Screams from a Burning Theater: Jeremy Gold on the Retirement Crisis

Jeremy Gold, a long-time advocate for pension fund reform, passed away this month. Reading his obituaries in The New York Times and Wall Street Journal, I was struck by how he connected his concern for the poor liability estimation of pension funds with a passion for protecting the future of his profession. “Where are the screaming actuaries yelling in these burning theaters?” he asked.

He understood that if his profession didn’t measure up, it would ultimately be of no further use.

This resonates with the larger call for the finance industry to measure up: the need for us to do better and consider what it means for our sustainability as a professional practice if we don’t.

Inspired, I went looking for Gold’s publications, and I found that he and Richard Bookstaber had co-authored “In Search of the Liability Asset,” a piece from 1988 that was reprinted in a brilliant retrospective edition of the Financial Analysts Journal on retirement in January/February 2015. The article was born out of a defined benefit (DB) world and epitomized Gold’s activism. But it has continued relevance to all retirement planning today and reemphasizes the need for savers to meet their whole economic liability in retirement. The 2015 issue also featured Don Ezra’s 2007 tale of the destruction of DB funds. It is worth reading again and asking how we are measuring up after these authors yelled in our burning theater nearly four years ago.

“After 70 years of fruitful research, why is there still a retirement crisis?” Larry Siegel asked in the opening editorial of this issue. Why have we continued to struggle with the problem of funding lifetime income and why, with all the necessary equipment and knowledge at our disposal, are retirees and savers in the worst shape ever?

Fast forward to 2018 and retirement insecurity remains our #1 challenge, according to Charles Ellis in the lead article of the forthcoming edition of Financial Analysts Journal (Spoiler alert: This piece will be available on our member app late in August). The 2015 retrospective includes such related gems as “What Practitioners Need to Know about Time Diversification” by Mark Kritzman from 1994, and the late Peter Bernstein’s 1997 piece, “What Rate of Return Can You Reasonably Expect?” in which he famously warned of the difference between optimistic and “tooth fairy” estimates of the equity premium. These two retrospective articles will complement “Volatility Lessons,” by Eugene Fama and Kenneth French, which will be available on our member app at the end of July.

Gold wasn’t the only one calling for activism back in 2015. Keith Ambachtsheer advocated for a “pension revolution” and Zvi Bodie’s influential arguments on life-cycle investing were reprinted as were selections addressing annuities, spending, and tax-sensitive allocation.

As a whole, that 2015 issue is a phenomenal slice of the intellectual history of retirement and lifelong savings, and I encourage you to do a little “retro-reading” and introspection to consider how we’ve measured up since.

Siegel listed a number of challenges to retirement security in his 2015 editorial. For one, investors tend to save too little and live too long. Financial literacy may help remedy this, but the history of our concepts of work and retirement have changed more than our planning has. We continue to design retirement savings for a work life terminating at an age that was appropriate for a small cohort back in 1889 but for very few people today. Longevity risk is no longer a surprise. But are we planning accordingly and are we ready yet for the millennial retirement planner?

Among the other challenges Seigel identified were lackluster markets, poor investment decisions, high agency and investment costs, ill-advised taxes and regulations, and poorly defined property rights. I’m encouraged by the many forms of activism that finance professionals have embraced that directly speak to these challenges and, certainly, whatever work we do to improve financial literacy, investment decision making, and legislation across the globe benefits all, future retirees in particular.

But it remains critical, as Jeremy Gold’s example makes clear, that we continually hold up a mirror and ask ourselves both individually and collectively whether our contributions to solving the retirement crisis and serving our clients truly measure up.

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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

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