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Barriers to retirement planning

By Jennie L. Phipps · Bankrate.com
Tuesday, October 12, 2010
Posted: 1 pm ET

Ordinary people -- those who live on the median U.S. household annual income of just over $50,000 -- frequently don't do a good job of retirement planning.

The Society of Actuaries recently attempted to figure out why because in their view, failing to plan adequately for retirement is a huge life mistake. After looking at a mound of data, the society came to these conclusions:

  • Many people don't ask for retirement advice because they don't know enough to ask the right questions. There are particularly big gaps in people's understanding of Social Security -- a primary source of retirement income for many people. For instance, the actuaries found that fewer than 20 percent of people with modest incomes know the age that Social Security considers people eligible for full retirement checks. (It's 66 for most of us facing retirement soon; 67 for our children.)
  • The math is confusing. Most people don't know the financial ins and outs of stocks and bonds; don't understand mutual funds and their fees; and aren't able to calculate when they're getting a good deal and when they aren't.
  • People don't know how to talk to financial advisers. There's a lot of jargon in the financial business and most people don't understand it, so they don't trust the financial sales reps -- or used-car salesmen, either.
  • Financial advisers are outsiders. Average-income consumers see friends and family as trustworthy. They aren't so trusting of anyone who swoops in to say they're here to help, especially today, when foreclosures make it hard to see a banker as your buddy.
  • The man is in charge. In lots of traditional marriages, the man is still the one who makes major financial decisions. Since we all know men never ask directions -- without a woman involved -- many families won't ask for financial advice.
  • Financial advisers aren't helpful. They aren't all that interested in clients who don't have a big nest egg. Helping someone who has a lot of money is a lot more profitable than advising someone who has just a little.
  • It's a hassle. When you're struggling to get by, it's hard to see down the road. Many of the smartest financial decisions are made early in life, like saving in a 401(k), when ordinary-income people have huge demands on every penny they earn.

I think it is interesting that the actuaries obviously spent a lot of time and money on this survey when you and I could have told them all these things for free. But, perhaps, this is a necessary step toward creating a financial system that adequately serves the large number of people who don't have a lot of money and therefore, need all the retirement planning help they can get.

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3 Comments
AM
October 20, 2010 at 3:34 pm

"The man is in charge. In lots of traditional marriages, the man is still the one who makes major financial decisions. Since we all know men never ask directions -- without a woman involved -- many families won't ask for financial advice."

So, where's the link back to actual report? I have a hard time believing that the society of acturies waste time coming to sterotypical conclusions.

Substitute woman for man in this paragraph or black for man and see if it pass the PC sniff test. This is a sterotype, pure and simple. Women are no better then men in managing money, they (usually) only approach it differently. The implication that we'd all be better off if women only ran the family finances is insulting to both men and women.

In case you're wondering, I'm a woman who runs the family finances in a "traditional" marriage, whatever that is. :(

End the Ponzi Scheme
October 13, 2010 at 9:08 am

No need to understand social insecurity, it's bankrupt, you're stealing the future from your kids.

The math is simple, live on less than you make, whatever that is. Take 15% and put it away.

How hard is it to ask, which SP500 mutual fund is available at your brokerage? Put it in there an forget it.

Friends and family are deep in debt, why would I listen to anything they say? It worked out so well for them.

Nice dig there. How about get off the phone and drive.

Broad generalization, and not useful. How much advising do you really need to put 15% into a mutual fund?

Are you serious? Unless they have no car, and take the bus/public transit, have one land line phone, no cable, rent a modest apartment, and don't eat out, they have things to cut from the budget. Stupid decisions aren't an excuse, they create the financial pain that is the natural consequence of the stupid act.

Jack
October 12, 2010 at 2:18 pm

ALWAYS, hire a financial planner. That absolves the issues with "bankers" and "financial advisors".
Also, DON'T lump this mortgage mess on financial planners...these are the only people that were telling people that they aren't Donald Trump during this mess! The banks were conducting risky transactions because they were greedy...has noting to do with the retirement planning industry.