Despite the importance of financial planning, two-thirds of Americans do not have one. Saving for retirement is similar to exercise in one respect. Most of us recognize its value but believe we can put it off until some point in the future.
Just under half of Americans say they are saving enough. In fact, this data comes from the National Foundation for Credit Counseling’s Consumer Financial Literacy Survey, even less (30%) feel that they are saving enough for retirement. (The survey collected data from 2,017 U.S. adults.)1
Less than half of Americans keep a budget. It’s difficult to make progress toward something that you aren’t monitoring. This is why a budget can be a valuable tool in reaching your financial goals. Another troubling find was that less than a third of Americans are saving for retirement at all. This may prove problematic since Social Security will not likely (and is not intended to) cover all of a recipients income needs in retirement. View your own estimated benefit at www.ssa.gov to get a rough idea of what you can expect from the Social Security. Like most retirement savers, you will likely be well served to consider Social Security only one of multiple sources of retirement income. Additional sources such as personal savings, pensions and retirement accounts outside your company plan can help ensure that your income in retirement is sufficient.
Even fewer seek the guidance of a financial professional. Most participants in the same survey (75%) agreed that they have a thing or two to learn on the topic of personal finance and could benefit from a financial professional, yet only a 12% indicated they would actually do so if facing debt-related financial problems. A quarter of those responding said they would seek the advice of family members.1 While family and friends may have your trust and good intentions, they may not possess the specific financial knowledge necessary to help prepare for retirement.
Why do so few seek assistance? There are a number of reasons why those in need of financial assistance choose not to seek it. Some believe they will not be able to afford professional guidance. Others may be uncomfortable sharing their financial situation with a stranger. It is interesting that in an age where social media has increased the degree to which some are comfortable sharing aspects of their lives; money still remains a topic that people are reluctant to address. Some may believe they do not need advice because they are on track with their goals, although not all of those who hold this belief are realistic. For some, it is simple procrastination. Regardless of your specific situation, you can potentially benefit from discussing your retirement needs with a qualified professional.
Setting goals can lead to effective planning. If you have developed a financial plan this gives you an advantage over the majority of Americans who have not yet done so. A plan does not guarantee your financial success any more than a blueprint for a home guarantees that actual construction will be successful, but how many would actually try to build a home with no blueprint at all? Knowing where you are and where you would like to go can increase your likelihood of success.
Many do not understand what a financial plan actually consists of. While there are certainly topical plans that cover specific issues (investment management, for example), many would be well served by comprehensive financial planning, often with the assistance of a professional. A comprehensive plan will consider several aspects of someone’s finances, including investments, insurance, retirement, tax and estate planning. The goals, however, is not simply to address all of these areas in isolation, but how they may affect one another. It can be surprising to find just how interconnected different areas of personal finance can be if they have not previously been addressed together.
If all of these areas seem challenging to alone, let alone together, consider the additional changes that could cause those with a plan in place to need to reevaluate. Tax laws change. Investment performance varies from year to year. Families experience additional births or loss of loved ones. Even if all of these were static once a plan is developed, your wishes and goals may change over time. The act of planning is a process which includes the very important step of monitoring over time as things change. A professional planner can often be of greatest use not simply in developing an initial plan, but in making sure it still fits your needs on an ongoing basis.
Have you developed a plan of your own? If you have yet to develop a plan for retirement, this can potentially be a costly mistake. So can relying on a plan developed years ago that has not been updated to reflect changes not only in your personal situation and objectives but also updated tax and estate planning laws. Working with a competent professional on an ongoing basis gives you someone in your corner to help ensure that you understand where you are and what steps need to be taken to achieve your financial goals.
1 – nfcc.org/wp-content/uploads/2015/04/NFCC_2015_Financial_Literacy_Survey_FINAL.pdf [4/15]