Fox Business Network





TRACY BYRNES, co-anchor: We’ve got to go to Kansas (City). Tom Kmak, CEO and founder of Fiduciary Benchmarks, and former CEO of JPMorgan’s retirement plan services.  I’ve got to tell you, I thought I was in Kansas (City) last night it was so windy, I was like Dorothy in the house, thought my house was going to blow away.  It was crazy weather here last night. 

Tom, we’ve got to talk retirement.  Now here’s my big question:  Are we scaring people to death with all these numbers because no matter where you turn, nobody is prepared for retirement these days?

Mr. TOM KMAK (CEO & Founder, Fiduciary Benchmarks):  Tracy, I don’t think that nobody’s prepared.  But I do think there are a lot of individuals that don’t know if they’re prepared.  And the reason we built the retirement readiness index at Fiduciary Benchmarks was to be a catalyst to help people understand that question.  How much money am I going to need to retire?  It’s a very, very key question.  In fact, it’s the key metric of our industry.

BYRNES:  But how do you know?

CHRIS COTTER, co-anchor: Yes.

Mr. KMAK:  Well, the way that you know is to basically ask your plan administrator if they have the tools available for you to be able to do a couple simple things.  One, you have to know how much you’re going to need for retirement.  There’s a great study from Aon Consulting and Georgia State University that gets updated about every two years, it’s actually an outgrowth of the original Reagan commission on pension policy back in the ‘80s, but they basically say that a $20,000 employee needs about 94 percent of their income to retire.  A $60,000 employee needs about 78 percent of their income. 

So once you know what you need, then some simple mathematics to figure out what you’re going to have, and of course you’ve got to include Social Security in those numbers as well.  So it’s not as daunting a task as you think and we built the retirement readiness index to make that task a little bit easier.

COTTER:  You built this index by surveying, for lack of a better word, 21,000 companies.  I imagine 21,000 companies gives you a pretty good, broad base to work off of.  That’s got to be most large companies in the country, if not all of them.

Mr. KMAK:  Well, Chris, those 21,000 companies represent about 33 million participants and about $2.1 trillion in assets, which is a huge segment of the marketplace.  And, you know, I want to make sure that we’re very clear, this is the first step in the retirement readiness index. 

We used publicly available information to build these ratings.  So we went to the airline industry occupation codes from the Bureau of Labor Statistics, or the forestry industry or the telecommunications industry, and we pulled average age and average wage, and then we did the calculations for the average participant in each of those plans.  And again, that’s the average participant, nobody’s average.  So the question that we’re trying to prompt people to understand is, am I average, and how am I doing compared to that average.

BYRNES:  OK, so here’s my question now, if I did it at 40, is the number going to be different if I do it again at 60?  And my lifestyle, God willing, will improve and change over the next 20 years, so the number is going to be very different.  So if I start planning today, I still could come short if, you know, I start to take on Mercedes and golf course, and I don’t know what you do when you’re 60, but that’s what you do and you have more expenses.  How do you adjust this thing or do you have to adjust it as you go along?

Mr. KMAK:  Tracy, that is a great question.  In fact, what Aon Consulting has determined is that people who make more money actually do spend more of it, which of course is good for the economy.  And so as you spend more money, you’re going to need to replace it then in retirement.  So indeed, you need to adjust your index constantly.  Look at what you’re going to need and what you’re going to have and it’s a constant conservation.  It’s not a set-it-and-forget-it kind of environment.  That’s absolutely correct.

COTTER:  Given your analysis, I mean you’ve done so much, you know, looking at 21,000 companies, are you finding that people in similar industries are similarly prepared for retirement, or are you finding that it’s all across the board?

Mr. KMAK:  Actually, Chris, it’s very surprising.  Some of the surprising things that we saw, there’s great variation outside of industry, so you have some industries that have an RRI of about 73 percent and some that are well in excess of 100.  And then even when you look inside of an industry, there will be companies that have a retirement readiness index that’s very high and some that are really low.  So there’s great variation inside of the industries and there’s great variation by companies.

BYRNES:  Let’s talk about what happened recently.  The market tanked, so planning--you could take your planning and throw it out the window, your mother is coming to live with you no matter what she tries to do right now.  So right--what happens then when things like that have to play into the factors, do they not?

Mr. KMAK:  Well, Tracy, they absolutely do play into the factors and there’s actually eight major different variables that impact retirement outcome.  But the two that are the most important is the age you retire and the age you start to prepare to retire.  And I’m going to touch briefly on the age you retire; for all of us our retirement age under the Social Security law is 67.  And for every month that you retire before the age of 67, your retirement benefit is reduced by one-half of 1 percent from Social Security.  

So if you retire at 62, which is a full 60 months ahead of 67, your Social Security benefit will be reduced by 30 percent.  In addition, you won’t have as many years to make contributions.  So Tracy, while the markets are important, no doubt about that, what’s more important--the two most important variables is your actual retirement age and the age you start preparing.  The market will smooth itself out over time, but you really have to understand what your goal is and you’ve got to start working towards that goal right away.

COTTER:  And that’s assuming that Social Security doesn’t become completely bankrupt by the time I retire and I’ve got nothing there no matter how much I put in.  Tom, thanks.  We appreciate it.

Mr. KMAK:  Thank you.

BYRNES:  Thank you so much, Tom.

COTTER:  Tom Kmak, of course, CEO and founder of Fiduciary Benchmarks.  He’s a former CEO of JPMorgan Retirement Plan Services, getting us up to date on that new retirement index, RRI.  And of course, the Web site is if you want to check it out.

BYRNES:  Yeah, it’s interesting.  And you know, that also too to me is an interesting variable, that you’re including Social Security in the calculation.


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