Ric’s Conversation with Dan Doonan of the National Institute on Retirement Security

Plus, why wearing a hearing aid may lower your risk of Alzheimer's

Ric Edelman: It's Friday, October 27th. Coming up on today's show, the state of retirement across the country. And have you ever heard of HODL, H-O-D-L? And I need to mention a pet peeve. I'm in my 60s now, and I have an increasing number of friends and family members who are losing their hearing. They won't get a hearing aid. Why not? They've all got eyeglasses. Why is there still a stigma that getting a hearing aid makes you look old? Frankly, I'm tired of having to yell to get you to hear me. I'm tired of you constantly saying, what?

Look, if a hearing aid won't work for you, great, I get it, and sorry to hear it. Bad pun. I'm sorry you have that issue, but if you've never even had a hearing test, if you've never even tried a hearing aid, well, that's just obstinate. Knock it off. The problem with hearing loss is that you don't know you have a hearing loss. You don't know what you're not hearing with eyesight. You know, if you can't read the paper or if the road sign is blurry, or if you have trouble reading a restaurant menu in low light but with sound. If it's not there, you don't know that it is there.

So here's a clue. Are you often saying, why is your spouse always telling you to turn the TV volume lower? You've got a hearing problem. I've been wearing a hearing aid for more than 20 years. The technology is amazing. These things sit inside your ear hard, if not impossible, for anyone to see it.

Some of these are programable, so you can tweak them based on your environment, a loud cocktail party or a Broadway show. Some have Bluetooth so you can make phone calls with it. And yet, less than 25% of the people who would benefit from a hearing aid use them.

Look, do you need motivation? Do you need a reason? Do you need persuasion of why you need to wear a hearing aid? Well, get this, wearing a hearing aid might lower your risk of getting Alzheimer's disease.

A new study says that people with hearing loss are more likely to develop dementia, and the likelihood increases with the severity of the loss. At the annual meeting of the Alzheimer's Association, Frank Lin, an otolaryngologist and director of the Cochlear Center for Hearing and Public Health at Johns Hopkins University. Yeah, that's a mouthful. He revealed the results of the first ever study of 1,000 adults between ages 70 and 84, who have untreated hearing loss. They studied them for three years and found out that those who are higher risk of dementia, who got hearing aids, had a 48% reduction in cognitive impairment. It turns out that when hearing loss is not treated, the brain changes to accommodate the problem more. The brain gets focused on hearing things and this depletes cognitive reserves. The result? You're more likely to get dementia. So don't make me yell at you. Get a hearing aid.

Ric Edelman: This is a podcast, as you know that retirement is a major theme because if we're talking about your future, that means we're talking about your retirement, and you'll be happy to know that there is a National Institute on Retirement Security (NIRS). I'm very happy to welcome to the program. Dan Doonan. He is the executive director of the NIRS. Dan, welcome to the program.

Dan Doonan: Yeah. Well, thank you for having me on. It's a real pleasure.

Ric Edelman: So I'm glad that there is a National Institute on Retirement Security. But before I ask you to tell us the state of retirement in America, tell us about the institute.

Dan Doonan: So NIRS is a nonprofit, nonpartisan research organization, sort of a think tank on retirement. We are a membership organization, and we've been around since 2007.  You know, we broadly would like to see our retirement system be more user friendly, more efficient, and make sure that everybody has access so they can get on track and be self-sufficient in their golden years.

Ric Edelman: So more effective, more efficient, making it easier for everybody to achieve retirement security. How are we doing?

Dan Doonan: Well, it's rather complicated system, isn't it? You know, the way the way I see it, I think retirement in the US is a very piecemeal system. You have Social Security, pensions, 401(k)s, IRAs, all sorts of other vehicles as well with different limitations and tax treatment. I think having a lot of our retirement system run through employers makes it more efficient, but it also adds complexity, including rollovers, leakage and those sorts of things.

Ric Edelman: I think it also creates one other major problem. It predicates the whole retirement savings capability on the fact that you have a job. That's right. The fact that our retirement system is largely workplace based. If you're not working, you're not contributing to Social Security. If you don't work with an employer that offers a 401(k) or other retirement plan, you're not able to participate in the plan and so on and so forth. So that itself, I think is a bit of an obstacle for millions, tens of millions of Americans either who don't work or who don't work for an employer who offers a plan.

Dan Doonan: Yeah, there's two real areas that I think we could really make massive improvements. You know, first, about half of workers don't participate in a workplace plan; a lot of times it's just not offered. We know people are far, far more likely to save money if they can do through do so through work. And the second area, we have to solve the post retirement challenge. Annuities are expensive. When you hit retirement, it's normal to walk away from a plan with fiduciary protections, and now you're on your own trying to manage a spend down. That's really challenging. And we know a lot of people don't have advisors, right? A lot of people don't use a financial advisor. So they're now taking on this challenge in retirement on their own.

Ric Edelman: And so let's really talk about this because there are three major elements. And it's worth breaking it down one by one. Social Security, 401(k), IRA kind of plans and then pension plans. Let's talk about Social Security first. There's been a huge amount of conversation, especially on this show, about the fact that the Social Security trust fund is going broke, projected in the next eight years or so that it's going to be running out of money, which means Social Security benefits are going to get cut by 23, 25% if Congress takes no action. What's your view? What's the advice you give to consumers about Social Security?

Dan Doonan: It's incredibly important to our seniors. You've got about 60 million people relying on Social Security. I don't think benefit cuts will be allowed to go into effect. I think there'll be a lot of political pressure to work this out, and I'm not encouraged that a lot of things get pushed to the last minute.

Ric Edelman: But do you expect, politically speaking, that it's likely the Congress will wait until 2030, 2031, 2032 to finally fix it as opposed to fixing it now years in advance?

Dan Doonan: Yeah. Social Security, it's a challenge. It's going to be a challenge to come to an agreement, and it probably won't make everybody happy.

Ric Edelman: The second piece is the ordinary retirement savings accounts, 401(k), 403(b), the Thrift Savings Plan if you're a federal employee and programs of that sort. There was a major piece of legislation that Congress passed last year, the SECURE Act 2.0, which had major changes for the way these plans operate. Tell us a bit a little bit about the major changes and if you think you like them.

Dan Doonan: Yeah. So I look at this, as modest but meaningful progress, auto enrollment is becoming more and more acceptable and normalized auto escalates. So if you're contributing a little bit, it will go up; better defaults. When I started working, everybody was going into treasury funds. And if you're in your 20s, that's really not an appropriate investment. The part that disappoints me is, again, half of workers don't have access to a plan, are not participating in a plan at work, and they're mostly being ignored I think it's great that we're improving the system, but we're not expanding the access as much as I think we really need to.

Ric Edelman: And so if that's the case, Dan, if this new legislation and the rules that currently exist are not really addressing the needs of all Americans, guess that kind of means we need to take our self-initiative. If it's not being handed to us as a solution by  our employer, for example, then we need to instead of sitting back and lamenting that we need to be as proactive as possible.

Dan Doonan: Yeah, I think that's right. We know that people are about 15, 16 times more likely to save if it's easy. It's frictionless through the workplace. When you look at the tax advantages of retirement saving, given all the changes to the tax code, there's a lot of people that don't get a lot of tax benefit by saving because they're not in a high marginal tax rate. 90% of the tax benefits are going to the top 30%. So the Saver's Credit fills that gap, incentivizes retirement saving and the middle-class lower-middle class. So we're excited that that was improved. The utilization of it has been fairly low, where you have to know about it and claim it on your taxes and those sorts of things, but we have state run retirement systems that are stepping in where employers are not offering a plan. You do have some states saying, okay, we're going to just start doing this; default you in. I'm hopeful over time that the Saver's Credit can be incorporated or sort of informational, provide information so people take advantage of that. And, you know, that will help strengthen savings in the middle and lower half.

Ric Edelman: Well, let's talk about that a little further then. If you're saying that the Saver’s Credit is not really being used by all that very many large number of Americans because they're not familiar with it, let's try to help them get familiar. So talk about what exactly is the Saver’s Credit how it works. Who's eligible for it.

Dan Doonan:  There are income limits for the claiming the Saver’s Credit. In the past it was not refundable. Meaning if you had no tax liability you didn't get the benefit. SECURE Act 2.0 did make it refundable. So that brings in more people that would have access to that, you know, get a benefit for saving for retirement.

Ric Edelman: And the third area of retirement savings or pension plans. These used to be all the rage; pretty much every worker everywhere used to get them. That is not at all the case today. And the private sector? Less than 17% of workers are eligible for a pension program. Are the pensions really still matter today?

Dan Doonan: Yeah, it's still a very large, relevant industry. Pension funds have over $10 trillion in assets and pay out benefits of over $600 billion. Many industries still offer plans. Certainly the public sector does. Corporations should take another look at pensions; I think there's more creativity and more options available. So we like to say that not all pensions are your father’s or grandfather’s plan anymore.

Ric Edelman: And one of the fundamental assumptions of a pension is that you're going to pay into it, or the employer will pay into it on your behalf throughout your working career. That made sense when you were with a given employer for your whole career. But today, people tend to change jobs every two, three, four, five years. So how does a pension work when you have such a high degree of job mobility?

Dan Doonan: Well, I think on some level it's a chicken and an egg argument, right? The incentives have changed in the workplace. The behavior has changed. Some firms are less interested in career employment, different types of jobs and different tools for incentivizing different behavior.

Ric Edelman: So, yeah, that makes perfect sense. Firefighters, police officers, civic workers, these are folks who are career employees. And pensions are a hugely important element of what they do. It’s also true of unions where you may change employers, but you're staying with the union throughout your career and that pension is incredibly important to them. And most folks, from my experience as a financial adviser, most folks who reach retirement who are entitled to a pension are largely depending on that pension to provide them with retirement security. So it's really hard to overstate the importance of the of that pension delivering on its promises. We're talking with Dan Doonan, the executive director of the National Institute on Retirement Security. When we talk about pensions, we're normally talking about them at the individual level. How important is your pension to you? But let me turn it upside down. How important are pensions to the overall US economy?

Dan Doonan: This is very relevant to our seniors and our economy in the 2020s. There's over $600 billion in benefit payments that were made that supported $1.3 trillion in economic activity. Almost 7 million jobs, and sent tax revenues back to the federal, state and local governments of almost $160 billion. So, when you have $10 trillion in an account to be paid out over time, certainly you see less poverty when people have pensions. These dollars get spent in our communities. About a quarter of benefit payments in public plans come from taxpayers. A large majority comes from the investment returns.

Ric Edelman: So you've mentioned some pretty amazing statistics on the economic impact of pensions, as that money is distributed throughout communities and throughout the economy. I have to assume there's a difference, though, in the economic impact of pension distribution in urban areas versus rural areas. Is that the case?

Dan Doonan: It is. And we did some work in this area. I think there's always a perception that all the benefit dollars are going to the big cities, and there are a lot of dollars going to the cities. So we looked at plans in 43 states, over 2,900 counties. And you know what we found? We really measured the percentage of people receiving benefits in these counties, benefit payments as a share of GDP and personal income. And then we classified the counties as rural, metropolitan, which you can think of as a county with a small town and metropolitan, where it's a larger city in the county. And we found that the rural counties had the largest share of beneficiaries of the population. And metropolitan like large cities, there's just a lot of economic activity in large cities. And then both small town and rural counties received more benefits relative to their personal income in the county. All small counties have police force, firefighters, teachers and workers like that, it does sort of line up with what we would expect to see.

Ric Edelman: Yeah, that makes perfect sense. All those small towns have the civic workers, but not necessarily an office for Google or Amazon, like the big cities would have. Do you see coming ahead for the landscape of retirement security? Do you see America's retirement readiness improving getting worse?

Dan Doonan: So I think the challenge of retirement security is getting steeper in terms of we're living longer, health costs are outpacing wages still. You know, that's a challenge. But I think we're doing a better job, policy wise. We're making 401(k)s more user friendly. At the same time, pensions are trying to get more of the cost, stability and terms of what defined contributions really offers. I think the pension industry has done a lot of work figuring out how to offer pensions without cost problems. So, you know, I think everybody's kind of been honest about their strengths and weaknesses, and they're trying to address the weaknesses. So I think that's positive. Again, the lack of pulling in more people so they have access to saving in an easy way, I think is the big challenge.

Ric Edelman: So what's your final takeaway? What's the message you wish everybody heard about the subject of retirement security?

Dan Doonan: I think it's an investment in our future. The country is going to have more retirees relative to workers in the future. I think we all have an incentive to make sure everybody is on track to be more financially self-sufficient. I think it's in everybody's interest.

Ric Edelman: The National Institute on Retirement Security has a wealth of research and information. I encourage you to check out their site. It's at an NIRS online.org. Dan Doonan, executive director of the National Institute on Retirement Security, thanks so much for being with us on the show today.

Dan Doonan: Thank you very much for having me.

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Crypto Explainer: HODL

Ric Edelman: Have you ever heard of huddle? It's a term used by the crypto community and it's worth knowing about HODL. H-O-D-L. It means “Hold On for Dear Life”. The story is that somebody in crypto was sending an email to somebody else in crypto, talking about their tendency to hold on, and this person just mistyped the word. Instead of saying hold for dear life. It came out HODL and that caught on and became an acronym “Hold On for Dear Life”. It's a way of saying that people are long-term investors when buying crypto. They're not short-term traders. They're not trying to make a quick buck and a get rich quick scheme. They are investing as part of a long-term investment strategy, the same way you do with stocks and bonds and real estate.

It's also related to another phrase in crypto called “diamond hands”. Diamonds are forever. So is crypto. All this means you really don't need to be scared of crypto or of any financial innovation. Instead, you need to make sure that your clients are capitalizing on it. That's why I spend a lot of my time focusing on fintech, financial technology, the use of technology by financial services companies to improve the products and services that they provide their customers robo advisors, payment apps, peer to peer lending apps, investment apps, crypto apps.

All of these are fintech and you see it everywhere in education, retail, banking, fundraising by nonprofits. There are payments as a service, PayPal, Stripe and Square, banking as a service, checking and savings accounts, debit cards and sure tech as a service insurance products. Claim processing, risk management RegTech technology platforms that help financial institutions comply with things like AML and KYC, anti-money laundering and know your customer rules, as well as fraud detection. There's cyber security and wealth tech. These are platforms that offer wealth management services like robo advisors, trading platforms, portfolio management and a whole lot more. There's digital lending, blockchain crowdfunding, micropayments, smart contracts, payment processing, loyalty and rewards programs, digital identity management.

If all this sounds interesting to you as an investment opportunity, put the politics aside. Take a look at the Global X Fintech ETF. The symbol is FINX. It invests in companies that are focused on the financial technology sector. It tracks the index Global Fintech Thematic Index; the Global X Fintech ETF symbol FINX. If you're a financial advisor, check it out at Global X ETFs.com. If you're not a financial advisor, talk to your advisor about it.

Ric Edelman: That's it for today. A reminder that the latest episode of Jean’s podcast came out yesterday. It may just make a healthy difference in your life. You can listen to Jean’s show wherever you get your podcasts.

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