As we pointed out in our recent post, one-third of Americans have less than $1,000 saved toward retirement. That’s a frightening statistic. A financial literacy study by Harris Interactive found that 40 percent of adults give themselves a grade of C, D, or F on their knowledge of personal finance. Further, 56 percent admit that they do not even have a budget.
Saving for retirement is like learning to ride a bike. You can’t do it if someone doesn’t teach you how. What’s been your experience with clients and their savings profile? Have they factored increasing taxes into their long-term plan? Have they involved other family members in planning for their estate? We find that many of our clients are only partially prepared, and that they’re lacking knowledge in some very basic financial concepts.
According to a recent article by The Motley Fool, “The SEC released a wide-ranging report on financial literacy in the United States. Sadly, it was found that ‘American investors lack essential knowledge of the most rudimentary financial concepts: inflation, bond prices, interest rates, mortgages, and risk.’ The study ultimately concluded that this lack of financial knowledge will have a serious adverse effect on the ability of Americans to retire comfortably.”
Too many people think they have a plan for retirement. They say, “I have my 401(k), two IRAs, some savings, and a brokerage account. Therefore, I am all set.”
But that’s not a plan – it’s a list. Experts estimate that required retirement income should be between 70% and 85% of pre-retirement income. So, if pre-retirement income is $100,000 annually, individuals should generally shoot for $70,000 to $85,000 of post-retirement income annually for a comfortable lifestyle. That’s a far cry from more than one-third of Americans with less than $1,000 in savings.
We simply have not equipped individuals with the tools to confidently save for retirement. Over the years, employers have shifted more and more retirement responsibility onto employees who are ill prepared to handle the task. Giving people total responsibility for their financial future without the tools to succeed is akin to giving a 14 year old the keys to the Porsche. It’s just not a good idea.
So how do we solve our financial literacy problem? What tools do you provide your clients so that they can properly educate themselves on everything from medical expenses to estate taxes to tax mitigation? Let us know how you help educate clients in the comments section below.