Financial Literacy: Saving for Retirement

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“We teach our kids everything in high school: sex education, geography, math, reading, etc. We do not teach them anything about credit cards, or debt, or investing. Then we ask ourselves why we end up in a situation as we are today, which has been highlighted by the pandemic a bit: There’s 100 million people in America that have set nothing aside for their retirement.” Kevin O’Leary

The retirement crisis in America is an ongoing worry for most Americans. As companies have shifted away from offering traditional (defined) pension plans to employees, much of the responsibility in planning for financial life after work now relies heavily on individuals. Unfortunately, the crisis is mostly due to a lack of financial literacy and consumer spending on new shiny things, and as a result, most are struggling to keep up.

A March 2019 Bankrate survey found that more than 1 in 5 working Americans aren’t saving any money for retirement, emergencies or other financial goals. Major barriers as to why respondents said they weren’t saving included not making enough money, financially helping adult children, and large credit card and other personal debt payments.

Financial assistance to adult children

Parents are helping their adult children financially and the majority of those parents say that financially supporting their adult children is hurting their savings for retirement and their financial futures, according to Bankrate. In total, 50 percent of respondents to a Bankrate survey say they have sacrificed or are sacrificing their own retirement savings in order to help their adult children financially.

Living and remaining in the workforce longer

American baby boomers are healthier and are living longer; as a result, they’ll need a bigger nest egg to fund their retirements, especially since the number of employers providing pensions has been steadily shrinking. As some reach retirement age and realize they don’t have enough saved, it’s keeping them in the workforce longer. Workers older than 55 years young filled almost half of all new jobs in 2018 even though they make up less than a quarter of the nation’s labor force, according to an analysis of Labor Department data by The Liscio Report.

“Many seniors are having a hard time making ends meet and find they have to work when they had not planned to.” Dean Baker, cofounder of the Center for Economic and Policy Research.

“Most Americans haven’t made saving [for retirement] a priority”, says Nick Holeman, CFP at Betterment. “Most people don’t like to admit that, but we live in a consumer culture and it can be difficult to turn down the new shiny gadgets.” Saving for retirement is your largest and most important financial goal. Even if it feels very far away, it’s important to start saving early.

Holeman recommends that Americans wanting to retire to take three steps:

  1. Create financial goals and a financial plan. At a minimum, you should have these two financial goals: Create an emergency fund and save for retirement. SoFi calls these “bookend goals”—your primary short-term and primary long-term goal. Your financial plan should consist of small, achievable goals; they’ll help you see your finish line and empower you to stay on track. Start by determining how much you need to retire comfortably.
  2. Come up with a strategy to execute. Selecting an investment strategy depends on your financial goal amount (how much you want to save each month or year) and the time horizon (when you’d like to use that money). Decide how you plan to save that amount.
  3. Get creative. For those struggling to save, consider retiring later or working part-time during retirement. Holeman says there are tons of other options out there, which he refers to as “levers,” like moving to a low-cost state or downsizing your home. Engaging them can help get your retirement savings back on track.

Investing

It has been regularly reported that billionaire investor Warren Buffett made 99% of his current wealth after his 50th birthday.  At an age when most Americans give up hope achieving financial independence, Buffett was just getting started on the capital assets he controls today.  Building wealth could mean financial peace, taking a spur-of-the-moment international travel.

Many older Americans are advised to sell or significantly reduce their stock holdings and frankly, this advice is antiquated, shortsighted and wrong.  Buffett built his incredible level of wealth by continuing to buy stocks despite his advanced age.

References:

  1. https://www.bankrate.com/personal-finance/financial-independence-survey-april-2019/
  2. https://www.bankrate.com/retirement/baby-boomers-unable-to-retire-gig-economy/
  3. https://www.usatoday.com/story/life/allthemoms/2019/04/24/adult-children-robbing-parents-retirement-savings-study-finds/3559812002/
  4. https://d32ijn7u0aqfv4.cloudfront.net/wp/wp-content/uploads/20170718165706/Guide-to-Investing-Intelligently_V5-1.pdf
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