I was reading the business section of my Sunday New York Times yesterday (yes, I still get a physical paper delivered once a week) and this front page story grabbed my attention: For Retirees, a Million-Dollar Illusion. It was all about the problems that retirees are having today because of the extremely low yields on fixed income investments.
Even relatively wealthy retirees with a $1 million nest egg are in serious risk of running out of money. From the article:
But consider this bleak picture: A typical 65-year-old couple with $1 million in tax-free municipal bonds want to retire. They plan to withdraw 4 percent of their savings a year — a common, rule-of-thumb drawdown. But under current conditions, if they spend that $40,000 a year, adjusted for inflation, there is a 72 percent probability that they will run through their bond portfolio before they die.
That is indeed bleak. What these retirees need is a stable and consistent high yield investment. If inflation is running at 3% and they are withdrawing 4% annually then what an investor needs is a 7% return in order to never run out of money. Now, 7% today is a pipe dream for many investors but readers of this blog know otherwise.
But we need to get to a much larger scale. We don’t just need Lending Club and Prosper to keep growing we need many more options in this space. We need more consumer loan platforms, small business platforms, real estate platforms, auto loan platforms and student loan platforms. We need to be able to have tens of millions of investors not just the 100,000 or so we have today.
Now, I am trying to do my part to grow this fledgling industry with this blog and the LendIt Conference. But I encourage everyone to keep spreading the word. The huge number of baby boomers hitting retirement age need better options than they have today.
Peter Renton is the chairman and co-founder of LendIt Fintech, the world’s first and largest digital media and events company focused on fintech. Peter has been writing about fintech since 2010 and he is the author and creator of the Fintech One-on-One Podcast, the first and longest-running fintech interview series. Peter has been interviewed by the Wall Street Journal, Bloomberg, The New York Times, CNBC, CNN, Fortune, NPR, Fox Business News, the Financial Times, and dozens of other publications.