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Mom was right…………. September 24, 2015

Posted by forwardfinancialplanning1 in Financial Planning, High Yield Bond Funds, International Equity Funds, Investing-General, Large Cap Growth.
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There was no shortage of parental wisdom in the household of my youth.  And, while neither of my parents had an abundance of formal education, growing up in the Great Depression had taught them many important life lessons.  My mom would frequently remind us to set aside and save some money “for a rainy day.”  It’s a shame that so many Americans failed to learn these important financial axioms.

I’m basing this lament on some recent data released from a survey by bankrate.com.  They found that 30 million Americans had tapped retirement savings in the last 12 months to pay for an unexpected expense. Baby boomers were the most likely age grouping to have done so as some 26% of those aged 50-64 answered that their finances had deteriorated and 17% had used a 401k or similar retirement savings account to pay for an emergency expense.

Some years I spent in the in-bound call center of a major 401k plan administrator also reinforced this message.  Three fourths of the calls we took were to assist a plan participant who was originating a 401k plan loan to themselves.  Likewise, many calls were for “hardship withdrawals” which do even greater damage to a participant’s retirement preparation.  Many callers would comment that they “had to do it because of an unforeseen emergency” such as a car repair, a leaky roof or what have you.  I can remember several poor souls who paid a $100 loan origination fee (levied by their employer) to borrow $1,000 from their balance.

PEOPLE!!!!  —–Cars are going to have problems, roofs are going to leak and kids are going to break their  eye glasses.  These shouldn’t be surprises in life but rather they are certainties……………..the only surprise should be the form in which the emergency will take.   Emergency funds should be in place for emergencies!!!


Why won’t people ask for help?? June 23, 2015

Posted by forwardfinancialplanning1 in Financial Planning.
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As a financial planner, it never ceases to amaze me when I consider the number of people who are approaching retirement without having ever done any analysis.  Many Americans are simply floating along day-to-day and have never taken the time to consider two fundamental questions regarding their preparedness for retirement.  (1)  Do I have enough financial resources to retire? and (2)  What will I do with my time in retirement?

A recent study puts this into perspective for the academic niche that TIAA CREF serves.  The TIAA CREF Faculty Career and Retirement Survey grouped respondents (all were age 50 or older) into three categories: (1) “Traditional retirees”—those planning to retire at normal retirement age (comprising 35% of respondents).  (2) “Reluctantly reluctants”–those who want to retire at normal ages, but expect to be working longer (16% of respondents) and (3) “Reluctant by choice”–those who simply expect to work past normal retirement ages (49%)

One of TIAA-CREF’s most perplexing findings is that of the “Reluctantly reluctants”, 50-67% had never done any analysis.to determine if they were financially capable of retiring.  Likewise, of the “Reluctant by choice” group, 60-90% had never engaged in any serious consideration regarding how they would use their time in retirement.

We need to  also keep in mind that these survey respondents are some of the most highly educated people in the country!  Yet, so many don’t t attempt to answer those two fundamental questions or seek help in finding the answers.  One can’t help but be reminded of the famous Yogi Berra quote,  “If you don’t know where you are going, you might wind up somewhere else………..”

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

Posted by forwardfinancialplanning1 in Economic Conditions, Financial Planning.
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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.

“You don’t know what you don’t know…” December 4, 2014

Posted by forwardfinancialplanning1 in Annuities, Financial Planning, Retirement Savings, Retirement Spending.
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One of my best friend’s favorite euphemisms is, “you don’t know what you don’t know”. He is generally using this to describe peoples’ “clueless” behavior in various situations and circumstances. While his frequent utterances usually give us something to laugh about, a recent study by the American College is no laughing matter.

In the Retirement Income Literacy Survey, researchers found that respondents posted an average score of 42% on the 38 question quiz and only 20% achieved a passing grade of 60% or better. Despite this demonstrated lack of knowledge, 97% of survey participants rated themselves as either “knowledgeable” or “somewhat knowledgeable” about saving for a comfortable retirement.

The results of the entire research project can be found at:
http://www.theamericancollege.edu/ricp-retirement-income-survey/index.php ).

Who’s responsible for this situation? November 26, 2014

Posted by forwardfinancialplanning1 in 401k plans, Financial Planning, Retirement Savings.
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Numerous articles have been written about how grossly underprepared Americans are for their future retirements. Is it the individual’s lack of discipline in saving? Or, do we point the finger at poorly designed employer sponsored retirement plans?

A recent study by the LIMRA Secure Retirement Institute reveals how employers make this call. The research found that a third of employers give their retirement plans a grade of “A” and 46% give their plans a “B”. However, only a quarter of employers give their employees’ savings habits an “A” and 36% give their employees a “B”. A grade of “C” was given to employees 29% of the time, a “D” grade 8% of the time and an “F” grade 1% of the time.

The research study was conducted in late 2013 and early 2014. More than 1,500 plan sponsors were interviewed.

Has day-to-day complexity overwhelmed our ability to adapt? November 14, 2014

Posted by forwardfinancialplanning1 in Financial Planning, Health Insurance, Personal Budgets, Retirement Savings.
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Those who study evolution stress that the species that survive are not always the strongest, but rather, the species that can best adapt to change. One has to wonder if “a failure to adapt” is at work in present day America.

Being a child of the 1950’s I can’t help but reflect back to the financial/health care world in which I grew up. My parents did a respectable job of providing for us, without needing to know a single thing about IRA’s, 401k’s, variable annuities, Health Maintenance Organizations or insurance company pharmaceutical formularies. But, in order to thrive in the USA of 2014, learning about these and other financial/health care concepts is an essential survival skill, This blog has often lamented about the abysmal state of financial literacy in today’s working age population. A recent Kaiser Foundation study has provided me with similar concerns regarding health insurance literacy.

The Kaiser Foundation found that given appropriate data, only 16% of respondents could accurately calculate out-of-pocket costs for an out-of-network lab test. Only 33% could define a formulary while just 51% could calculate out-of-pocket costs for a hospital stay. Further, only 72% could define a health care deductible and 76% could define a health care premium. Since only 4% answered all ten survey questions correctly, it’s probably safe to say that a lot of mistakes and poor decisions are being made in this facet of day-to-day living.

So my question arises once again, “Has the complexity of our modern financial/health care world exceeded the general population’s ability to learn and adapt???”

General mistrust or a “do-it-myself” trend October 11, 2014

Posted by forwardfinancialplanning1 in Financial Planning, Investing-General, Retirement Savings.
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A recent Fidelity Investments study of Millennials may pose more questions than it answers. In particular, the Millennial Money Study found that 23% of millennials stated that they trust “no one” when it comes to financial advice. In addition, 41% disagreed with the statement that, “my parents provided a good example of how to have a successful financial future.” And, 49% don’t get financial advice from their folks.

This blog has often commented on the abysmal state of financial literacy in the United States and these findings raise the question: “Where will these young people go for advice?” In a best case scenario, they’ll take the initiative and acquire the knowledge to become self sufficient in this area. After all, this is is not rocket science. In a worst case scenario they’ll look to the government to take care of them, which will superimpose their problem on our society as a whole. The future collective financial health of the nation may depend on the answer.

Yogi was right September 10, 2014

Posted by forwardfinancialplanning1 in 401k plans, Financial Planning, Retirement Savings, Roth IRA, Traditional IRA.
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New York Yankee icon Yogi Berra is as famous for his euphemisms as he is for his stellar performance on the baseball diamond. One of my favorite “Yogi-isms” is the following: “If you don’t know where you’re going, you might wind up somewhere else………..”

Yogi had it pegged as it relates to retirement planning. Far too many people never take the time to estimate (or request assistance in estimating) the amount of money they will need to accumulate to cover the costs of their prospective retirements. A recent study by Security Benefit quantifies this planning shortfall. It found that 66% of Gen X and Gen Y workers (born between 1965 and 1992) have not estimated the amount they’ll need to accumulate for a secure retirement. This situation persists despite the fact that 90% of the respondents said that saving for retirement was an important goal, and 88% said it was important to maintain their desired lifestyles in retirement.

Only 19% work with a financial advisor, so it’s not surprising that they are moving forward without having taken the important first step of asking, “Where am I trying to go?”. However, it was quite surprising that only 12% prefer to save with a company that they found on the internet and just 18% would go on-line for advice on how to save more.

I wonder what Yogi has to say about overcoming inertia???

“You can’t fix stupid….” August 7, 2014

Posted by forwardfinancialplanning1 in 401k plans, Financial Planning, Retirement Savings, Retirement Spending, Roth IRA, Social Security, Traditional IRA.
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I’ve heard people mutter these words many times over the years, but always felt that they were a bit too fatalistic. After all, everyone has the capacity to learn, although the inclination and motivation to do so may be lacking. However, after reviewing a section of the Federal Reserve’s Report on the Economic Well-Being of the U.S., I’m starting to think there’s some truth to such a cynical adage. When asked how they and their spouse will pay for expenses in retirement, an incredible one quarter of all respondents and 14% of those aged 45 and greater chose the answer, “I don’t know.”

I mean, at least they could have said, “winning the lottery……”

Maybe the problem is foundational……….. April 16, 2014

Posted by forwardfinancialplanning1 in Financial Planning, Investing-General, Retirement Savings.
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I’ve read two articles today which commented on the failure of financial education efforts in this country. Dennis Ackley, a retirement education consultant in San Diego lamented, “Today, 401k education is the largest failure ever of adult education.” A second release entitled, “Financial Resources and Engagement Study” compiled by Genworth Financial Inc. observed, “While Americans recognize that becoming more financially savvy strengthens their chances of saving more for retirement, relatively few are taking steps to improve their understanding of financial matters.”

Ackley feels that the biggest mistake has been using financial industry experts to deliver 401k education rather than adult learning specialists. Barbara Nusbaum, a psychologist and money coach commented on the Genworth study and noted that many feel overwhelmed by the complexity of financial products or about the amount of time needed to improve one’s financial knowledge.

Both articles struck me as missing a more fundamental shortcoming which is surely at the root of the problem—–the failure of our nation’s school’s to impart basic numerical survival skills!! Ackley adds, “Naturally, people in the financial industry are ‘numbers oriented’. Yet many participants who attend 401k meetings are innumerate.” However, financial returns HAVE TO HAVE NUMBERS—how else are you going to measure anything!?!?? And, how can we expect adult learning experts to be any more successful when our nations “child education experts” have failed so miserably.

I say we focus where the financial literacy problem begins—in our public schools.