than most—but with any luck at all, the days and years ahead will be brighter. 

Regardless, if you have a graduate—or if you are a graduate, here are some insights I’ve picked up along the way…   

ASAP is never as soon as people think.

Even those who work for themselves have bosses (they’re called “clients”).

Emails (generally) don’t have to be answered right this minute.

Bad news doesn’t improve with age.

Your first job can be like your first love—it will either bring a smile for years to come—or it can break your heart. And sometimes both.  

Don’t expect your job to respect personal boundaries without some “help.”

Don’t be afraid to pick up the phone.

If the only time your boss hears from you is when there’s trouble, don’t be surprised if they don’t look forward to your visits. 

Book some quiet time in your day.

Most meetings really could be replaced with an email.

You’re either early—or you’re late.

There is an inverse relationship between the number of people in a meeting and its productive output.

Everything you’ve heard about your elders isn’t true. But some of it is.

Generalizations are (almost) never accurate.

The world is made up of introverts and extroverts—learn and respect the difference(s).

Just because you’re young(er), people are going to assume you know things you don’t—and assume you don’t know things you do.

A picture may be worth a thousand words, but sometimes it pays to read the fine print.

Never say you’ll never…

Always sleep on big decisions.

Never let your schooling stand in the way of your education.

Sometimes the grass on the other side looks greener because of the amount of fertilizer applied.

Never miss an opportunity to say, “thank you.”

If you wouldn’t want your mother to learn about it, don’t…

Comments that begin “with all due respect” generally aren’t.

Sometimes the questions are complicated, but the answer isn’t.

That 401(k) match isn’t really “free” money—but it won’t cost you a thing.

And most of all, don’t forget that you’ll want to plan for your future now—because retirement, like graduation, seems a long way off—until it isn’t.

Congratulations to all the graduates out there. We’re proud of you!

- Nevin E. Adams, JD

p.s.: Got any advice to add to this list? Share it in the comment section below!

Second Opinion(s) on Health Cost ‘Coverage’

 

As if retirement savers didn’t have enough to worry about, last week a report reminded us how much money they’re going to need in retirement… just for health care.

In fact, Fidelity Investments’ 20th annual Retiree Health Care Cost Estimate claims that a 65-year-old, opposite-gender couple[i] retiring this year can expect to spend a whopping $300,000 in health care and medical expenses throughout retirement—an 88% increase since 2002. 

This year’s estimate is a new high, and even if it’s up just 1.7% from 2020 ($295,000), it’s 30% higher than 10 years ago when the amount was $230,000.

What Are the Odds?

Now, if you’re finding all that a bit depressing, you might turn instead to the work that the Employee Benefit Research Institute (EBRI) did a year ago, when the group examined those needs. However, they found that the overall projected savings needed to have a 90% chance of having enough money to pay for premiums, Part B deductibles and out-of-pocket drug expenses for retirement at age 65 in 2020 for a couple with drug expenses at the 90th percentile was then estimated at $325,000—that said, it was down from $363,000 in 2019 and $399,000 in 2018.[ii]

Not feeling any better? 

The ‘Spread’

Well, consider that for a typical 65-year-old woman, a Mercer-Vanguard model predicts an annual health care expense of (just) $5,200 in 2018. And then there is that interesting report from 2019 (aptly titled “A New Way to Calculate Retirement Health Care Costs”) by T. Rowe Price’s Sudipto Banerjee who suggested then (and presumably would again today) that it may be more practical to look at health care as an annual expense incurred over the 20-30 years you’ll actually incur those expenses, rather than as a lump sum. 

More recently, Banerjee points out another aspect of these large lump sum totals that is easy to overlook—and that’s the impact of “health care shocks”—those really high health care cost increases (say in excess of $25,000) that many worry about, but that don’t usually affect younger retirees.[iii]

Confused?

Well, even if you aren’t, you can surely understand why your “average” retirement saver might be. Worse, my guess is that the only takeaway most would get from all this is the first headline[iv]—that they’re going to need more for health care expenses in retirement alone than many have accumulated for the totality of their retirement expenses.

Ultimately, these types of projections serve to remind us that health care costs need to be contemplated as a part of retirement expenses—and that, at the extremes, those costs can quickly wipe out funds set aside for living expenses. Little wonder that concerns about the costs of health care in retirement dominate the concerns of those not yet across that threshold. 

But as you’re sharing these headlines with savers—doubtless hoping they’ll take it as a wake-up call, an incentive and an encouragement to plan, and perhaps to save more—we should keep in mind that those attention-grabbing lump sum numbers are, at best, an estimate that attempts to put a framework around a very specific aspect of retirement spending—one that for the vast majority won’t come due all at once, but over decades, one that may well not emerge until much later in retirement, one that may never ever arise in that projected magnitude. 

Bear in mind as well that, however eye-opening or jaw-dropping the headline, presented out of context it might have the opposite effect—discouraging and even disincentivizing the very behaviors we hope to inspire.

- Nevin E. Adams, JD

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[i] For single retirees, the 2021 estimate is $157,000 for women and $143,000 for men.

[ii] Fidelity’s estimates above assume both members of the couple are enrolled in traditional Medicare (which between Medicare Part A and Part B covers expenses such as hospital stays, doctor visits and services, physical therapy, lab tests and more), and in Medicare Part D, which covers prescription drugs. Neither includes the potential impact of long-term care costs, though EBRI routinely does in it modelling of retirement savings needs.

[iii] Indeed, not only does he write that they are more prevalent among those who reach their 80s and 90s, but that—even then—it’s (only) a very small percentage of people (3.6% of those ages 80-89, and 8.4% for those ages 90-99—however, overall, even for those between ages 90 and 99, less than one-third experienced an increase of more than $2,000, he notes).

[iv] To their credit, having gotten your attention with that headline, the press release accompanying it does offer a perspective on how that financial need could be satisfied taking advantage of a health savings account. Ahh, the magic of compounding!

Guidance 'Counseling'

 When the Labor Department issued last month what it called “new guidance” that it further described as “the first time the department’s Employee Benefits Security Administration has issued cybersecurity guidance”—well, I, for one, was expecting… guidance. 

However, rather than an advisory opinion, information letter or even a field assistance bulletin, it turned out instead to be three documents outlining what were termed “best practices for maintaining cybersecurity.”

The issue of cybersecurity has, of course, loomed large in recent months, reportedly emerging as a focus in Labor Department audits and as a point of contention[i] in participant lawsuits. In fact, even the preamble to the final e-delivery regulations stated a year ago that “…the Department expects that many plan administrators, or their service or investment providers, already have secure systems in place to protect covered individuals’ personal information.” 

Now, in fairness, the Labor Department press release did state that it was guidance on those best practices—not that there wasn’t guidance on cybersecurity to be found in those documents. 

Consider that in the component labelled “Cybersecurity Program Best Practices,” none other than the Labor Department itself says, in no uncertain terms, “Plans’ service providers should…” and then proceeds to enumerate 12 precise and distinct elements. The first of these is no less than to “have a formal, well documented cybersecurity program,” followed immediately by “conduct prudent annual risk assessments.” 

Doubtless there are some who would prefer to have a more detailed expectation as to the particulars of those practices, some specific sense as to exactly what constitutes a “cybersecurity program,” the criteria for “strong access control procedures” and what is required in order to “appropriately respond” to past cybersecurity incidents. 

Make no mistake: Plan fiduciaries that aren’t attentive to the issue, much less the best practice guidance and its detailed outlines as to what would constitute “best” practices—well, perhaps the high-level admonitions leave too wide open the determination as to how those mesh with ERISA’s fiduciary standard. That said, and even if the Labor Department has yet to turn a sharp eye upon such things, the plaintiffs’ bar soon surely will.

The elements outlined, while broad, seem to offer at least a basic structure and specifics sufficient to validate an existing program, or—should one not yet be in place—begin its construction. And so, even if there are some specific criteria not yet detailed, plan fiduciaries can know, it seems to me—regardless of this particular guidance—for a certainty that the standards of considering, hiring and monitoring the processes and practices of those who provide support to their plan and its participants require—as they always have—a standard of care and loyalty that has been described as “the highest known to the law.” 

And surely that includes pursuing best practices in protecting both the information and account balances to which they are entrusted. 

- Nevin E. Adams, JD

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[i] Other recent cases have involved participant accounts at Abbott Laboratories (Split Decisions in 401(k) Theft Suit for Plan Sponsor, RK), Estee Lauder (Recordkeeper, Plan Sponsor Charged in 401(k) Account Theft), MandMarblestone Group (Court Backs TPA Counterclaim on Plan Sponsor in 401(k) Cyber Theft Case) and Boeing (Man Charged with Retirement Account Thefts).