The third week of October is officially National Save for Retirement Week so we un-officially expand this month to Retirement Readiness month. Thus, to start out the month, here are some not so fun facts about workers’ readiness to retire. Did you know that among working Americans:
- 2/3 report they have saved for retirement, but 57% have saved less than $25,000; in fact, 28% have saved less than $1,000 for retirement.
- Less than half have tried to figure out how much money they need to save for retirement.
- No wonder that 2/3 plan to work for pay in retirement and 63% believe Social Security will be a major source of income in retirement.
- Finally, more than half expect to be able to manage in retirement with no more than 70% of their pre-retirement income.
We’ll have more information on retirement in the coming weeks. In the meantime, rate yourself in these these four areas.
In Aesop’s fable of the ant and the grasshopper, the grasshopper spends the summer enjoying the sun and being idle. The ant spends the summer getting ready for winter by storing food. We seem to have some of this story taking place in U.S. right now.
The Conference Board’s Consumer Confidence Index reached its second highest reading of the year in September. On the other hand, the University of Michigan Consumer Sentiment Index fell to its lowest point since October 2014. So what’s going on?
I think these two surveys show exactly the sentiment among Americans. Many of our clients are fearful of a sharp stock market drop and have seen their portfolios lose money over the last year. No matter that most clients are far better off today than they were a couple of years ago. They have jobs, their investments have grown over the last 9 years, and their home has increased in value significantly in the last few years. But they are still worried about the future. Why is that? I’m not sure other than to say that what we have experienced most recently tends to overly influence our state of mind. Behavioral experts call this the “recency” effect.
On the other hand, many Americans do not worry about retirement, have saved little for retirement, spend as much as they make (or more!) and pile up credit card debt. These folks don’t hire a financial adviser because they don’t want to know the state of their finances. They prefer the “ignorance is bliss” approach.
This bi-polar approach to personal finance is one possible explanation of why one consumer sentiment index is registering a high mark and the other index is showing low numbers. Some people are like the grasshopper in the fable of the grasshopper and the ant; not worrying because the sun is shining today and they are ignoring the upcoming winter. Others know the winter will come and want to be prepared, like the ant in the story. Are you more like the ant or the grasshopper?