Yes, Planning for Your Future is Getting Harder

December 29, 2014

A recent study conducted by Hearts & Wallets reveals unsettling trends about American's retirement planning.  The study indicates that planning for retirement is substantially more difficult today than it was ten years ago.

The areas of greatest difficulty for retirement planning include:

  • Deciding the year of retirement
  • Requirements to take withdrawals from retirement accounts
  • How to invest retirement savings
  • How to actually start saving and investing

The findings suggest further that locating the right resources, investment market volatility, choosing investments, and insurance are key issues.

The study identifies key factors driving difficulty with retirement planning with a big correlation between increasing confusion over:

  • Investment information overload
  • More difficulty with retirement planning
  • Increasing fear of being ripped off by financial professionals
  • Less enjoyment and confidence with money

So, if we take a look at these factors, there are a lot of variables that are large influencers in the difficulties and fears.

Age at Retirement  
Social Security is a major player in the decision about when a person will retire.  Social Security age for full benefits will continue to increase in the coming years.  Pension plans have eligibility age that may or may not coincide with Social Security.  Investment market trends – either up or down - can complicate the “date to retire” decision for defined contribution plan participants.  Up markets can make the decision to retire early more appealing; while down markets can cause substantial delays in “pulling-the-pin” on retirement.

Withdrawal Requirements
Whether you must pick from retirement plan options or how much you need to withdraw from a defined contribution plan, it’s just plain complicated.  Retirement plans generally ask you to pick how you want your benefit paid out at retirement.  The choice of lifetime benefits or time certain periods can be a dicey decision when trying to plan out how and when you want to have the greatest amount of income in retirement.  Choosing a lifetime benefit may mean a lower periodic amount.  Time certain payments which provide income for a specific period could mean that you run out of money once the time period expires.  Defined contribution accounts are wrought with risk.  Once again, running out of money is a definite concern depending upon spending habits, market performance, and the need for required distributions.

Investing Retirement Savings
With retirement age and withdrawal issues already on the table, things get really scary when you think about taking your life savings and try to invest so that you have reasonable protection and some level of growth.  Too conservative and too aggressive are the major pitfalls for retirement savings assuming that you are not otherwise independently wealthy and actually need the money for current and future living expenses.  Getting good, solid investment advice from a trusted investment professional is a good bet.

Start Saving and Investing
Underlying the issues covered already is the fundamental need to start saving as early as possible.  Potential savers and investors typically have house payments and young families to eat away at those potential savings and investments.  However, the gold mine that is represented by compounded growth on money saved and invested can’t be ignored.  Starting early is a lot better than trying to make up for lost time.

Solutions to these problems are not easy to find either.  Cutting through information overload is tough.  Grasping retirement planning is complex.  Finding the right advisor is hard.  Understanding and money and finance are overwhelming.  But let’s take a quick look at some ideas that may help.

Information Overload
There is just too much information at my virtual fingertips to assess.  The thousands of investment choices leave me in a quandary.  Picking one investment over another could be a disaster in the long run.  Where you must make choices to invest your savings, you can mitigate some of the risks by selecting “glide path” designed funds that gradually become less aggressive over time.  Some investment providers will categorize their products into categories like conservative, moderate, and aggressive.

Retirement Planning
Ideally, retirement planning should start the day a person starts their first job.  In reality, most wait decades to start the process. That doesn’t mean the retirement “dreaming” doesn’t start much earlier in life.  The major goal of retirement planning is to accumulate enough money to live as planned at a point when you wish to stop working.  Achieving the goal of a desired amount of money at the desire point of ending work is tricky business.  Important issues in retirement planning will include: health, lifestyle, location, and, continued investment acumen.

Investment Advisors
First, and foremost, contact a trusted, established investment firm or advisor.  Assuming that you are not filthy rich and have financial advisors stumbling all over you to help you, you have to exercise due diligence. The National Association of Personal Financial Advisors (NAPFA) is a great starting point for finding qualified advisors.  Always use caution to understand whether you are purchasing a service or a product – there is a difference.

Money and Finances 
This topic can involve a lot of math that doesn’t really interest you.  However, it impacts your future.  Having a basic grasp of the major issues will be a critical step underlying you successful retirement several decades from now.  The cost of insurance, housing, and activities will be driven by the money you save now and have available later.

Retirement planning is complex. With a little time spent now, the journey later will be a lot easier.

What is your biggest retirement planning worry?