The COVID-19 pandemic changed the way millions of Americans plan for retirement, according to Penny Pennington, Edward Jones managing partner.
"A third of those say that they are going to be working longer. But another third say they're going to be working a shorter amount of time," said Pennington during Yahoo Finance's All Markets Summit: The Path Forward.
Pennington became Edward Jones' sixth managing parter in 2019. She joined the firm in 2000 as a financial advisor. Today, Edward Jones has 7 million clients and $1.7 trillion "assets under care," a term the firm uses instead of assets under management. Pennington has helped steer her clients, and the firm, through various financial crises such as the 9/11 market downturn in 2001, the 2007-2008 financial crisis, and the 2020 pandemic recession.
"As a financial advisor, the promise is not that the financial markets are always going to go up. That's not the promise," said Pennington. She added that the promise a financial planner makes is to guide clients much like a Sherpa, "someone who is helping a family up and down the mountain tops of good times and bad times in the marketplace, but also in their lives, the things that happen that help us to realize that we've got to make some trade offs."
'People who are advised have 25% more assets'
The Social Security Administration says 51.5 million elderly Americans received Social Security retirement benefits in September. The average monthly check was $1,514 or $18,168 a year. The federal government poverty threshold for a single person is $12,880.
Social Security says those benefits currently represent 30% of income for elderly Americans. A 2021 study found "Retirement income from sources other than Social Security to be significantly underreported," such as income from pensions and 401(k)s. Building a nest egg to provide that additional income is what Pennington says Edward Jones does for its clients no matter their wealth or monthly earnings.
"What we know on average is people who are advised have 25% more assets than those who aren't advised," said Pennington, citing a 2015 Oliver Wyman study called "The role of financial advisors in the US retirement market."
She tells the story of a client who never made more than $60,000 a year but who over the course of his working life set aside small portions of his salary to invest. It grew to $1 million. "And this client said to my friend, I never thought this was possible. And yet we did it, week-by-week, month-by-month, year-by-year making good decisions, getting advice."
Pennington refers to one piece of advice, "the latte factor," when counseling younger clients. It is a lesson in compounding not denying gratification. "Give up a few $4.00 cups of coffee a week and you really can begin the process of the healthy discipline applying the tenets of compounding," she said.
The Securities and Exchange Commission (SEC) provides a compound interest calculator that shows how much someone can save. For instance, investing $50 every month at an annual 5% interest rate would grow to $39,863 over 30 years.
A strong retirement plan requires a long-term strategy that balances a portfolio, according to Pennington. "What I'm doing in dialing up the story is, it's not all about people who already have a whole lot of money. This is about you and me, this is about regular people, this is about folks from every walk of life who deserve this kind of advice in order to have more possibilities in their lives to have a greater nest egg when they do get to those retirement years."
Pennington recommends a financial planner and client consider three questions when creating an investment strategy: how much to save, the way in which to save and how to do it.
"Many of us are going to live in retirement for decades, for many, many years," she said. "And when you add onto that the necessity to pay for health care, to pay for long term care, knowing that we want our health spans and our lifespans to marry up rather than to diverge, what that means is that the planning for retirement takes many years pre-retirement in order to do that well."
Adam Shapiro is co-anchor of Yahoo Finance Live. Follow him on Twitter @Ajshaps
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