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.