The Savings Industrial Complex

In 1961 President Dwight Eisenhower gave his famous farewell address, warning about the military-industrial complex and the proclivity of monied groups to wield their interests to promote war. There exists other [fill in the blank] industrial complexes, where excess is promoted in the name of public good but a net sink to the public as a whole we see this in many forms. Medical, Universities, Prison, Food, Savings.

In investing and savings there are bars that are too high of a standard. The P90X1A famously intense exercise program from 10-15 yrs ago. of finance is often too much of a hurdle for most people290 days of hellish workouts to transform your body–drop out rates were high. “Save 20% and max out all your tax-advantaged accounts” is the equivalent. Most don’t max out their 401ks. The typical contribution is 6-10%3Vanguard’s 2021 Study: How America Saves. At a $60,000 per year salary, that’s less than 20% of your way to maxing out your 401k. Save as much as you can or parish is a model for many. The investment industry, 401k managers, employers, and others don’t want people to leave or start businesses; they want the slow trickle of passively invested money, with basis points taken off the top, with guilt about not being ready, not prepared enough, and a pittance paid to holders of cash accounts. Guilt and inadequacy are not the best motivators. Just 3-4 days of modest physical activity and sensible eating are enough. 

You don’t need P90X intensity or its investing parallel intensity to win or feel good about yourself. Savings and investing, of course, are a good thing; rainy days come and compound interest’s miracles are real, but baby steps count for a lot. Modest amounts saved, and savings and investing outside a 401k work too. IRAs exist. So do HSAs. We don’t always need the velvet handcuffs of employer solutions to guide us or to scare us into thinking we won’t have enough to retire. 

Fidelity and others use $300,000 as the number needed for healthcare costs in retirement for a couple. One problem: It’s too large for people to digest; it’s also a future value number, like saying your $500,000 home will cost you $1.2M with interest. That’s unfair since it includes future dollars which will have depreciated. It’s more effective to say at 65 you need $500 per month for premiums and out-of-pocket costs. Consumers can think in this annuitized way, we meet you where you are…doing something is enough. The savings industrial complex also discourages you from investing your health savings. Firms make more money on the yield spread when it sits in cash. Only 5% invest HSA balances, the rest earn a typical 10 basis points, or 1/10 of 1%, watching passively as inflation erases purchasing power. 

Subtle, small, and continuous contributions can hedge healthcare out-of-pocket costs in retirement. $200 per month goes a long way. Our analysis based on a proprietary model of 3 years of continuous claims data show how modest costs are. Costs for a 45-year old male with $25,000 saved in an HSA, and a modest 5% real investment gain per year, amount to a pot of $133,000. Enough to take distributions from without touching the principle. You could do it for much less than the $300,000 sticker shot. We frame it as $200 per month now, not $150,000 per person at 65.

Enough nuts can be squirreled away even without “only drinking coffee at home” type behaviors, or even large deposits. But the investing part and its compounding are a big part.  

We work with clients with larger balance HSAs, retirement accounts, and other assets, to invest methodically, over time, alongside us, with the same allocation. We buy pieces of businesses (not tickers) and we wait. We’d love to help you more rationally invest.

Photo by Scott Rodgerson on Unsplash

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