Retirement Saving: Excuses and Regrets

U.S. workers have a long list of reasons, many of them legitimate, for why they can’t come up with the money for a retirement savings plan.

But here’s the rub: we live in a 401(k) world. Workers who aren’t convinced of the urgency of saving should listen to people who have already retired.  Even though many current retirees have defined-benefit pensions, they have become largely unavailable to most people still working today. And these retirees say they’ve learned the hard way that saving is key.

Excuses now and regrets later – these two takeaways came out of a nationally representative survey of workers and retirees by HSBC, a global financial institution.

Chart: Why It's Hard to Save

Saving for retirement is not a major priority for 81 percent of the workers surveyed. The chart shows that saving takes a back seat to myriad other financial concerns, topped by the impact of the global economic downturn and the U.S. job market.

Things are much clearer to retirees.  Nearly half of them, when asked for the latest age at which people should start preparing to retire, said before 30.  Many retirees – about two out of five – said “they did not realize that their preparation had fallen short until it was far too late.”

Whatever obstacles they face, the question facing workers is: what can they do to save or save more? …Learn More

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Winging It in Retirement?

Saving should be the centerpiece of any retirement plan today.  But a new survey indicates that many Americans on the cusp of retiring have given little thought to the other key issues they’ll face in retirement.

A majority of older Americans recently surveyed by the American College of Financial Services, an educational organization for financial professionals, said they have set a goal for how much money to save to “live comfortably” as retirees.  And, when asked to assess their own progress, they feel they’re doing a good job of it.  Granted, the survey was limited to a select group of about 1,000 people over age 60, all of whom have at least $100,000 in investable assets.

But the financial risks posed by the transition away from full-time work and a regular paycheck are complex and continual – and preparing for them goes well beyond contributing to a 401(k).

Only a minority of people planning their retirement take into account these important financial issues: …Learn More

Photo of a college campus quad

Many in Dark About Their College Debt

A recent Brookings Institution report confirms for the first time how severely uninformed many college freshman are about the impact of the debts they’re taking on to fund their education.

This isn’t entirely surprising. But with tuitions continually rising and students now often forced to borrow the equivalent of a house down payment by the time they graduate, the Brookings findings should serve as a wake-up call:

  • Half of the full-time freshmen surveyed “seriously underestimated” how much they were borrowing.
  • Among students known to have federal college loans, four out of 10 either said they didn’t have any federal loans or didn’t have any debt at all.

According to the report, “Students who do not have a good idea of their level of borrowing may make expensive mistakes that they will later come to regret.” …Learn More

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How to Think About Self-Control

“Self-control” is a catch-all label for resisting all sorts of temptations, including overspending. According to a new study, controlling overspending can be broken down into three distinct behaviors:

• Setting goals such as buying a house or saving money.
• Monitoring bank statements to systematically track where your money goes.
• Committing to the goal in the face of short-term temptations to spend.

Data for the study came from a nationally representative U.S. survey of households over age 50. The survey has extensive information about the households’ finances and about each individual’s resolve to set goals, track their finances, and carry out their commitments – whether financial or non-financial.

Households lacking self-control disproportionately have lower net worth – no surprise there. The largest effect is on their liquid financial assets, such as checking and savings accounts and IRAs. Impulsive consumption “is more likely to have an immediate impact on liquid holdings than on illiquid assets,” such as property, said the researchers, who are from Goethe University in Frankfurt.

More interesting is their analysis of the role played by self-control’s three individual components.  The study found that the third ingredient – the ability to stick to commitments – draws the darkest line between success and failure in accumulating net worth.

But the researchers also divided net worth into “real wealth” – homes, other property, or vehicles – and financial wealth, which is more easily liquidated than property. Commitment again proved most important in determining whether people own property. But when it comes to accumulating financial wealth, monitoring one’s finances plays the largest role.

Everyone talks about self-control. This study clarifies what it is.
Learn More

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Curbing Debt: It’s Not What You Know

The biggest financial hurdle facing workers with low incomes is just that: inadequate income to meet their daily needs.

Low-income households are further tripped up by their greater tendency to borrow at high interest rates – rates they are the least able to afford in the first place.

Some academic research blames this on poor financial literacy.  But a new study out of Northern Ireland examines two separate aspects of financial literacy and finds the problem is not a lack of knowledge but rather an absence of money management skills.

Among “financially vulnerable” people, the study concluded, “money management skills are important determinants of consumer debt behavior” and “numeracy has almost no role to play.”

The study involved researchers conducting one-hour, face-to-face interviews in low-income neighborhoods in Belfast. They interviewed 499 people whose average gross earnings were the equivalent of $567 per week or less. …Learn More

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5 Signs of Financial Impairment

In a videotaped experiment testing her financial cognition, an elderly woman must prepare three utility bills for mailing. She’s seated at a table holding the bills, along with three filled-out checks, and three envelopes – each with one utility’s name on it.  After considerable effort and confusion – checks paired with the wrong bills; bills placed into the wrong envelopes and taken back out – she finally finishes her task.

New difficulty carrying out simple financial tasks or understanding financial concepts that were once familiar can be warning signs of cognitive impairment due to aging, early stage Alzheimer’s or other causes, said Daniel Marson, a neurology professor and director of the Alzheimer’s Disease Center at the University of Alabama, Birmingham.

Financial skills are “the canary in the coal mine from a functional standpoint,” he said. “When you are seeing new problems in the checkbook or arithmetic errors, those are signs of an emerging disability.”

Driving, for example, may not be affected as much early on, because it relies more heavily on motor memory. “You don’t have to think about making a right turn or signaling,” he said.

The chances of having Alzheimer’s disease are slim for most older Americans; only one in nine do. Forgetting to pay a bill is more often just a sign of a bad day, and the inability to balance a checkbook or understand investments is not a warning sign if the person was never able to do so. To gauge whether the cognitive ability of a loved one or client may be in decline, the benchmark should be what he or she was able to do financially in the past – and whether that’s changed over time.

At a recent symposium, “Financial Planning in the Shadows of Dementia,” Marson provided five financial warning signs, developed from his clinical work and research as a neuropsychologist. The warning signs are: …Learn More

How Emotions Meddle with Money

Our 401(k) retirement system requires most workers to save for the future. But it’s difficult to reach this increasingly important goal, because our emotions – overconfidence, pleasure, fear of loss – get in the way.

“We believe our own nonsense,” is how Daylian Cane, a professor in the Yale School of Management, explains financial behavior in a new public television program, “Thinking Money: The Psychology Behind our Best and Worst Financial Decisions.” The short video above is taken from the program.

Further clouding our judgment are a vast array of consumer products, and the stress produced by how easy it is to purchase them with a credit card swipe and how hard it is to pay off the cards.

“Thinking Money,” a production of Maryland Public Television, covers many topics covered by this blog, including help for people trying to overcome their emotional obstacles.

“Thinking Money” is scheduled to air in its entirety on public television stations around the country in coming weeks.  Click on “Learn More” for a list of broadcast dates in major cities. …Learn More

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