Tag Archives: financial advisor

Why You’ll Need to Own More Stocks After You Retire

retirement_roadMy Comments: For many of us, retirement once seemed like a glorious goal to achieve. Now that many of us are here, the light isn’t so bright.

As a financial planner, both for myself and others, the landscape is very different from what it was as little as twenty-five years ago. The fundamentals are the same, but how you get there is very different.

These comments from Ryan Derousseau speak to some of the changes in the landscape.

March 26, 2016 by Ryan Derousseau

Unless you’re already unspeakably rich.

Retirement planners like to relay best practices to clients via simple, easy-to-understand rules. Whether it’s sticking to a 4% yearly withdrawal rate or having your bond exposure match your age, these rules-of-thumb have translated into investing strategies for years now.

Of course, these tips come with plenty of research to back them up – a 4% withdrawal rate has a strong chance of lasting a lifetime, for example. But sometimes these rules get turned upside down.

One rule undergoing such an evolution has to do with stock exposure during retirement. For a long time, conventional wisdom has held that your stock exposure should steadily decline as you age. But a growing number of experts think that today’s retirees need to keep much more of their portfolio in the stock market than they might expect.

In the past, when the typical retirement lasted 10 to 15 years, there wasn’t a huge need for stocks in the portfolio. But, the “retirement time horizon has gone up,” says Stuart Ritter, vice president at T. Rowe Price Investment Services and a financial planner at the firm.

With people living longer, the need to take on the risk of stocks (in return for the potentially greater reward) has increased. Though inflation has been low lately, its threat to the value of your retirement savings grows with greater longevity: While a dollar’s value may not decrease much in a decade, it will decrease a lot over 35 years.

These trends have led a growing number of financial planners to advocate a rising equity “glide path.” While this idea isn’t as easy as others to sum up with a platitude, the basic idea is that your exposure to stocks should increase, rather than decrease, as you age in retirement.

Working with the American Institute for Economic Research, Luke Delorme conducted a study to determine the ideal asset-allocation strategy for retirees, assuming a 4% withdrawal rate. The best strategy, he found, was to begin with a 20% allocation of stocks as you enter retirement at age 65, and then increase that allocation gradually every year, over 30 years, until you have a 70% equity exposure at age 95.

“The time that people need to be most conservative is not in retirement,” says Delorme. “but at the beginning of retirement.”

Here’s why: Your portfolio is most vulnerable to risk right after you retire. If the market takes a tumble during the first few years of your extended vacation, then it’s difficult to rebuild your portfolio without going back to work. So keeping stock exposure low at that point protects you from the potential of losing out in the beginning of retirement. But since stocks have historically risen an average of 7% a year over the long-term, gradually increasing your exposure over time increases your odds that your portfolio will last into your later years.

If you have a pension, you can take a bit more risk, says Delorme, who now works as director of financial planning at American Investment Services. You can have a higher allocation of stocks when you leave the workforce, and you can increase stock exposure to 80% within retirement.

T. Rowe Price’s Ritter explains the glide path concept differently. He places client assets into two buckets – one for the first 15 years of retirement, the other for the second 15. In the “first 15” bucket, assets be concentrated in on safe, short-term investment vehicles like bonds and fixed income. The second 15 years’ worth of savings goes into stocks. Placing clients’ money in the two buckets, Ritter says, “helps put the short term volatility” of the market into the context of a broader strategy; investors who know their short-term needs are taken care of are less likely to get scared and pull money out of the market.

While they may not use the term “rising equity glide path,” more financial planners are latching on to the idea of increasing stock exposure in retirement. You often hear of a 50-50 stock to bond ratio for retirees these days. And if you have a higher withdrawal rate, chances are you will also need to take on more risk (unless your nest egg is truly massive). “The biggest driver is less around the allocation of risk,” says JPMorgan Private Bank’s David Lyon. Instead, it’s based on “how much you’re spending on your balance sheet.”

In other words, if you have expensive tastes, then you may want to get used to living with more risk. That’s not a cliché; it’s life.

Here’s The Big Economic Risk The Federal Reserve Is Willing To Take

world economyMy Comments: In the world of finance, especially here in the US, what the Fed does is a huge determinant of how our lives play out when it comes to our money and purchasing power. People have made and lost fortunes on their expectations of what the Fed will do next.

Here is ‘projection’ about decisions the Fed will make about interest rates, both in the next several months, and in the next few years. What I read here is that lessons have been learned from decisions made over the past few years that didn’t turn out well. But if you have a solid understanding of the variables behind Fed decisions, it will help you better understand much of the political rhetoric we’re going to have to listen to over the next few months.

If it plays out the way this writer describes it, I think it will be good for all of us.

Myles Udland Mar. 19, 2016

The Federal Reserve sent a clear message to markets on Wednesday: We’re going to run this thing hot.

Speaking at a roundtable on Thursday, BlackRock’s Rick Rieder — chief investment officer of global fixed income for the world’s largest asset manager — said the signal out of Wednesday’s meeting was crystal clear.

“There’s a takeaway [from the Fed meeting] that I think is extremely important,” Rider said Thursday.

“The Fed has made the determination that the risks of letting employment and inflation run hotter is the risk they’re willing to take.”

When economists talk about the economy “running hot” relative to the Fed’s forecasts, they’re saying the unemployment rate will fall lower and faster than expected, while prices will rise higher and faster than expected.

Said simply: The Fed is willing to let the economy get almost too good before acting to pare back any excesses.

On Wednesday, the Federal Reserve announced it would keep interest rates pegged in a range of 0.25% to 0.50%.

But the biggest development from the meeting was the Fed’s latest “dot plot” forecast of future rate hikes, which now projects there will be two additional interest-rate hikes in 2016, down from a prior call for four moves.

Based on the Fed’s latest forecasts out Wednesday, the median expectation for the unemployment rate at the end of this year is 4.7%, while “core” PCE — the Fed’s preferred inflation measure, which strips out the more volatile costs of food and gas — is forecast to hit 1.6%.

In January, “core” PCE hit 1.7%. The unemployment rate was at 4.9% as of February.

So: The Fed is (basically) there, which you’d think would argue for more not less action. And yet, they pared back their forecast.

Pantheon Macro’s Ian Shepherdson wrote Wednesday that the Fed’s statement indicated that “wishful thinking appears to have taken the place of reality-based forecasting.”

But the reason for cutting this forecast, in Rieder’s view, is that the Fed thinks an economy that is “too good” can be managed. The other side they can’t work with. (Economists call this the “balance of risks.”)

“The Fed has decided that you can let inflation run hot because you have a multitude of tools at your disposal to bring it down,” Rieder said. “It is a deflationary cycle is where the tools are very challenged.”

“Central banks around the world and monetary policy has pressed so hard to try and avoid deflation that the Fed has made a cognitive decision: Let labor run hotter. Let inflation run hotter, and we can deal with that paradigm as opposed to the other side.”

Now the view that the Fed’s move on Wednesday was decidedly dovish is not an outside one, with economists at Goldman Sachs calling this one of the most dovish announcements this century. (A dovish decision is one that suggests the Fed will keep interest rates low; a hawkish one would imply a quicker trigger on raising rates.)

Rieder also noted that Wednesday’s statement made very clear investors who are watching the Fed need to understand the Fed now has one eye trained on the US economy and one eye focused abroad.

In its statement on Wednesday, the Fed added the phrase, “… global economic and financial developments continued to pose risks.”

This, to Rieder, underscored “the extent to which external economic and financial market stresses can influence Fed policy.”

Said another way: The Fed will not stand alone.

A major theme in markets coming into this year was the apparent diverging policy paths of some of the world’s most important central banks.
The Fed appeared tilted toward tightening policy.

The European Central Bank and the Bank of Japan, meanwhile, aggressively eased policy, with both banks taking rates into negative territory and engaging in massive asset-purchase programs.

Wednesday’s statement, then, made clear that these paths won’t diverge too far.

Read This Before You Take Social Security Benefits

My Comments:Social Security card Social Security is a complicated topic. If you are not yet 70 years old, and/or have not yet committed to how you will take your Social Security benefits, you should read this.

With so many variables, the typical process for making a good decision is total confusion for most people, even financial planners. The net effect is that for many of us, there is money left on the table at the end of the day. This author reduces much of the confusion to simple concepts that are a great starting point. If you are still confused, or have more questions, call me.

By Dan Caplinger Published March 13, 2016

Many retirees rely on Social Security for most or all of their income in retirement. Before you make a decision that will have major financial implications for the rest of your life, it’s important to know everything at stake in the timing of when you take your benefits. Here are a few things to consider.

Fewer big payments vs. more small payments

Most people have what amounts to an eight-year window to claim Social Security. Earliest eligibility is at age 62, and 70 is the latest age at which Social Security provides any financial incentive to wait. The key decision with Social Security is whether to take a reduced benefit that will give you the maximum number of monthly Social Security payments, or whether to wait and take a higher monthly benefit but receive it for a shorter period of time.

You can find plenty of articles discussing the trade-offs involved with claiming at age 62 versus waiting until full retirement age (currently 66) or age 70 to claim. But a lot depends on your individual situation. For instance, single retirees who won’t have anyone else claiming on their work history can look solely at their own personal situation to make a smart decision about when to take Social Security. For those with family members who will receive spousal or survivor benefits, decisions that might make sense solely from your point of view might not be the best for your family as a whole. You can run numbers projecting which choice will result in your receiving more total money.

But only you can make a personal assessment whether the true value of that extra money is worth the trade-off of having to wait for it. The important thing is not just to make a knee-jerk decision but rather to consider all the factors involved and what they mean to you and your life.

If you’re working and claim early, Social Security could take back your benefits anyway

The worst result in many people’s eyes is to start collecting Social Security benefits only to have the government take them away. Yet that’s what happens to some people who continue to work in their early 60s and choose to take early benefits.

If you haven’t yet reached full retirement age, there’s a limit on how much you can earn before Social Security forces you to forfeit benefits. If you will not reach full retirement age this year and earn more than $15,720, then you’ll lose $1 in annual Social Security payments for every $2 above the limit you earn. For those who hit full retirement age during the year, a higher limit of $41,880 applies to earnings before the day of the year you reach full retirement age, and the forfeiture is $1 for every $3 above the limit.

This forfeiture doesn’t result in a complete loss, because the Social Security Administration treats you as if you had delayed taking Social Security for any full month of forfeited benefits. But if that’s what’s going to happen anyway, it can make more sense just to delay filing until your income will be under the threshold — or until you reach full retirement age.

You can get a do-over on your decision, but only for a limited time

Many people regret their decision on when to take Social Security after the fact. There is a way to undo your claiming decision, but you have only a limited time to do so, and there are some key requirements that pose a hardship for many.

In order to get a do-over, you have to use a strategy that’s known as withdrawing your Social Security applications. Form SSA-521 provides for this request, and it provides space for you to indicate the reason for the withdrawal and other related information. You can only file Form SSA-521 once in your lifetime, and it’s only available within the first 12 months after your initial application for Social Security benefits.

The hardest part of the withdrawal application is that if approved, you have to return any money you received from Social Security since you claimed benefits. Many retirees aren’t in a position to pay back up to a year’s worth of Social Security payments, and that can make the strategy impractical for them.

The decision of when to take Social Security is a key one. Being informed is the first step toward making sure you do the best thing for your situation.

The Monetary Madness of Trump, Cruz and Rubio

CharityMy Comments: On its face, this looks like just another political swipe at the remaining presidential hopefuls on the right. However, as an aspiring economist and financial planner, I appreciate the role played by government in the financial sector and know how critical it is. These comments point to some dubious thinking on the part of some candidates.

Tuesday, Mar. 08, 2016 by Christopher Ragan

Anyone watching the U.S. presidential primaries is seeing a fascinating cast of characters and plenty of energetic debate. The three leading contenders on the Republican side – Donald Trump, Ted Cruz and Marco Rubio – are particularly interesting. They naturally have competing views on many issues, but when it comes to monetary policy, they are remarkably aligned. Unfortunately, they all line up in the wrong direction; each apparently misunderstands why central banks operate the way they do.

Begin with the front-runner, Donald Trump. He argues that the U.S. Federal Reserve should be audited. He is hopefully aware that the Fed’s books are already audited, and available for all to see on the Fed’s website. But what he really appears to mean is that all the Fed’s policy decisions should be brought before Congress and defended, and maybe even subjected to some kind of vote.

This is a very bad idea because it would politicize monetary policy. Central banks all across the world have operational independence from their government masters for good reason. Before such independence was granted, central banks were under political pressure to ease policy before elections, and this led over the years to higher inflation. Eventually, we learned that the way to keep inflation low and stable is to state this objective clearly, grant central banks the operational independence to achieve it and then hold them accountable for their performance. The past 25 years of inflation targeting in many cousntries suggests that the current system is working.

Now, consider the views of Texas Senator Ted Cruz, as reported in November by the Huffington Post: “Instead of adjusting monetary policy according to whims … the Fed should be … keeping our money tied to a stable level of gold.” Mr. Cruz is suggesting that the Federal Reserve go back a century to the days of the gold standard.

This is also a very bad idea. It would tie the Fed’s hands and prevent it from dealing with the impact of large economic shocks. During the Great Depression in the 1930s, when thousands of U.S. banks failed and the economy went into a massive tailspin, the Fed’s strict adherence to the gold standard kept it from acting. It could not extend credit to solvent but illiquid private banks without violating its gold-based rule, and so it chose instead to sit on the sidelines and watch the economic tragedy unfold.

Most economists today look back at that experience and conclude that the Fed’s policy was a major error. They also conclude that if the Fed had been using the same gold-based rules when the global financial crisis began in 2008, the subsequent recession would have been far worse than it was, when the Fed was able to act aggressively.

Florida Senator Marco Rubio also has a problem with the Federal Reserve. At a CNN town-hall event last month, he said the Fed’s job is to “provide stable currency and I believe they should operate on a rules-based system. They would have a very simple rule that determines when interest rates go up and when interest rates go down.”

While simple rules sound appealing, this is also a very bad idea. The job of the Fed is to keep inflation low while promoting growth and keeping financial markets stable. It does this by adjusting its policies, sometimes in response to shocks and sometimes in anticipation of events that are expected to occur. The shocks vary by origin, type, size, duration and impact. The almost countless possibilities mean that policy cannot follow a simple rule – and using one would prevent central bankers from doing their job, resulting in worse economic outcomes.

So far, monetary policy has not figured prominently in the U.S. presidential primaries. Based on these views, this is probably a good thing. But there is still plenty of time before the candidates will be chosen, and who knows what debates will unfold regarding the appropriate behaviour of the Federal Reserve?

The truth is that the processes of economic growth and inflation are complex, and monetary policy is equally complex. We need our central banks to maintain their operational independence and central bankers to continue using their well-informed judgment to keep our economies operating on an even keel.

Let’s hope these three bad ideas disappear soon and don’t threaten the policy coherence at the world’s most important central bank.

Christopher Ragan is an associate professor of economics at McGill University in Montreal and a research fellow at the C.D. Howe Institute in Toronto

Negative Interest Rates: What This Means

My Comments: The word “interest” defines the price someone is willing to pay to use your money. In the world of economics, if the price is zero, and knowing price is a function of supply and demand, there is either no demand or the supply far exceeds the demand. Think oil prices these days.

Interest rates last peaked in 1981. Since then they have trended down to where they are now virtually zero. Common sense suggests they have to start going up sooner or later. Or maybe not.

If you have a bunch of money, and no one will pay you anything to borrow it (ie, pay you so they can loan it out, which is what your local credit union does) you either accept that it’s going to stay under your mattress, or if you want more safety, pay someone to put it under their mattress. That is what this is about.

Feb 25, 2016 by Andrea Coombs

When a central bank embraces a policy of negative rates—that is, charging banks rather than paying them to stash their reserves at the central repository—the policy can trickle down to individual savers in the form of lower interest rates on savings, higher bank fees, higher deposit requirements and other barriers to opening an account.

Thanks to weakening economies, the European Central Bank, the Bank of Japan and Sweden’s central bank, among others, have embraced negative rate policies. Generally, the aim is to push banks to lend money and thus to stimulate economic growth by encouraging businesses to invest and consumers to spend.

Those policy moves overseas prompted some questions for U.S. Federal Reserve Chairwoman Janet Yellen at a congressional hearing earlier in February. Yellen said the Fed would need to investigate the legal issues of a pushing rates into negative territory, but that she didn’t think there would be “any restriction” on doing so. Read: Yellen isn’t sure whether it’s legal to adopt negative rates.

Keep in mind that in the U.S., this is all simply talk at the moment. And even if the Fed did adopt such a policy, there would plenty of advance warning. “We’re not in that economic environment at this point,” said Greg McBride, chief financial analyst at Bankrate.com.

Even if the economy does decline precipitously, the Fed would first have to unwind the rate hike that took effect in December, he said. “This isn’t something that’s going to be sprung on us overnight.”

Still, the talk has some people worried. Ken Tumin, the Longwood, Fla.-based founder and editor of DepositAccounts.com, says his readers have been reaching out to him, nervous about the implications of negative interest rates.

“My readers depend on income that they get from their savings,” he said. “It’s bad enough to make very little or zero on their savings, but the concept of penalizing them for having savings in the sense of a negative interest rate is very disturbing to them.”

In his review of bank offerings and publications in Sweden and elsewhere, Tumin says the main effect of negative rates has been on large institutional depositors, but individual savers also may see some effect from a negative interest rate policy.

“I’ve seen a case in Sweden where a bank is requiring more of a banking relationship to open a savings account,” Tumin says. “They want customers to bring over more money, open more accounts—a checking account [in addition to savings], direct deposit, things like that.”

Others agreed that negative rate policies can harm savers. “Instead of banks trying to entice us in with good service or little bonuses, they will be telling us to go away,” said Dean Baker, co-director of the Center for Economic Policy and Research in Washington, in an email.

“This will have the biggest impact on low and moderate income people, many of whom already don’t have saving/checking accounts due to the cost,” he said. “With negative interest rates, banks are likely to charge more money for these accounts, leading to a larger unbanked population.”

Plus, he said, a negative rate policy could lead to higher fees. “We are also likely to see fees attached to money market accounts and other types of short-term saving. People may still want them for their convenience, but we will be paying the banks to hold our money,” Baker said.

But there’s a bigger problem, McBride said. “The real concern about negative interest rates isn’t going to be the negative interest rates. It’s going to be the economic conditions that brought it about,” he said. For the Fed to institute such a policy, the economy would need to be in bad shape.

Worrying about negative interest rates is like “worrying about the landscaping when your house is blowing down,” he said. “We’d be worried about a shrinking economy, mounting job losses and businesses closing their doors.”

While there are worrisome signs in the U.S. economy, it’s not in the same deep hole as the economies of the countries that have instituted negative rate polices.

“The U.S. economy is in much better shape than our counterparts overseas who are having to employ negative interest rates,” McBride said. “Our economy is growing, unemployment is the lowest in nearly a decade.”

Even if the economy tanks, it’s unclear whether the Fed would adopt such a policy. “The Fed has other tools to try to boost the economy,” Baker wrote in a recent blog post.

“The obvious one is to explicitly target a long-term interest rate. For example, the Fed could say that it will push the 5-year Treasury note down to 1%. It would then buy enough 5-year notes to bring the rate down to this level,” he wrote, noting that longer term rates have “much more impact on the economy than short-term rates.”

Starting to Invest in 2016? Here’s What You Need to Know

Piggy Bank 1My Comments: After 43 years as a financial planner and investment company owner, I can say with certainty that the future outcome for your money is a combination of luck, discipline, timing and knowledge. I have no clue how we’ll do in 2016 but this is at least a start.

By Jason Hall Published January 10, 2016

Before you invest another dollar, there are some important things every investor should know to maximize returns, avoid unnecessary costs and losses, and even reduce taxes. Most importantly, it could keep you from making the most common mistake almost every investor repeats.

Use the best tool for the job

Things such as taxes, fees, and matching contributions can have a huge impact on your returns. For instance, if you’re not using one or more of the following, you’ll probably end up with less money when you need it than you would have otherwise:
• 401(k) or similar through work.
• Roth or traditional IRA with additional funds.
• 529 college savings plan.

Contributions to these kinds of accounts come with a bevy of tax benefits. For example, for every $1,000 you’re contributing to a taxable investing account instead of your 401(k), you’re paying an extra $150 in federal taxes, based on median U.S. income and tax brackets. Your employer may also match contributions to your 401(k). That’s free money — and it really adds up. If your employer matches 1% of your pay, we’re talking about $35,000 over 30 years, based on a 5% annual rate of return.

If your employer doesn’t offer a retirement plan, contributions to a traditional IRA are tax deductible in the same manner. Roth IRA contributions aren’t tax deductible, but the benefit happens when you retire. While 401(k) and traditional IRA distributions are considered taxable income, Roth distributions are tax-free. Who doesn’t want tax-free income in retirement?

If you’re saving for a child’s college, a 529 plan would also cut taxes, since both growth, and distributions for college expenses, would be federal (and state in some states) tax-free.

Simply contributing to the right account could be worth tens of thousands of dollars in tax savings alone.

Market crashes aren’t a bug — they’re a feature

Fellow Fool Morgan Housel put it best:

Markets crash all the time. You should, at minimum, expect stocks to fall at least 10% once a year, 20% once every few years, 30% or more once or twice a decade, and 50% or more once or twice during your lifetime. Those who don’t understand this will eventually learn it the hard way.

The key is time in the market, and not timing the market. So if you’re saving for your retirement in 20 or 30 years, you’re almost guaranteed to see your portfolio quickly lose 10% of its value dozens of times, fall by 20% 10 times, and possibly fall by half once or twice. Those are losses you’ll see every time you look at your portfolio.

But it’s how much things go up in between the drops that matters. Case in point:

If someone had invested $10,000 in a fund that matched the total returns (i.e., stock appreciation and dividends) of the S&P 500 on June 1, 1988, that person would have $127,000 today. America has gone through three recessions, two major wars, and the worst global financial crisis since the Great Depression, yet through all of that, anyone could have made 12 times the money simply by investing in a large group of U.S. stocks, and then doing nothing for 27 years.

Even after those huge drops in 2001 and 2008, our theoretical investor was still way ahead of the starting point. That’s time in the market.

Buy businesses, not stocks

One way to help avoid short-term mistakes is by keeping in mind that you own a piece of a real business. If you make the right decisions, you’ll own companies with durable competitive advantages, trustworthy management, and a strong market for their products or services.

Not only can this business-focused approach lead you to invest in higher-quality companies, but it will also be a hedge against letting your emotions take control when the next inevitable downturn happens. After all, if you understand that the business behind the ticker is strong, you’ll be much less likely to sell simply because the market is falling.

Now get out of the way

Investing isn’t easy — but we shouldn’t make it harder or more complicated. Let’s look at what we know, and what we don’t.
• We know the market historically goes up more often than it goes down.
• We know we can’t reliably predict when it will go down.
• We know what our goals, objectives, and time horizons are.

Put it together, and it’s simple. Invest. Stay invested as long as possible. And while none of the things mentioned here guarantee you’ll outperform the market, they’ll almost definitely help you avoid costly mistakes, and you’ll achieve greater wealth than you would’ve otherwise.

The ‘Retirement Crisis’ That Isn’t

retirement_roadMy Comments: Social security payments to my wife and I are a critical element of the life we live. It can be argued that without those payments, we’d have scaled back in terms of what we spend for food and housing. The fact remains that given expectations of a monthly income from that source, our life is what it is.

That money does not disappear down a rat hole. It’s used to buy things and as such, it flows into the economy of Gainesville, Florida to a large extent. The same can be said of every household in the US that receives social security payments. Those dollars contribute to the gross national product of this country, and can be considered essential to the accumulating retirement accounts that will allow the next generation to retire with dignity.

You should read this in the context of what it would take to increase the viability of future social security payments beyond the currently expected ‘crisis’ date of 2033. See my EARLIER POST on this topic.

By Andrew G. Biggs December 29, 2015

Ask pretty much anyone and they’ll tell you: Americans are undersaving for retirement. It’s not just thought to be a few households falling through the cracks. Rather, there’s a perception that, after a “golden age” of traditional pensions that lasted from World War II until about 1970, most Americans won’t have nearly enough income in retirement to maintain their pre-retirement standards of living. Financial writer Jane Bryant Quinn states the view succinctly: “America’s retirement savings system has failed.” All the Democratic presidential candidates have proposed expanding Social Security benefits to address this “retirement crisis.”

But new data shed light on America’s retirement system, both how it compares with the systems in other countries and how retirement savings are developing over time. The results may surprise you.

On Dec. 1, the Organization for Economic Cooperation and Development (OECD) updated its Pensions at a Glance survey of retirement saving in more than 30 countries. The United States’ Social Security program is indeed less generous than most OECD countries’ plans. Americans who earn the average wage each year of their careers will receive Social Security benefits equal to about 35 percent of the current average U.S. income. Note that comparing a country’s retirement benefits with that country’s current average income is different from a “replacement rate” that compares retirees’ benefits with their own pre-retirement earnings. Nevertheless, these data show that while Social Security is comparable to retirement programs in Britain (30 percent) and Canada (33 percent), it’s still below the OECD average of 53 percent.

But retirement income security is about more than just government benefits. It also includes private retirement saving and work in retirement, where the United States does very well. The total incomes of Americans age 65 or older are equal to 92 percent of the national average income, according to the OECD. The United States ranks 10th out of 32 OECD countries and above countries such as Sweden (86 percent), Germany (87 percent) and Denmark (77 percent). In absolute dollar terms, U.S. seniors have the second-highest average incomes in the world, behind tiny Luxembourg.

But what about working-age Americans? Hasn’t their retirement saving fallen? Using Federal Reserve and Social Security Administration data, I tallied the total assets Americans have built for retirement, including 401(k) and Individual Retirement Account balances and benefits accrued under traditional pensions and Social Security. As of 1996, the first year for which full data are available, Americans’ total retirement assets were equal to 2.7 times total personal incomes. By early 2015, retirement assets had risen to 4.1 times personal incomes.

In fact, the historical shift from traditional pensions to 401(k) plans has not reduced retirement saving, Boston College’s Center for Retirement Research recently concluded. It’s true that with 401(k)s, workers themselves bear the risks related to how their retirement funds are invested. But retirement saving is more widespread: More Americans have retirement plans today than did during the “golden age.” And unlike with traditional pensions, which pay a decent benefit only to long-term employees, members of America’s mobile workforce can carry their 401(k) plans with them as they change jobs.

Are some Americans falling short? Unquestionably, and retirement policy needs to help them. For instance, unmarried, less-educated women are far less likely to be financially prepared for retirement, in part because many fail to meet Social Security’s 10-year vesting period to qualify for benefits. Paying a universal minimum benefit to all retirees, which Social Security doesn’t currently do, would reduce old-age poverty caused by short working careers.

Likewise, many small businesses don’t offer 401(k) plans, due to the high fixed costs of establishing the plans. “Starter 401(k)s” with lower regulatory costs or multiple-employer 401(k)s could make offering retirement plans more affordable.

But massive Social Security expansions are unnecessary and unaffordable. Unnecessary because, as the OECD data show, when government retirement programs offer more generous benefits, households do less to prepare for retirement. On average, for each dollar of additional retirement benefits paid by an OECD government, households in that country generate 82 cents less in income through personal saving or work in retirement. Across-the-board benefit hikes would almost certainly result in lower retirement saving by middle- and upper-income households, which receive most of the benefit increases under expansion plans such as those proposed by Democratic presidential candidate Bernie Sanders.

Benefit expansions are also unaffordable. While the Democratic presidential candidates have promised expanded Social Security benefits, none have proposed plans that would enable Social Security to pay for the benefits it already has promised. That’s important, since Social Security’s long-term funding shortfall rose by 58 percent from 2008 to 2015.

The data show that the biggest retirement danger isn’t that Americans haven’t saved enough. It is politicians, both past and present, who promise Social Security benefits without paying for them. That’s the true retirement crisis the presidential candidates need to address.

Andrew G. Biggs, a resident scholar at the American Enterprise Institute, was principal deputy commissioner of the Social Security Administration from 2007 to 2008. He served on the Society of Actuaries’ Blue Ribbon Panel on Public Pension Plan Funding from 2013 to 2014.