Rethinking Retirement – A Conversation With David Conover

Rethinking Retirement – A Conversation With David Conover

November 11, 2013 Good Reads 0 Comments

The notion of retirement is changing for the current generation of workers nearing retirement, and will likely be even more different for future generations of retirees. The age of retiring with a comfortable pension plan and supplemental social insurance appears to be disappearing.

In 1987, 73% of employees were provided access to a defined benefit (DB) pension plan for retirement. By 1998, that figure dropped to 45%, while today only 31% of employees ages 25 to 34 years old have access to a company-sponsored pension plan.1 Although the current aggregate funding status for U.S. pensions has improved over the past year based on lower interest rates and equity market appreciation, pension plans sponsored by S&P 1500 companies still remain underfunded by $182 billion as of September 30, 2013.2

The Social Security Administration began paying out more in annual benefits than it collected in taxes during 2010.3 The Congressional Budget Office now estimates that the Social Security Trust fund depletion date, when the Social Security Administration loses the legal authority to pay full benefits when they are due, is now expected to be in calendar year 2031,4 three years earlier than last year’s estimate.5 For individuals looking to retire over the next 18 years, the ongoing deterioration in Social Security solvency may be expected to affect retirement benefits.

At the same time, retirees and near-retirees are facing a challenging income environment for their investments. Federal Reserve monetary stimulus initiatives have taken interest rates to exceedingly low levels on the highest quality bonds and certificates of deposit, thereby providing less low-risk income potential for investable assets. Increasing Federal debts and ongoing deficits may eventually affect entitlement expenditures directly, as well as indirectly through a decline in purchasing power from U.S. dollar depreciation and potential inflation.

Taking Back Control of Retirement
Through need or by desire, the American worker is beginning to take more ownership for the planning, saving, and investing of their individual retirement needs. Whether an individual is a self-directed, do-it-yourself investor or someone looking for a complete solution to the management of his or her assets, it is advisable to get advice from someone who has experience in helping individuals plan for retirement. That’s why we recently sat down with David L. Conover, President and Chief Executive Officer of EverBank Wealth Management, Inc.6 and EverTrade Direct Brokerage, Inc.7, to hear his views on the changing retirement environment and how these entities are providing retirement guidance and support for their clients.

David has over 35 years of experience in the trust, retirement, and financial services industry. He has also served as a Senior Vice President and Director of EverBank Advisor Services since 2005. Prior to joining EverBank, David was a Director with Merrill Lynch, and Senior Vice President of Merrill Lynch Trust Company. Suffice it to say, David has a career of experience in working with retirement strategies.

The Face of Retirement in the U.S.
Although recognizing the advantages to individual investors beginning to take on more responsibility for managing their retirement assets, David points out that, in aggregate, the current statistics for American workers indicate that most individuals are startlingly unprepared. While individual circumstances such as years of likely retirement living or spending patterns will clearly vary with respect to defining how much an individual will need to retire, industry benchmarks can range from 8 times8 to 11 times9 an individual’s ending salary in order to generate 85% of preretirement income. Using the 2012 median U.S. household income of just over $51,000,10 this would equate to an average nest egg between $408,000 and $561,000 in order for the median U.S. worker to possibly retire comfortably at age 65.

Based on annual research conducted by the Employee Research Institute,11 the average level of retirement assets is currently well below these benchmarks. In fact, 28% of survey respondents indicated that their total savings and investments was less than $1,000, and 57% of respondents had less than $25,000 saved, excluding the value of primary residence or pension plans (Figure #1). Conversely, only 12% of the respondents indicated that they had more than $250,000 in savings and investments for retirement. The research is consistent with a similar study by the U.S. Federal Reserve indicating that the average retirement balance for the 55 to 64 age group having assets in a 401K is around $100,000.12


Figure 113ACQ0001-44-01(Click here to view a larger image.)

David views the first critical step in taking ownership and responsibility for retirement freedom is to evaluate the answer to a handful of questions:

  • At what age would you like to retire?
  • What are your life aspirations and long-term goals?
  • What is your investment philosophy and capacity for risk?
  • How does your current balance sheet look in terms of both assets and liabilities?

By answering these questions, an investor can begin to formulate a strategy for saving, investing, and diversification that can better bridge the gap between current resource allocation and future retirement aspirations.

Implementing a Sound Retirement Plan
Although building a retirement strategy is something many investors can accomplish on their own, David feels it is wise to seek the counsel of a financial advisor who is experienced in facilitating these oftentimes perplexing concepts. Some investors may have unrealistic expectations with respect to attaining certain lifestyles, or may misperceive the nuance between tolerances for risk with a capacity for risk. In each of these cases, a frank discussion with a professional advisor can help guide the investor in defining an investment strategy that meets with pragmatic objectives.

Whether an investor chooses to manage the investment strategy on their own or with professional assistance, David believes that investing is about meeting liabilities and managing multiple risks through a broadly diversified portfolio of asset classes. A broadly diversified portfolio should be a balance of investment risk using asset classes such as global equities and bonds, commodities, currencies, and other alternative sources of return in order to provide an expected return profile with a level of volatility commensurate with an investor’s capacity for risk.

Quite often, these divergent assets may be in investment classes that may not appear to offer the most alluring return profile, but nevertheless provide overall portfolio diversification benefits through non-correlated returns. When EverBank Wealth Management was initially launched in 2011, David recalled a handful of prospective clients insisting on portfolios without U.S. equity market exposure. While at the time exposure to the U.S. equity market appeared uncertain given deficit spending and federal debt accumulation, investors eschewing U.S. equity markets over this period would have neglected an asset class that has appreciated at an annualized rate in excess of 15% over the past three years.13

David points out that the average U.S. investor’s track record for timing the market has not been stellar over the past two decades; a period of admittedly volatile equity performance characterized by investment bubbles, international unrest, global economic recessions, and extraordinary monetary intervention. One particular quantitative study shows that the “average” U.S. investor performance over the 20-year period ending in 2011 has been just above 2% per year, modestly worse than the U.S. headline inflation rate over this period and below the annualized performance of a broad set of global asset classes (Figure 2).


Figure 213ACQ0001-44-01(Click here to view a larger image.)
The study may not be representative of all U.S. investors as the analysis was performed to quantitatively measure investor behavior using monthly aggregate mutual fund sales, redemptions, and exchanges in order to calculate an average performance for a typical U.S. investor, but the conclusions are nevertheless startling. The results seem to show that market timing and asset class selection can be a difficult strategy to maintain over long periods of investment performance due to investor behavioral biases. As David would simply state, “That is not investing…that is speculation.”


David believes that the most effective means of managing investments for an individual’s retirement requires a strategy of risk diversification using multiple asset class selections to provide the greatest opportunity to reach retirement goals, with a level of volatility commensurate to an investor’s capacity and tolerance for risk. The same way that institutional endowments, foundations, pensions, and insurers have managed investments in meeting future goals, obligations, and liabilities for the past 30 years.

EverBank Wealth Management6 has been providing discretionary managed solutions for investors looking to diversify core wealth investments, as well as offering distinctive managed products to help clients diversify with currencies, income, and alternative investments. For do-it-yourself investors, EverTrade Direct Brokerage7 provides a trading platform for clients to execute their individual diversification strategies, with access to global equities and bonds. And, of course, EverBank World Markets offers clients the capacity to transact both currencies and commodities for their individual accounts. It all starts with a conversation.®

From all of us at EverBank World Markets, we would like to thank David for sharing his time and expertise, and for helping us all put a little more thought into rethinking retirement.

Until the next Pfennig…

EverBank World Markets, a division of EverBank

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