jump to navigation

What, me worry….?? April 22, 2015

Posted by forwardfinancialplanning1 in Retirement Savings.
Tags:
add a comment

Those words were memorialized by Mad Magazine in my youth, but it’s a very good synopsis of the approach many Americans are taking to preparing for their retirement. The non-profit Employee Benefits Research Institute (EBRI) conducts an annual survey of Americans’ retirement confidence.  The 25th annual Retirement Confidence Survey found that 37% of workers are “very confident” of their ability to achieve a comfortable retirement and 36% are “somewhat confident”.  The 37% reading for “very confident” represented a doubling of the percentage reporting similar confidence in 2013.  Certainly, the financial markets’ performance during this time period made a positive contribution to this increase

But are these increases warranted?  Not so, according to Jack Vanderhei, Research Director for the EBRI who stated, “There’s probably a lot of false optimism, there.”  And when you look at the hard data supporting Jack’s belief, it’s pretty easy to agree with him.

For instance, 57% of workers report that the total value of their household savings and investments (not counting home equity and any defined benefit pension entitlement) was less than $25,000.  Of that group, 28% have saved less than $1,000.  Older workers fare somewhat better with 23% aged 45 and older reporting accumulated retirement assets of $250,000 or more.  Yet, for those holding $250-300k as available for retirement, the traditional 4% withdrawal rule of thumb suggests that they will be generating less than $1,000 per month on a sustainable basis.

When one also considers increasing medical costs, the financial predicament of Medicare and long term care costs (the majority of which are not covered by Medicare), it’s hard to be as optimistic as the “confident” respondents.  Vanderhei did not suggest any explanations, but my professional opinion is that most people never take the time to forecast “their number” needed for a successful retirement.  In our planning business, most people tell me that they simply “guessed” at a figure, or never bothered to try to make such an estimate.  And as the famed philosopher, Yogi Berra once said, “If you don’t know where you’re going, you might wind up somewhere else.”

Advertisements

Tax Refunds April 20, 2015

Posted by forwardfinancialplanning1 in Retirement Savings.
Tags:
add a comment

The 22nd quarterly Allstate/National Journal Heartland Monitor poll of 1000 adults recently uncovered some data that tells us a great deal about human behavior and one’s attitude about “financial windfalls”.   Respondents who said they have poor credit scores are more likely than those with excellent credit scores (46% to 33%) to agree that a tax refund should be used for a “fun purchase”. Likewise, this same group would rather buy something for themselves or a loved one than pay off debt (51% vs 20%).  Finally, 39% of the low credit score group consider a tax refund check as a bonus to be used to buy something for themselves as opposed to paying off debt.

One has to wonder if it is this same approach to personal finance that has led to four in ten baby boomers reportedly not having saved anything for retirement?

Maybe we just elect the D students???? April 3, 2015

Posted by forwardfinancialplanning1 in Economic Conditions, Financial Planning.
add a comment

Read a recent study by WalletHub which caused me to chuckle at some of its implications. WalletHub claims to have a methodology that ranks each of the fifty states in terms of financial literacy. Lo and behold, the fiscal train wreck known as Illinois came in seventh in the ranking. Here are the measures (and Illinois’ score) that WalletHub used to arrive at its conclusions. “Knowledge and Education Rank”-14th; “Planning and Daily habits Rank”–8th; “Percentage of people who spend more than they make”–18%; “Percentage of people with a rainy day fund”–45% “Percentage of unbanked households”-7.4%; “Champlain University High School financial literacy grade”–B; “High School drop-out rate”-2.4%

Now my purpose here is not to throw stones at WalletHub’s intent. However, one could reasonably surmise that a state with such outstanding financial literacy skills should be a model for fiscally responsible government. After all, the government of the state is populated by these same, seemingly qualified residents. Well, then how do you explain Illinois being dead last in credit rating and degree of public sector pension funding? Likewise, would a financially literate government have a $6 billion backlog of unpaid bills?
Either WalletHub’s methodology is flawed, or perhaps we only elect the financially illiterate among us.