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Why Are We Facing A Retirement Crisis?

We’ve all heard, over and over, that Americans are not saving enough money to retire. While the most recent data on savings shows a slight uptick in savings, the facts are still quite frightening. According to a Government Accountability Office report, the percentage with nothing put away among those age 55 and older has decreased recently from 52% to 48%. It’s nice to see that improvement, but what exactly are the 48% with zero savings going to do to survive?

Why aren’t Americans doing enough to save for retirement?

People know they need to save – unawareness isn’t the root problem. Let’s take a closer look at some of the contributing causes.

Lack of clarity about how much we should be saving:  According to Joshua Gotbaum’s recent article in MarketWatch, the retirement industry has failed to identify a reasonable target number to save for retirement. Gotbaum speculates that this lack of a solid target number comes from fear of being held legally liable if retirees run out of money. The end result is confusion about how much we need to have or need to be saving – and that confusion leads to failure to act.

How much should you be saving? Putting aside 10% of your gross salary is the new golden rule for retirement planning, according to Gotbaum’s article. Add up how much you contribute to your 401K, how much your employer matches that contribution and what you sock away in your IRA to make sure the combined total equals at least 10% of your gross income.

Confusion and mistrust around the financial profession:  Consumers are confused, on the whole, by the financial advisor profession. Confusion contributes to lack of trust and that results in a failure to commit more fully to investing consistently. People don’t understand the difference between who does what, how advisors or planners make money, and how to make sure their personal interests are paramount.  Anyone can call themselves a financial advisor – the job title guarantees nothing. Trust in financial advisors suffers as a result. A 2016 study by non-profit National Association of Retirement Plan Participants found only 9% of respondents had faith in their financial advisors. One in twelve financial advisors has been censored for abuse by FINRA, furthering distrust and lack of action by consumers.

How should you choose a financial advisor? First, make sure that any financial professional you work with is a fiduciary at all times – required to put your needs first. Ask them to put that commitment in writing, such as signing a Fiduciary Oath.  Second, look for a financial advisor with strong credentials, such as a certified financial planner. Skills and knowledge make a difference! Third, consider working on a fee-based relationship. You can get a list of fee-only professionals here.  Fourth, take time to check out your financial advisor’s reputation and standing. Look them up on Broker Check. Finally, self educate. The better your financial knowledge, the better your ability to monitor, understand and respond to your financial advisor.

Inadequate money management skills: Our financial skills, as a whole, have been deteriorating. Standard and Poor’s Global Financial Literacy Survey found that Americans’ financial savvy was only slightly better than residents of Botswana – an infinitely smaller economy. 75% of Americans are currently managing their own money, but only 48% are estimated to have basic financial skills. We’re being asked to do more to manage our own resources with less skills and knowledge – a recipe for disaster.

Information has never been more accessible than today! Make it a regular, on-going habit to build your financial skills. Listen to podcasts, watch YouTube videos, read books, subscribe to blogs, attend MeetUps, and take courses either online or at your local college. There’s even virtual reality finance games you can play to learn! Wondering how your skills compare right now? Test yourself by trying this basic financial literacy quiz by Financial Engines.

Growing expenses vs stagnating wages: The median family income, adjusted for taxes, was $58,544 in 2000 – compared to $59,039 in 2016  Normal, expected living costs can come with big ticket prices not to mention the unexpected events! Housing, food, medical costs, college tuition, special events like weddings or funerals, credit card debt and student loan repayments are all costly burdens most of us will pay at some point in our life. A recent CNBC Invest In You And Acorns Survey found that more than one third of respondents couldn’t save or pay for day-to-day expenses because of low earnings. You can’t save what you don’t have.

Every dollar saved becomes even more important when financial realities are stark. Be sure to take full advantage of your employer’s matching 401k contributions, essentially free contributions to your future. Think of retirement savings as a necessity rather than an option. Look for ways to reduce expenses and consider taking on more work or starting a new side hustle dedicated to building funds for your retirement. Consider using programs like Acorn, a program which automatically rounds up any sales transaction for you, saving the difference to help you build a nest egg.

We all need to collectively shake off financial inertia and move to responsible financial literacy, planning, and management. Whether you’re 24 or 64, retirement is coming, plans or no plans. Take the steps now to build your skills, fund your plans, manage your estate and understand what your financial advisor or planner does on your behalf. Whatever you do will always be better than not taking action to prepare for your retirement.

By Cathy Cagle

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