5/27/2011 12:45 PM ET|
How fear can ruin your retirement
A new study indicates recent or soon-to-be retirees have serious money worries, but they can take steps to assuage those concerns and improve their financial situation.
The idyllic, play-golf-and-travel vision of retirement may well be a thing of the past. Most new retirees are either nervous or downright frightened about their golden years, according to a new study.
Uncertainty about the future, fear of poverty, lack of confidence in their investing abilities and distrust of the financial services industry were four of the most common feelings expressed by 300 recent or soon-to-be retirees in interviews conducted between 2008 and 2011 by Financial Engines, a Palo Alto, Calif.-based investment advisory firm that provides services for companies that offer retirement savings plans to their employees.
More than half of those surveyed were uncertain what the future might bring, and almost half of them said they were afraid of falling into poverty. One 66-year-old retiree quoted in the report said he is "having night sweats now. I'm really concerned about having enough. You never know how long you'll live and how much you'll need."
Often, their fear hindered these retirees from making key financial decisions, said David Ramirez, portfolio manager at Financial Engines and co-author of the report.
"Certainly the minority is the retiree that's absolutely confident about what the future will bring," Ramirez said. "These emotions are creating very strong behavioral barriers that prevent them from getting help."
Frozen with fear
One common reaction to their financial fears: Retirees did nothing. "I really don't have a financial plan," said a 64-year-old retiree quoted in the report.
Said one 60-year-old about his investing uncertainty: "Trying to shift stuff around at our age is scary. . . . If you make a mistake, we're in a cardboard box eating dog food. I don't have 20 years anymore."
Others resorted to wishful thinking. Carol, a 63-year-old quoted, said, "I'm just basically baffled. . . . I'm one of those believers that it will all work out somehow."
Even some of the retirees who had done everything right when they were saving for retirement said they didn't know what to do with their money now that they are no longer working, Ramirez said.
"When should I take my pension? When should I take my Social Security? These are complex questions," he said. "And, sadly, many of them are irreversible, and the consequences of making the incorrect decision can influence how the rest of your life goes."
He added, "Given that the stakes rise so much, even people who were confident before retirement often don't feel as confident" after they retire.
Nowhere to turn
Many of the retirees said they needed financial advice. At the same time, they expressed distrust of the financial services industry and a fear of hidden fees and costs.
One 63-year-old said, "If I trusted an adviser, then I'm always wary because I know that they are out to make money. . . . I don't trust them handling my money."
Said another respondent, "My overall impression with investment advisers is that their ultimate goal is their own wealth, not mine."
Still, the retirees with large account balances had no shortage of offers of help; financial advisers seek them out to offer their services. For those with smaller account balances, that was not the case.
"There's that 'hunted' category," Ramirez said. "Sadly, there is also the ignored group. These are people who don't have the large enough balances. One woman said, 'They keep just asking what my balance is, and when I told them, they made me feel small.'
"It came up quite a bit -- people with small balances often would apologize for having a small balance," Ramirez said.
The findings offer a clear message for the financial services industry, he said. "One of the most important takeaways for us is people don't need to be judged," he said. Advisers "need to be empathetic about this generation's emotional state and the challenges they've had."
What can retirees do?
What can retirees and near-retirees do to assuage their concerns and get their financial house in order? First, ask your employer for help. Some companies offer a retirement income product that may be a good option for helping you manage your money through retirement.
Twenty-seven percent of companies provide some form of retirement income product, either inside or outside the savings plan, according to a survey of 210 employers by Aon Hewitt, whose retirement plans cover more than 6 million workers.
And of those that don't currently offer a retirement income product, 13% said they are very likely to add one in 2011.
If your employer does not offer help, consider getting professional advice. Some companies, such as Smart401k.com, offer retirement investing advice for a flat annual fee.
Or look for a fee-based financial planner. That way, Ramirez said, "you understand exactly how they are compensated, and you can make sure their interests are highly aligned with your own."
This article was reported by Andrea Coombes for MarketWatch.com.
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After what has happened in the last 3-4 years, living in fear of financial ruin seems to be the new paradigm in America. You feel it no matter how much money you have. Listening to financial advisors put a new spin on their same old ideas doesn’t help me much. The only salvation I’ve discovered is to live way below my means. Be rich, live poor, and you just might discover a new kind of freedom.
I've done, at age 60, spreadsheets with lots of different variables to see what I can expect in the future under various possible financial calamities. The ONE thing that could drive me into poverty by my late 70's would be continued out-of-control healthcare plus deciding Seniors, whose earlier-in-life premiums subsidized the then-Seniors' higher costs, should pay much more now because they use more healthcare. In 2006, it took 10% of my pension to pay for my 20% share for BCBS Preferred Provider. In 2011 it takes 13.4% of my pension to pay for my 25% share for BCBS HMO. While my copays, etc. are near-Cadillac in quality, I know that's not going to last.
You'll talk about 401k's and stocks, and shifting money around, what about the guy that works for a company for twenty years, and then works for another twenty for another company, his wife has no kind of retirement,accept of SS, My highest salary never been more than 42k yr. that's without Uncle Sam's cut and medical, We put three kids through college. Now I am 61 and ready to call it quits, I've work since I was 16, and its been hard work mostly construction and survey. After all said and done, I'll be making three times more then I've ever made when I retire.
So do I enjoy or do I invest. Its hard for me to give my money to someone to see if maybe he can make me some more.
In the first place you can't go into retirement head over heals in debt, then continue the same life style you had in pre-retirement. You need to get out of debt before you retire, and start socking some cash away. In the bank, 401K, what ever. Then after you retire you have to make some life changes. QUIT SPENDING SO MUCH!!!
I have retirement coming up in five years at 62. Everything I read says wait until 65 or 70. Nope, no way I'm getting out at 62. I've had quite enough of "The Great American Workforce." And you know what? Except for utilities, I have NO BILLS. Everything is paid for, and I plan on keeping it that way. I have a pretty healthy bank account and 401K. If I don't absolutely need it, I don't buy it. And if I do buy, it's on sale. All groceries I buy on sale, and I don't do the deli. I don't do fast food, I don't even go out to eat. I don't try to keep up with the Jones', because the Jones' will break you.
I don't have a lot, but I damn sure got it made!
Like an old saying from the 1930's "Make do or do without, use it up and wear it out." Words to live by.
The one thing you can count on in your later years is this. The US government, that's right, good old uncle Sam will continue to see to it that "Fears abound."
The longer you wait to draw SS the more you draw, so continue to work until you die then neither you nor uncle Sam has to worry about it. From its day of conception politicians have schemed to figure out how to beat you out of these monies that you have paid in and how to put it in their own pockets. For the most part they have thus far been very successful. This will not change. That is what politicians do. They write and pass laws that take from you and give to them. As long as we allow this to happen it will continue. Sooner or later we have to stand up. Sooner or later we will pass the point of no return.
Uncertainty. Fear. Lack. Hmm. Putting energy into all of the things you don't want will most certainly help bring them your way. You never know what's going to happen. Do the very best you can leading up to retirement, e.g. get completely out of debt; save as much as you can out of each paycheck; know how and where you are going to live; and know what is important to you from day to day. Give retirement preparation your best shot and then take the leap. Articles like this have been around for years and they say nothing new. If you think you have any shot at retirement at all, GO FOR IT!!!!!!!!!!!!!!!!
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