The Great Recession has definitely altered the way Americans spend and save money, says Janet Stanzak, president of the Financial Planning Association. More Americans are living within their means and have reduced debt to improve their balance sheets, and we’ve also increased savings to provide for job loss and emergencies. When it comes to investing, we don’t want to be forced to sell out of the market at discounted prices, and we are much more conscientious about being well diversified in our portfolios, she says.
“We know the market can be very volatile and we have to plan for the certainty of uncertainty, sometimes keeping more in cash reserves that we had in the past,” Janet adds.
And now that we’re wise about our day-to-day spending, savings, and investment, Janet says our next big hurdle is making meaningful preparations for retirement earlier in life rather than avoiding savings and assuming Social Security will foot the bill.
Here, the certified financial planner offers her tips for using a CFP to help get a handle on your retirement and shares her thoughts on what we should all be doing to prepare for our happy golden years. Read on:
Tell us about the Financial Planning Association…
Since 2000, the Financial Planning Association® (FPA®) has been the principle professional organization for Certified Financial PlannerTM (CFP®) professionals who seek advancement in a growing, dynamic profession.
Through a collaborative effort to provide more than 23,000 members with one connection to tools and resources for professional education, business success, advocacy, and community, FPA has become an indispensable force in the advancement of today’s CFP® professional.
What kind of retirement planning resources does the Financial Planning Association offer?
FPA has some great online resources for major life events including retirement planning.
This website provides helpful planning resources for retirement, divorce, buying a home, bankruptcy, credit repair, saving taxes, investments, estate planning, stolen identity, and saving for college, among others. These life events result in a number of questions to be addressed that should always be put in the context of a comprehensive financial plan.
What sorts of research should individuals do before hiring a financial planner to help them with retirement planning? What sorts of questions should we ask a CFP to make sure they’ll be good partners in helping plan our financial future?
The key questions I would ask when seeking a financial planner would be about education and credentials, experience and how they do business. Being a Certified Financial Planning professional tells the consumer they have met both education and experience requirements, along with maintaining a level of continuing education on an annual basis. A CFP also adheres to ethical Standards of Professional Conduct that are enforced by the CFP Board of Standards.
Beyond having this designation, it’s important to find a planner that has experience in the questions you want addressed. It’s important to ask questions about how they work, areas of specialty, and typical types of clients to determine if the planner has the skill set to meet your needs. FPA has a helpful website with a list of questions you can ask during an interview with a financial planner to help you.
What are some red flags that a CFP doesn’t have our best interests in mind?
A CFP should explain the advantages and disadvantages of making various choices. If they fail to discuss the disadvantages, you should ask. Full and fair disclosure of all material facts regarding how the planner works and the basis of any recommendation is important. It would be appropriate to ask the planner if they act as a fiduciary when providing advice. A fiduciary puts the interests of their clients first. A Registered Investment Advisor is required by law to act as a fiduciary.
What are some basic money management best practices you wish all Americans were aware of when it comes to planning their retirement?
1. The most important best practice is to pay yourself first from the day of your first paycheck. So often we think now is not the time to start saving and investing. But the discipline of always taking part of what you earn and saving it for your future is imperative to planning for your retirement. A company 401(k) plan, IRA, or Roth IRA, along with automatic ACH transfers to investment accounts are the best tools to do monthly investing.
2. Live within your means so you can have choices about your life, especially about your retirement. We have a tendency to want things now. Our culture promotes getting what you want now without regard to whether you can afford it nor whether it’s a smart decision. Live intentionally.
3. Have a budget. Today we have so many tools and apps that can help us track our income and expenses. Some may think having a budget is restricting. It is actually very freeing to know your cash flow needs and wants. It takes a lot of the worry out of money management.
What are the most common mistakes you think Americans make when it comes to retirement?
- Social Security was only ever intended to provide for about one-third of your retirement needs, so don’t think it is enough.
- Starting too late to invest for retirement. The earlier you start, the more benefit you get from the compounding of money – and the less you have to save.
- Assuming your social security choices are simple. Analyzing various social security options is important to assure you make the right decision for your circumstances.
What are the biggest financial headlines Americans should be paying attention to right now when it comes to making decisions about how they spend, save, and invest money?
We are such a global economy today that the state of other countries around the world does impact the U.S. economy. In addition to the economic state of other countries, the political climate also matters. We have to be aware of what’s happening here in the U.S. as well as around the world. Having investments in the international asset class is important since some of the best investment opportunities exist in other markets.
What do you think the future of retirement will look like in America as people are living longer, health care costs are growing, and companies are cutting back on retirement contributions?
We already see people working longer. When social security was established, most Americans didn’t live to age 65. Today, we are seeing an aging population that is still very vibrant well into their 70s. Longevity and good healthcare are causing people to stay engaged longer in their work and sometimes engaged as volunteers in activities for which they have energy and passion.
The dynamics of increasing healthcare costs and longer life makes the cost of retirement higher. At the same time, Americans are funding more and more of their retirement as companies eliminate pension plans and contribute less to employee retirement savings. All these factors speak to the importance of each of us taking responsibility for providing for our retirement. The later we take that seriously in life, the longer we’ll have to work to meet the need. Wouldn’t we rather have the choice of retiring rather than be forced to work to meet our needs? It’s never too late to start.
