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Misperceptions Prevent Retirement Saving But These Remedies Can Alter That Reality

Misperceptions Prevent Retirement Saving But These Remedies Can Alter That Reality
February 12
03:18 2019

Sure, we all know people don’t save enough for retirement. While the reasons often differ, they usually all come down to this one fact: there’s no money. This lack of retirement saving breeds a vicious circle of doubt and eventually hopelessness. Are there ways to break this non-saving habit? How can we build financial confidence in people who assume a worst-case scenario that becomes a self-fulfilling prophecy?

“Consistently, people say they ‘cannot afford to retire,’” says Len Hayduchok, CEO of Dedicated Financial Services in Hamilton, New Jersey. “It is a statement that is common for people at virtually all income strata. The solution is almost always to cut overhead, cut spending. Specific reasons could be paying off college loans, a major expenditure just made (like a house), college for children. The biggest financial killer is housing and simply overspending at too high a standard of living, which often results in debt, the last major reason why people don’t save for retirement.”

Research backs this up. Dick Burns, President & CEO of The NHP Foundation in New York City, says, “In the last year, our surveys of Americans 55+ show that 73% of Baby Boomers expect to delay retirement. Inadequate planning for health care and desired housing rise to the top of the list of ‘whys’ according to our findings: 31% stated that they have not prepared a retirement budget; While roughly three-quarters of Baby Boomers expect to delay retirement to continue working, an anticipated decline in health tends to cut those plans short for many; However, 65% of those surveyed stated that they have not budgeted for unforeseen health-related expenses; Of those without a retirement budget and planning on SSI for at least half of their income,72% noted that they have not accounted for unforeseen health-related expenses.

While surveys measure confidence, they may not measure the true story. Donna Gestl, Senior Vice President at The Prosperity Consulting Group in Owings Mills, Maryland, says, “The most common reason people cite for not investing in their retirement is that they don’t have enough money to save for retirement. This is often their perception, not necessarily the reality.”

The financial decisions people make can reaffirm their perceived reality. A tweak here and there can change that reality. “People say, ‘We live paycheck to paycheck and don’t make enough to save properly for retirement,’” says Scott A. Stevens, a Financial Advisor with California Wealth Transitions in San Diego, California. “I think this reason is most often cited because the wage earners don’t pay themselves first, which would help with taxes and keep them from ‘missing’ that money from their paychecks.

“The most common reason people don’t save for retirement is they do not have the money,” says Michael Osteen, Founder & Chief Investment Strategist, Port Wren Capital, LLC, Beaufort, South Carolina. “This is primarily because they do not know how to live within a budget as they tend over spend. A remedy would be to live below their means and allocate funds towards their retirement. Most folks appear to lack a fundamental understanding of basic finance and investments.”

Living below one’s means requires a discipline many simply don’t possess. These people struggle to come up with the extra money to save for retirement because they’re trying to meet their current needs and wants. And it is the “wants” that expose the lack of discipline. “Using money for right now has an immediate reward, which is easier to see the payoff,” say Bill and Andy Bush, the 401k Brothers at Horizon Retirement Plans, a division of Horizon Financial Group in Baton Rouge, Louisiana. “Whereas, putting dollars aside for later, i.e., retirement, has a much, much delayed reward. In laymen’s terms, it’s not that sexy.”

Stevens feels a more earnest approach to budgeting would help with saving “pre-tax” earnings. “This would help with both problems of too much spending and too little saving,” he says. “So many families don’t set an actual budget that they try to stick to long term. There are often surprises when client’s first set and track a monthly budget. There are items that are easily scaled back or even cut entirely from a monthly expense when it is laid out and tracked.”

Of course, there’s one factor that’s almost guaranteed to get people to go off track: children. “What my experience has been when going through each client’s financial plan with them is that they want to support their children first,” says Heather Atkins of Libertas Wealth Management Group in Columbus, Ohio. “This goes for the parents with a newborn that want to start 529 plans, to the parents that have adult children and want to pay for their child’s wedding. I think investors think about their financial hardships or struggles that they were faced with and don’t want to see their kids go through that as well.”

“The most common reason for not saving for retirement we hear is around parents either helping their kids with day-to-day living and/or and paying for their education,” says Michelle Cortes-Harkins, a LPL Financial Planner/Wealth Management Advisor at Harkins Wealth Management, LLC in Providence, Rhode Island. “Parents are helping out their kids to the point of harming their own future. We see a lot of adults wait to save or save minimally for their own retirement until their child gets through private school, college, pays off their student loans, finds a first job, etc.”

It’s an old rule in the financial planning industry: mind your own needs before subsidizing the needs of others. You can’t nurse the sick of you’re ailing yourself. Atkins likens it to “the oxygen mask on the flight analogy. You can’t help your children put their mask on without putting yours on first.”

If we are to successfully address the lack of retirement saving issue, it needs to be started at an early age. Rather than bailing out their children, perhaps parents should be leading by example. This, combined with user-friendly corporate retirement plans, will get us going in the right direction.

The Bush brothers would like to see “increased awareness, education, and emphasis on retirement savings to our young people, and those first entering the workforce. Features like auto-enrollment in a company plan, can help nudge employees in the right direction without them overthinking it or taking much effort. And more financial coaching on an individual basis would create better financial habits.”

Gestl says, “In truth, most people can’t afford to NOT save for their retirement. There are so many tools out there to help people save – from employer sponsored 401k plans to IRAs. You can contribute 1% of your pay or even less if your budget is truly tight. 1% of $30,000 is $300 for the year (before taxes) and that comes out to $25 a month. Employers can also help remedy this issue with auto-enrollment for their 401k plans. That would automatically enroll all of their employees, unless they specifically asked to not be included. From our experience, most employees don’t miss a small percentage of their paychecks, but it makes a huge difference in their long-term financial success.”

What’s the alternative? “For too many people, 75 will be the new 65,” says Hayduchok. “Instead of living to age 65 and enjoying 10-15 years of retirement when they are quite active, people will be retiring at age 75 and living another 10-15 years but not in as good health to enjoy retirement.”

Christopher Carosa is a keynote speaker, journalist, and the author of  401(k) Fiduciary SolutionsHey! What’s My Number? How to Improve the Odds You Will Retire in Comfort, From Cradle to Retirement: The Child IRA, and several other books on innovative retirement solutions, practical business tips, and the history of the wonderful Western New York region. Follow him on TwitterFacebook, and LinkedIn.

Mr. Carosa is available for keynote speaking engagements, especially in venues located in the Northeast, MidAtantic and Midwestern regions of the United States and in the Toronto region of Canada.

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Christopher Carosa, CTFA

Christopher Carosa, CTFA

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