'Micro' Managing

 I recently stumbled into a bit of controversy on LinkedIn. 

Honestly, I’m not even sure how this wound up in my “feed” — but there was a post from the Atlanta Journal-Constitution on the topic of “micro-retirements.”

Now, if you’re like me, you may be wondering — what the heck is a MICRO-retirement?  Turns out that, unlike actual retirement, it’s a series of multiple, intentional “mini-breaks” from work throughout life — rather than waiting until the traditional “big” retirement at the end of a career. 

Some of you are going to say — oh, we used to call that a sabbatical. Others might well see this as some kind of extended PTO or vacation break. But those, of course, are generally employer supported/sanctioned, whereas these micro-retirements presumably would not be. 

Oh, and none other than sidehustles.com[i] (who admittedly might be biased on the subject) claims that 1 in 10 Americans plan to take one this year.

That said, it’s actually not a new term, though I don’t remember hearing it previously. Said to be the latest Gen Z trend, the current label gained traction in the mid-2000s, especially after The 4-Hour Workweek by Tim Ferriss (2007), which popularized the idea of “mini-retirements” as deliberate breaks instead of a single retirement at the “end.”

This was positioned as folks working for an 8-10-year stretch — saving up enough money for — whatever — and then taking several months or a couple of years to do — whatever (travel to Asia, volunteer, write a book, etc.) funded by savings accumulated during the working stretch. And then you come back to the workforce — maybe a completely different field, maybe something related to the time you took off, or perhaps your “old” field, but rejuvenated, inspired, etc. 

The controversy, as you might expect, was between those who did a bit of eye-rolling at the notion of just walking away from work for random, extended periods of time and those who viewed those eye-rollers as some kind of 19^th century neanderthal throwbacks for their more “traditional” views about work. Oh, and interestingly enough, age didn’t really seem to be a factor in those responses (if only because LinkedIn seems to still be dominated by “older” voices — or maybe that’s just my feed).

People change jobs all the time — and employers often terminate employment of hundreds (and even thousands) of people with precious little opportunity to prepare. At some level then, people deciding to take an extended break from work shouldn’t be all that disruptive.  On the other hand, “covering” for folks who are on sabbatical, parental leave, or even vacation does put a strain[ii] on the rest of the team (though I know of instances where their extended departure was welcome!). In other words, managing micro-retirements would/is surely (be) … complicated.

We spend a lot of time and energy worrying about people not saving enough even after a 40-year career, and so the notion that you’d pull up, stop and spend (and spend money supporting) an extended period (months to a year) on life experiences[iii] — well, I can’t quite get my head around it. That said, the side-hustles survey says just over half (52%) of those who have taken one plan to return to their current employer. 

In fairness, I’ve never had a sabbatical — heck, I never even took time off between my job changes (I know, sick, right?) — and I am widely (though good-naturedly) razzed about my personal (and still “evolving”) version of “retirement.” 

So, I may not be the most open-minded on the subject. 

But what do YOU think?

• Nevin E. Adams, JD        

 

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[i] Who also claims that 1 in 8 Millennials (13%) and nearly 1 in 10 Gen Zers (9%) are planning a micro-retirement in 2025, and that 1 in 5 Americans (20%) have previously taken a micro-retirement, including 22% of Millennials and 17% of Gen Zers.

[ii] 38% of the respondents to the side-hustles survey admit it causes staff shortages and strain on companies, though 54% say it prevents burnout and improves well-being — ostensibly for the retirees, rather than those covering for their outage.

[iii] I was mostly working on my own “life experiences” like raising kids, paying a mortgage, going to law school (at night, while working) — and doing jobs that were VERY full-time on their own.

Is Retirement Saving ‘Wasted’ on the Young?

 The academics are at it again.

In a paper provocatively titled “The Life-Cycle Model Implies that Most Young People Should Not Save for Retirement” no fewer than four of them take 48 pages to make that case. The “trade press” breathlessly intoned “Most Young People Should Not Save For Retirement in Their 401k,” “Many young people shouldn’t save for retirement, says research based on a Nobel Prize–winning theory,” “Under 35? Don’t Save For Retirement Yet, These Experts Say,” “Economists Say Enjoy Your Youth and Save Later.” At least one had the temerity to offer a contrasting viewpoint (see “A New Paper Says Young People Shouldn't Save for Retirement. Advisors Disagree”), while The Street at least called it out as “This May Be the Worst Financial Advice Ever Shared.”

Like most research, the conclusion is a premise based on assumptions. Here the most basic is that this thing called a “life-cycle model” is worth considering in the first place. Now, granted, it’s the “Nobel Prize-winning theory” noted above—so mere mortals might be inclined to give it some breathing room.  But the underlying premise behind it is that individuals prefer to smooth out their consumption over their lifetimes, or—as the authors of the paper put it, assuming that “rational individuals allocate resources over their lifetimes with the aim of avoiding sharp changes in their standard of living.” Now, I don’t know about you, but my aspirations—and I consider them rational—have always been a bit higher than that.   
 

As it turns out, the authors here do anticipate some growth in income over time—indeed, that’s a contributing factor in their logic about putting off saving for retirement. Buttressing this are three basic arguments; first that since high-income workers tend to experience “wage growth” over their careers (and thus, for them “maintaining as steady a standard of living as possible therefore requires spending all income while young and only starting to save for retirement during middle age”—that’s right, it REQUIRES spending). Second, that low-income workers “receive high Social Security replacement rates, making optimal saving rates very low”—which apparently means that if you’re at a low-income level now, you’d (only?) be looking to maintain that level into retirement (and certainly, if you’re spending.  The final point has to do with what was then an artificially low interest rate environment that they claim “make a front-loaded lifetime spending profile optimal”—basically, at least at that point in time, they argue you might as well spend the money because there’s no economic advantage in saving. But what about market gains, you say? Hang on, we’ll come back to that in a minute.

‘Star’ Bucks?

Now, if you find yourself scratching you head at all that gobbledygook, it seems to boil down to this—you’ll get more “value” out of spending all of a smaller income now than you will suffer by depriving yourself—so that you can spend later when you’ll have more money to spend. Or something like that.  But to put some numbers behind those assumptions, you have to do a little financial alchemy—create some sort of “value” for consumption—something beyond a mere price tag. How much DOES that cup of Starbucks that we’re always telling people to forego actually mean to them in terms of what academics call “utility”? Indeed, that’s another required assumption here—and it’s key in terms of assessing the perceived trade-offs. 

What’s also odd here is that they actually talk about the “welfare costs” of automatic enrollment—essentially treating an individual who has been defaulted into saving as the equivalent of being scammed by a Nigerian prince. 

And for those of you wondering what happened to the “magic” of compounding those savings, the authors have a direct, but quizzical response: “…there is no power of compound interest when real interest rates are zero. While individuals could invest in risky assets with higher expected returns (which we do not model), those higher returns are merely compensation for taking on the additional risk.” So, basically, in this magical theoretical world… it’s a “wash.” 

Oh—and leakage? Well, in this world, since participation in plans by younger workers (who are particularly vulnerable to things like mandatory cash outs), they comment that, “Viewed from this perspective, leakages from 401(k) balances for young workers might be interpreted as correcting a mistake rather than a major problem in need of further government policy.” That’s right—early cash outs are a good thing (doubtless the taxes and penalties are considered a well-deserved “punishment” for the mistake of saving). 

That said, the authors do offer some caveats—they admit that they’re focused on saving for retirement, and that there may, indeed be reasons for saving earlier for non-retirement purposes. But they also admit that their model “does not account for uncertainty about future wages, employment, or health.”   They acknowledge that “if the wage profile is uncertain, or if there is a risk of future unemployment, individuals may wish to begin saving for retirement earlier in life in case future earnings do not turn out as expected.”

Ya think?

- Nevin E. Adams, JD

The ‘Best’ of 2021

I’ve been writing a weekly column (and then some) for more than two decades now. Some are easier to write (and read)—and some hold up better (and longer) than others. These are some of my (and perhaps your) favorites from 2021.

Let me know what you think in the comments below… particularly if I have missed one of your favorites… 

What’s So Special About College Debt?

Student loan debt—or more precisely, the forgiveness of some part of it—has dominated the headlines of late—but it’s been on the minds of retirement plan sponsors for a while now. The question is—why? https://www.napa-net.org/news-info/daily-news/whats-so-special-about-college-debt

Bundled Versus Unbundled: 5 Myths

While there are some amazing bundled solutions, ERISA’s admonition to act solely in the interests of plan participants (and beneficiaries), alongside the requirement that those be reasonable in terms of cost and value, call for a careful and considered evaluation. In that vein, there are some “myths” that seem to be prevalent regarding those choices, perceptions that persist even today. https://www.napa-net.org/news-info/daily-news/bundled-versus-unbundled-5-myths

Is COVID-19 a Retirement Story?

A recent paper was titled “COVID 19 Is Not a Retirement Story.” A week later, an article on Forbes.com said: “COVID-19 Is Most Certainly a Retirement Story.” So, which is it? https://www.napa-net.org/news-info/daily-news/covid-19-retirement-story

‘The 37-Year-Olds Are Afraid of the 23-Year-Olds Who Work for Them’

Yes, having lived through the not-so-subtle eye-rolling of younger co-workers (and the more recent dismissive “OK, Boomer” commentary), I couldn’t help but find some small modicum of comfort in the notion that that generation was, essentially, being hoisted on its own generational “petard.” https://www.napa-net.org/news-info/daily-news/37-year-olds-are-afraid-23-year-olds-who-work-them

Attention Getters

I was recently taken to task for a column about retirement savings regrets. https://www.napa-net.org/news-info/daily-news/attention-getters

5 Plan Committee Missteps

There is frequently a difference between doing what the law requires and doing everything that you could do as a plan fiduciary. That said, there are things that plan fiduciaries must do—and things that, while not required, can keep the plan, and plan fiduciaries out of trouble. https://www.napa-net.org/news-info/daily-news/5-plan-committee-missteps

Three ‘Scary’ Things That Give Plan Sponsors Chills

Halloween is the time of year when one’s thoughts turn to trick-or-treat, ghosts and goblins, and things that go bump in the night—and, for plan sponsors, and those who support them, a good time to think about the things that give us pause—that cause a chill to run down our spine… https://www.napa-net.org/news-info/daily-news/three-scary-things-give-plan-sponsors-chills

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… https://www.napa-net.org/news-info/daily-news/things-you-dont-learn-school

Thanks again for all your shares, likes, support and comments along the way—wishing you all the best in 2022!

- Nevin E. Adams, JD

‘The 37-Year-Olds Are Afraid of the 23-Year-Olds Who Work for Them’

I recently stumbled across a provocative article in the New York Times with that intriguing headline.

Honestly, I laughed out loud (drawing my wife’s quizzical attention on an otherwise quiet Saturday morning) when I read it. I’m a (proud) Boomer, of course, and while Gen X basically slipped quietly into the workplace (much to their frustration), Millennials (to my experience) landed with a bang, upending traditional norms of business and meeting etiquette, demanding a voice that seemed well beyond their experience (and, yes, sometimes knowledge)—and, frustratingly (certainly for those of us who played by a different set of rules at their age), getting it. 

So the notion that they were now feeling the same kind of pressures from the next generation of workers (a.k.a. Gen Z) was somewhat humorous to me in a “so, how do you like it?” kind of way.  

Yes, having lived through the not-so-subtle eye-rolling of younger co-workers (and the more recent dismissive “OK, Boomer” commentary), I couldn’t help but find some small modicum of comfort in the notion that that generation was, essentially, being hoisted on its own generational “petard.” 

The problem—particularly for those of us who still want to be seen as “cool”[i]—is that those boundaries are fluid and moving. It’s hard to keep up when you’re not naturally immersed in the culture of the day—it takes effort and persistence, particularly in an era where you lack the opportunity of that interaction in a physical workplace. And, honestly, one’s own experience (and sometimes what we’d label “common sense”) sometimes dictates that those new “norms” are likely only a passing fad (and one that you’d look foolish embracing, regardless).

‘Kids These Days’

Comfortingly enough, the article goes on tell us that researchers call this the “kids these days” effect—and note it has been happening for millennia. Moreover, the author notes that this phenomenon means that “each new generation, christened by marketers and codified by workplace consultants selling tips on how to manage the mysterious youth, can strike the people who came just before them as uniquely self-focused.”[ii]

When I was new to this business, I would joke that nobody comes out of college with plans about retirement, much less thinking about working with retirement plans. And yet, if you’re reading this, odds are you find yourself in at least the latter category. 

That said—and while much is made of the need to communicate “differently” about retirement with younger workers (see “Is It Time to Retire Retirement?”)—it’s never been easy to garner the attention of the not-nearly-ready-for-retirement generation(s) to focus on the financial necessities of that day in the (distant?) future when they’ll need to live on… something. 

‘Different’ Perspectives

There’s little doubt that “retirement” will be different for the next generation—and that the preparations our industry has long espoused could stand some updating. After all, there’ll be no golden watch, almost certainly no pension (if they’ve toiled in the private sector), and as for Social Security? Well, who knows? On the other hand, odds are their labors won’t be stymied by physical limitations, limited by locale—or perhaps even a commute longer than the path from their bed to their couch. Indeed, their work may be such that it never has to—or perhaps gets to—end. And—not insignificantly—they’ll also likely have a longer lifespan over which to consider those alternatives.[iii]

Let’s face it: New generations have long been disruptive to the “status quo,” to the “normal” state of affairs, to the protocols to which we’ve all become accustomed and/or established. Inevitably, when it’s our turn in that cycle, the pace of change is annoyingly slow, the receptivity to new ideas mind-numbingly obtuse—and when our perspective is the status quo… well, we see things differently.   

And all that likely means that if there’s anything to “fear” about those newer to the workforce, it’s that they might make the same mistakes we did.

- Nevin E. Adams, JD

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[i] I’m sure that wanting to be seen as “cool” is probably no longer… 

[ii] And indeed, if there was ever a generation that was (once upon a time) dismissed by its elders as “uniquely self-focused,” it was mine.

[iii] They’ll also have some new tools to help—things like automatic enrollment, automatic escalation, target-date funds and managed accounts. 

How Gen Z's Retirement Will Be Different

Those “kids” who were just dropped off at college for the first time? By their sophomore year, their generation will constitute one-quarter of the U.S. population. How will their retirement be different?

That’s according to the authors of the so-called Mindset List – now housed at Marist College, having relocated from Beloitt College – has been published each August since 1998. Originally created as a reminder to faculty to be aware of dated references, the list provides a “look at the cultural touchstones that shape the lives of students entering college.” Not to mention those who will go on to be workers and – eventually – retirees.

This fall’s college class of 2023 is the first class born in the 21st Century (2001) – and thus lack a personal memory of the September 11 attacks. According to the authors of the Mindset List:

• This group has never used a floppy disk (heck, they’ve probably never even seen one, except at that “save” icon).
• Their phone has always been able to take pictures.
• They’ve always had Wikipedia as a resource.
• Oklahoma City has always had a national memorial at its center.
• As air travelers they’ve have always had to take off their shoes to get through security (well, unless they have TSA pre-check).
• PayPal has always been an online option for purchasers.
• There’s always been a headlines scrawl on TV.
• They have always been able to fly Jet Blue.
• Troy Aikman’s play calling has always been limited to the press booth.
• They’ve never been able to watch Pittsburgh’s Steelers or Pirates play at Three Rivers Stadium.
• Monica and Chandler from “Friends” have always been married (May 17, 2001).

Despite those differences, the class of 2023 will one day soon be faced with the same challenges of preparing for retirement as the rest of us. They’ll have to work through how much to save, how to invest those savings, what role Social Security will play, and – eventually – how and how fast to draw down those savings.

And yet, when it comes to retirement, the Class of 2023 also stands to have a different perspective. For them:

• There have always been 401(k)s.
• There has always been a Roth option available to them (401(k), 403(b) or IRA).
• They’ve never had to sign up for their 401(k) plan (since, particularly among larger employers, their 401(k) automatically enrolls new hires).
• They may never have to make an investment choice in their 401(k) plan. (Their 401(k) has long had a QDIA default option to go with that auto-enroll feature.)
• They’ve always had access to target-date funds, managed accounts, or similar vehicle that automatically allocates (and, more significantly, re-allocates) their retirement investments.
• They’ve always had fee information available to them about their 401(k). (It remains to be seen if they’ll understand it any better than their parents.)
• There have always been plenty of free online calculators that allow them to figure out how much they need to save for a financially secure retirement (though they may not be any more inclined to do so than their parents).
• They’ve always been able to view and transfer their balances online and on a daily basis (and so, of course, they mostly won’t).
• They’ve always worried that Social Security wouldn’t be available to pay benefits. (In that, they’re much like their parents at their age.)
• Many have never had to wait to be eligible to start saving in their 401(k). (Their parents typically had to wait a full year.)

But perhaps most importantly, they’ll have the advantage of time, a full career to save and build, to save at higher rates, and to invest more efficiently and effectively.

And, with luck, access to a trusted advisor to answer their questions along the way...

- Nevin E. Adams, JD

Generations ‘Grasp’

If you’re still struggling to figure out how to reach Millennials (even if you are a Millennial), take heart – there’s (already) another generational cohort entering the workforce.

This new cohort is called Generation Z (at one point, Millennials were referred to as Gen Y, so…) – they are, generally speaking, children of Gen X – born in the mid-1990s, and separated from Millennials by their lack of a memory of 9/11.

Gen Z is, in fact, already entering the workforce – and, according to the U.S. Census Bureau, they currently comprise a quarter of the population. They are seen as being more “realistic” when it comes to life and working than Millennials, who have been characterized as more “optimistic.” Gen Z is said to be more independent and competitive in their work than the collaborative Millennials, more concerned with privacy (Snapchat versus Facebook), and are said to have a preference for communicating face-to-face. It’s said they’ll eschew racking up big college debt, and are said to be interested in multiple roles within a single employer, rather than multiple employers (role-hoppers versus job-hoppers). They have been called a generation of self-starters, self-learners and self-motivators – and they’ve never known a world without the Internet and a smartphone to bring it to their fingertips wherever they are.

Unlike previous generations, whose parents didn’t mention money or focus on financial topics with their kids, more than half (56%) of Gen Z have reportedly discussed saving money with their parents in the past six months. The result, according to researchers, is a young generation that “behaves more like Baby Boomers than Millennials,” is making plans to work during college, to avoid personal debt at all costs, and… to save for retirement. Indeed, 12% of Gen Z is already saving for retirement, according to a recent research report.

Behavior ‘Patterns’

Now, as different as individuals in various generational cohorts can be, I’ve never been inclined to assign those behavioral differences to their membership in any particular cohort. Rather, I think there are things that younger workers are inclined to do (or not do) that workers in every cohort were inclined to do (or avoid) when they were younger. Do Millennials change jobs more frequently than their elders? Sure. But they didn’t invent the phenomenon; for a variety of reasons, younger workers have long been more inclined (or able) to pull up stakes and seek new opportunities (American private sector job tenure has actually been remarkably and consistently “short” running all the way back to WWII). Similarly, younger workers tend to put off saving (certainly for something as far away and obscure in concept as retirement), and when they do start saving, tend to save less than their elders. This was true of the Boomers, of Gen X and Millennials, and – despite their more rapid savings start – will almost certainly be true of Gen Z, left to their own devices.

That last part is a potentially critical difference, of course, in that today plan design differences like automatic enrollment were a relative rarity when the Boomers were coming into the workplace. Some of it is that – at least supposedly – their parents didn’t need to save because they had defined benefit pension plans to secure their retirement. But, even for those who were covered by those plans (and most weren’t) – the DB promise was of little value at a time when 10-year cliff vesting and 8-year workplace tenures were the order of the day. Moreover, Boomers would typically have had to wait a year to start contributing to their DC plan when they entered the workforce.

Headlines tout today’s improved behaviors – more diversified investments, an earlier savings start, a greater awareness of the need to prepare for retirement – as evidence of refined education efforts, or a heightened awareness of the need to save by generations who are more attuned to financial realities. Those are indeed welcome and encouraging signs.

Still, it seems to me that many in these newer generational cohorts are – as are their elders – really the beneficiaries of innovative plan designs – things like target-date funds, as well as automatic enrollment and contribution acceleration, and a heightened focus on outcomes – developed to overcome the behavioral shortcomings of human beings – regardless of their generational cohort.

- Nevin E. Adams, JD