With so many Americans in the dark about how to prepare for retirement, educating them about why it’s critical to save seems an obvious way to tackle this problem. But very few solid studies prove that financial education actually works.
This field research should be counted as a positive result for a modest, low-cost financial education program.
Carly Urban at Montana State found that tellers and other low-level employees working at 45 randomly selected credit unions around the country clearly made progress after spending just 10 hours in an online financial education program. The information-based program required the workers to do some reading and walked them through specific examples and scenarios they might face.
Their improvements weren’t limited to increasing their knowledge of finances and retirement saving either. They also saved more, Urban said while presenting her findings at a webinar sponsored by the Center for Financial Security at the University of Wisconsin.
In the fall of 2009, the credit union employees completed the online education on the basics of everything from financial planning and investment risk to saving for college and working with a financial adviser. They were allowed to choose how much time to spend on each of 10 modules, and their employers let them take the courses at work – rather than use up valuable free time. …Learn More
There’s new evidence to remind us that nothing much changes: we are still baffled by our DIY retirement system.
And no wonder!
First, saving must start at a young age, when retirement is an abstraction. Saving is further stymied by two big questions: how much to save and how to invest it? It’s also smart to anticipate how one’s compensation arc might affect Social Security – taking into account, for example, that women withdraw temporarily from the labor force to have children and that earnings can decline when workers hit their 50s. As we fly past middle age and retirement appears on the horizon, it’s a little late to figure this retirement thing out. And there’s no plan for long-term care when we’re very old.
The evidence: Start with Merrill Lynch’s new survey in which 81 percent of Americans do not know how much money they’ll need in retirement. This makes it very difficult to know how much to deduct from one’s paycheck for retirement savings. Employers, frankly, could do more to help us figure this out. (Some answers appear at the end of this blog.)
Being in the dark now about how much to save is a cousin of being afraid of running out of money later, in retirement. More than 70 percent of accountants say this fear of running out is their clients’ top concern – followed by whether they can maintain their current lifestyle and afford medical care in retirement – according to the American Institute of Certified Public Accountants.
Our inclination to avoid difficult issues does not go away with age. Yes, we’ve gotten wiser, but advanced old age means death, and who wants to think about that?
The upshot: seven in 10 adults have not planned for their own long-term care needs in the future, Northwestern Mutual reports. Even among a smaller group who anticipate having to take care of an elderly parent, one in three of them “have taken no steps to plan” for their own care.
“You would think that would prompt them to action,” said Kamilah Williams-Kemp, Northwestern’s vice president of long-term care. And while the constant barrage of news and statistics is making Americans more aware of their rising longevity, Williams-Kemp said, caregivers are often more interested in talking about their emotional and physical challenges and the rewards of caregiving than about its substantial financial toll.
There is a “disconnect between general awareness and prompting people to take action,” she said.
The potential for dementia or diminished capacity late in life isn’t on our radar either, the survey of CPAs found: the vast majority of people either choose to ignore the issue, wait and react to it, or are confused.
Squared Away exists in part to educate people about retirement essentials, based on facts and high-quality research. The following blogs might help you:
The Knapkes hiking last May in the Rocky Mountains.
Heather and Tyson Knapke were like a lot of young couples starting out: they were in debt.
One household expense on their credit cards loomed larger than all the others: at least $1,000 every month for groceries and dining out. Some weeks, the Denver-area couple could be found at their various favorite restaurants Thursday night straight through Sunday night.
The food budget “was astronomical, and I had no idea,” Heather said.
Their lives changed dramatically after realizing about 2 1/2 years ago that their finances were spinning out of control. How this couple transformed their debt-laden household into one that is free of credit card and college debts and has a tidy emergency fund, with retirement saving now well under way, could be a blueprint for other Millennials in the new year.
Here is the order in which the Knapke’s accomplished this: reduce expenses, impose a budget, pay down debt, and start saving for retirement.
“I’m trying to get ahold of my finances early – earlier than most people – so compound interest works in my favor so I’m set when I’m older. That’s the goal,” said Tyson, who is 32.
How did the couple get into trouble in the first place? Before marrying, Heather, a 33-year-old hairdresser, had learned a few things about controlling expenses as she purchased shampoos and hair dyes for her clients. Her personal finances were, as a result, in decent shape. Then she fell in love with a man in debt. Tyson had graduated from the University of Colorado with a communications degree, $16,000 in student loans, and another $9,000 distributed among three credit cards. … Learn More
Apprenticeship programs in the United States are largely found in just a few unionized skilled trades: construction worker, plumber, electrician.
But a recent panel made up of British and American employers and other experts made the case that U.S. employers in myriad professional fields – health care, social care, information technology, law, medical exercise therapy, lab technician, teaching assistantship, nursing, and finance – would benefit from thinking more creatively about providing apprenticeship training.
Apprenticeship programs are much more common among U.K. and other European employers. Microsoft Corp. is a big exception here: its U.S. program, modeled on what the company does in Europe, will graduate 1,000 apprentices next year, said Bill Kamela, Microsoft’s policy counsel for U.S. government affairs. Apprentices “have incredible intangible skills, and they’re incredible learners,” he said.
These programs seem more relevant than ever in the wake of U.S. and European elections shaped in part by blue-collar voters dissatisfied with their economic circumstances, said Tom Bewick, founder of New Work Training Ltd. in London, which arranges employer apprenticeships. Bewick moderated the November panel for the Urban Institute in Washington.
“Our working and middle classes are in revolt against stagnating wages, a lack of affordable housing and distant institutional structures that come across as elitist,” he said. Apprenticeships aren’t a “silver bullet, but they are surely one of the practical responses to this set of challenges.” … Learn More
It’s easy to drown in the financial details of student loan repayment. Here’s a life preserver.
The rules of thumb listed below were culled from interviews with two experts on student loans. Betsy Mayotte is director of consumer outreach for American Student Assistance, a non-profit that educates people about their loans. Craig Lemoine is program director for the American College of Financial Services, which trains financial planners.
1. If you earn enough to make your payments, start paying.
The reason: Student loans in most cases must be repaid in full. The sooner you start making your full monthly payments, the sooner your loans will be paid off and the less in total you will have to shell out. A decision about how much extra to pay on student loans should be weighed in the context of other financial goals, including paying off high interest credit cards and putting enough money in a 401(k) to ensure you receive your employer’s match.
2. Open your student loan mail.
The reason: Owing tens of thousands of dollars is serious business. Ignoring a letter from the company that holds your loan won’t make the problem go away – in fact, it could worsen things.
3. Call your loan servicing company. But do not call without doing some homework first.
The reason: If you’re struggling to pay your loans, the companies that handle your student loans can be very helpful. They are experts not only on your particular loan account but also on the federal government’s rules for loan repayment. Nevertheless, student loan servicers are not perfect. Representatives might not know much more than is on the U.S. Department of Education’s website, Lemoine said. And sometimes their advice can conflict with information from another representative in an earlier phone call. To make sure you’re getting the best advice, it’s important to read the information on the federal website, know your potential options, and compile a list of detailed questions pertinent to your unique situation. “Going in blind can cost you money,” he said.
4. The best option for lower-income former students with high debt levels is an income-based repayment plan. …Learn More
“The economy” was the top priority for the vast majority of American people in one poll last summer. Surely, what they were talking about was quality jobs and economic and financial security for themselves and their children.
Or as my brother, a father of three and service manager at an auto dealership outside Chicago, put it in a recent text message, “No one can afford anything anymore.”
This simple idea seemed to resound throughout the primaries and long presidential campaign. With the election over, I compiled the following wish list for working people based on what the polls and research studies reveal about what they are hoping for.
Good jobs. The disruption created by the transition from an industrial to a service economy has hollowed out the middle over three decades. Despite a remarkably low unemployment rate of 4.9 percent, middle-skill workers face a dilemma: there are a lot of jobs, but most aren’t the right jobs for them.
Consider this detail in the October jobs report. Retail employment increased by a total of 38,000 in August, September, and October. These jobs pay, on average, $553 per week. Meanwhile, 12,000 goods-producing jobs were lost during the same three months, meaning that fewer people are earning industry’s average weekly wage of $1,100. The urgent question is, what are the potential jobs that will bolster the middle class? Healthcare and telecommunications technicians for the New Economy? A related question is, what are the vocational and policy paths to securing better-paying jobs?
Cash on hand. Working Americans are severely strapped for cash. One in three surveyed by the FINRA Investor Education Foundation said they probably could not come up with $2,000 to cover an unexpected expense in the next month, and nearly half said they can’t pay off their full credit card balances every month. While working people are benefiting from the stronger economy, Finra concluded, “large segments of society continue to face financial difficulties, particularly minority populations and those without a college education.” …Learn More
Wyoming government has brought some 535 employees of the state’s executive, legislative and judicial branches into its retirement savings plan since July 2015 under a new policy of automatically enrolling each new hire.
They are free to withdraw from the plan at any time, but only 15 of the 535 have done so – “and not a complaint from anybody,” said Polly Scott, who manages the savings plan and heads employee retirement education.
This technique, borrowed from behavioral economics, addresses the inertia that prevents many people from ever signing up to save in their employer’s plan. So why wait for them to join? Instead, Wyoming uses inertia to benefit state workers: when people are automatically enrolled, research shows, they tend to stay put and save.
This is one piece of a larger effort to educate government workers about what’s required to properly prepare for retirement – and nudge them to do it. The 457 retirement savings plan is crucial. Wyoming’s retired state workers receive Social Security, but the inflation adjustment in their traditional defined benefit pension has virtually been eliminated for the near future. The 457 plan “is voluntary, but it’s not optional if you want a secure retirement,” Scott said.
The heart of the state’s education efforts is a website titled “Your Whole Story” that is on point and explains in clear language likely to benefit employees. Employees are encouraged to increase how much they’re already saving, resist the temptation to withdraw their savings prematurely, and prepare themselves for a long time in retirement in an era of increasing life expectancy.
This initiative is based on a campaign sponsored by the National Association of Government Defined Contribution Administrators (NAGDA) – Scott was NAGDA’s president last year – and designed by the National Association of Retirement Plan Participants. Other states use some version of “Your Whole Story,” including the Missouri State Employees’ Retirement System and Montana Public Employee Retirement Administration.
One problem Wyoming is tackling is young adults who hurt their retirement prospects by withdrawing money from their 457 plans when they leave their state jobs, which “means they’re spending it,” Scott said. Another issue is that more older workers are rolling 457 savings over to private IRAs, which can have higher fees. …Learn More