Retirement planning is central to privatization debate

A panel of behavioral finance, economics, tax, and capital markets experts gathered recently to discuss a range of issues facing investors, including privatization of Social Security, tax reform, the national deficit, single stock concentration, capital markets performance, inflation, retirement readiness, and other personal finance issues. The panel was moderated by noted personal finance columnist Jane Bryant Quinn, and the dialogue was based on the results and implications of Eaton Vance's (Boston-based investment management firm) sixth annual survey, a detailed study of attitudes and practices about investing. Here are some of the key messages from the panel discussion that should be of interest to all Americans:

1. Too often, investors' self-assessments are overly exuberant. Eaton Vance's latest survey was no exception; retirement savings readiness, true diversification, and tax-smart choices were a few areas showing major gaps between perception and reality. But what investors do--not what they say--is more reassuring. For example, last year, two in three dollars being added to stock and bond mutual funds were captured by some kind of asset-allocation program. This secular shift away from 'shooting-the-moon' selections should protect the nation's retirement savings during the next bear market from again suffering hundreds of billions in losses, as it had experienced in the early 2000s. (Related article: Not all Americans are ready for the stock market)
2. Americans are increasingly required to make investment decisions that will determine their security and comfort in retirement. The trouble is many Americans lack an elementary understanding of sound investment practices, as the results of the Eaton Vance survey illustrate. If we are to become a nation of investors, we need to teach people basic investing principles early in life and implement retirement plans designed to encourage sound investments and adequate savings. (Related article: Basics of 401(k))
3. Social Security is not in crisis, but saving is. Americans just don't save enough, either individually or as a nation. Instead, we are consuming beyond our means, running up huge debts to foreign nations and endangering our economic future. To fix this problem, we need to cut the federal deficit, add individual accounts on top of social security, and shift more of the tax burden onto consumption.
4. Within the next several years, the confluence of three events will require policy makers to make some of the most important fiscal and social policy decisions of our time: the beginning of the retirement of the baby boomers, the application of the alternative minimum tax to some 40 million middle-income individuals, and the potential expiration of over a trillion dollars of individual tax cuts. Policy makers will be forced to rein in the growth in entitlement spending and identify alternative revenue sources.
5. Surveys suggest there is a wonderful opportunity for investment professionals to add value by helping clients with investment and tax basics. 24/7 availability of financial news and now several years of improved disclosure and new regulations have done little to save typical investors from themselves. If given to our children before they enter the work force, a "No Investor Left Behind" course that covers some basic principles to follow and potholes to avoid could improve each investor's chance of lifetime success.

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Source: Eaton Vance