It is not like you don’t WANT to plan for retirement, right? There are real reasons that make planning for retirement difficult. Taking the first step toward retirement planning might seem like pursuing a major lifestyle change — it sounds intimidating, and you may not know where to start. But there are easy first steps you can take.
“We always use the analogy of someone who wants to get into better shape, and has to lose 100 pounds. Think about loosing one pound, not 100 to start — retirement planning is just like any other long-term objective,” says says Chad Noyes, managing director and financial advisor of Chicago, Ill.-based Hoopis Financial Group, a member of MassMutural Financial Group. “Just take the first step and you are on your way to achieving your goals.”
“A lot of people who don’t meet with financial advisors might be embarrassed, or believe they’re behind where they should be, but being too embarrassed puts them further behind,” Noyes says.
Baby Boomers, born between 1946 and 1964, are the least confident generation when it comes to retirement — compared to the Generation X and Millennial generations, according to a recent Transamerica Retirement survey.
Boomers have an estimated median in total household retirement savings of $127,000, an increase from $75,000 in 2007, however, not enough to meet retirement needs for many, according to the survey. In fact, a 65-year old couple retiring this year needs an average of $220,000 to cover medical expenses throughout retirement, according to data from Fidelity Benefits Consulting.
Only 54% of those within five years of retirement have a retirement plan in place, according to an analysis of recent survey data from the Deloitte Center for Financial Services, which offers insights to assist financial planning industry leaders.
Here are the top five contributing factors to Americans’ overall lack of planning for retirement, according to survey data and industry experts.
1. Conflicting Priorities Make Planning for Retirement Difficult
Balancing long-term needs with immediate financial priorities is the No. 1 reason Deloitte survey respondents said they put off planning for retirement.
Paying off a mortgage, student loans and other debt, or saving for their children’s education, are some of the immediate obligations boomers said are challenging their ability to plan for retirement.
The Great Recession, pinpointed by many economists as lasting from December 2007 through mid-2009, made juggling short and long-term financial responsibilities even more difficult, says John McDonough, financial advisor and founder at The Woodlands, Texas-based Studemont Group, LP.
“They’re paying a lot of money to send their children to school — and after the economy took a downturn some lost jobs,” McDonough says.
However, most advisors would recommend prioritizing retirement planning and savings over these other priorities.
2. Failure to Communicate
Half of Deloitte survey respondents between the ages 56 and 64 said no one had
been in touch with them regarding retirement planning.
“One of the biggest challenges we have as an advisor is getting in front of people,” Noyes admits, noting many consumers feel more comfortable meeting with a financial advisor if they have been introduced through a mutual acquaintance.
3. Not Knowing About Planning for Retirement Options
The World War II generation largely relied on pensions for retirement financing, and many Baby Boomers were already mid-career when the retirement paradigm shifted from pensions to 401(k) or similar plans, McDonough says, noting that many do not contribute enough to their 401(k), or understand how the stock market works.
“Many manage their 401(k) backwards,” he says. “They don’t ride out the market. They tend to sell when the market drops because they’re worried and buy back at the highest point. They invest with emotion, and when things get bad they pull out cash at the worst possible time.”
In addition, many consumers lack knowledge about the most common retirement products, such as mutual funds, annuities and non-term life insurance, Deloitte data reveals.
For example, six in 10 survey respondents either don’t know anything about target date mutual funds (48%) or say they have heard of the product but don’t understand how it works (12%). These funds automatically reset the asset mix of stocks, bonds and cash equivalents in their portfolio according to a selected time frame appropriate for the investor.
4. Mistrust in Financial Institutions and Intermediaries
The Great Recession’s impact goes beyond financial, and is emotional for many consumers as well.
“People feel like everyone is out there to rip them off,” Noyes says. “Half the challenge is building trust and lowering the tension of a new relationship.”
McDonough agrees that consumers’ negative feelings about the economy contribute to their lack of retirement planning.
“With social security going broke, inflation — a lot of people want to throw their hands up in the air and say, ‘Enough,’” McDonough says.
However, financial advisors are really just financial coaches — they’re there to help inform clients in regard to what is in their best interest, not the other way around, he says.
“They may not have the retirement they always wanted, sitting on a porch drinking lemonade, but that’s because the definition of retirement has changed,” he says. “People need to relearn how they view retirement. That’s when a coach can come in handy.”
5. Do It Yourself Mentality
Those with a formal retirement plan are much more likely to feel secure about their long-term financial future, Deloitte data show.
Yet, nearly two-thirds of those surveyed by Deloitte do not consult with a professional
financial advisor for their retirement needs.
“There are two reasons why you’d want to [handle financial planning] yourself,” McDonough says. “No. 1, it’s in the makeup of that person to do everything him or herself, and No. 2 is that person lacks trust and has a fear about being misled or mistold something.”
When searching for the right financial planner, research that planner’s expertise and don’t be afraid to ask questions, McDonough advises.
“People need a financial coach to help them with their long-term goal,” he says.
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