Online Discovery: 2011 Economic Woes Affect Retirements

Posted: 2011-10-04 00:00:00

MADISON, Wis. – The global economy continues to struggle under the weight of slow growth, a weak housing market, and high unemployment. While still less than 50/50, the chances of a return to recession have grown substantially in 2011, affecting how people plan for their retirement, a CUNA Mutual Group retirement expert told Online Discovery Conference attendees Tuesday.

Scott Knapp, director, Investment Strategy for CUNA Mutual Group, told conference attendees the economy is still struggling because of the type of recession we are recovering from: a debt deflation spiral similar to the Great Depression.

“This happens when public and private debt reaches a bubble level. Then credit gets choked off in the financial system and that leads to a credit crisis and a rapidly slowing economy… this is by far the worst category of recession and it is the hardest to exit,” Knapp said.

The only remedy for a debt deflation spiral is time, so our patience will be tested for an extended period as excess debt gets paid down.  The Federal Reserve believes recovery will be slow as indicated by its warning that interest rates will be kept low until 2013. “Translation: Don’t except any meaningful growth for the next two years.”

As price inflation outstrips wages, consumers are falling backward. Corporate profits, however, are excellent. Balance sheets and profitability in the corporate sector are very strong, which is good for everyone because it supports the overall economy, Knapp added.

In addition to the current state of the economy, demographics, a possible extended period of below-average investment returns, and structural changes in the economy are leading many to re-evaluate their preparations for retirement.

The financial crisis alone has taken its toll on retirement planning.  According to a 2008 Employee Benefit Research Institute survey, almost four in 10 workers said they will retire after age 70 or just keep working, and in 2008, at the height of the tension, only 20 percent of current retirees felt very confident about their retirement security.

Knapp went on to say, “The United States doesn’t lack a willingness to provide for baby boomers in retirement, but it doesn’t have capacity to live up to all the promises that have already been made. As a result, benefits are currently funded through issuance of debt, and that’s not sustainable.  Having modest expectations about the government’s role in providing retirement security is prudent.  Those preparing for retirement must take full control of their future circumstances.”

Total lifecycle planning and outcome-based strategies are taking the lead when it comes to preparing for retirement.

“Having enough assets accumulated at retirement is not enough. Pension-like benefits must be also available during the post-retirement income phase, even from 401(k) plans. The industry needs to innovate in the post-crisis era, and achievement of retirement security must become less dependent on investment returns,” Knapp advised.

Online Discovery is CUNA Mutual Group’s Web-based equivalent of a face-to-face conference without the associated expenses or time away from the office. The free, virtual event attracted a national and international audience of more than 1,800 credit union and league staff. The conference’s future-focused content aims to help credit unions solve problems, face challenges and address opportunities.

CUNA Mutual Group insurance, retirement and investment products provide financial security and protection to credit unions and their members worldwide. With more than 75 years of true market commitment, CUNA Mutual Group's vision is unwavering: To be a trusted business partner who delivers service excellence through customer-focused products and market-driven insight. More information on the company is available on the company’s Web site at www.cunamutual.com.

CUNA Mutual Group is the marketing name of CUNA Mutual Insurance Society, its affiliates and subsidiaries, including CUMIS Insurance Society, Inc.  Product availability and features may vary by jurisdiction and are subject to actual policy language. Corporate headquarters are located in Madison, Wis.