As Gomer Pyle used to say, "Surprise, surprise, surprise!" According to the Allianz, Reclaiming the Future study in 2010:
Between 58%-60% of respondents in all age groups worry about longevity. 61% of all respondents said they were more scared of living longer than their financial resources than they were of dying. For those aged 44-49 the percentage rose to 77% and for those in their late 40s with dependents, that number was 82%. To be clear, 82% said that running out of money is more frightening than death. In fact, a Wells Fargo survey shows that 22% of Americans prefer to die early than not have enough money to live in retirement comfortably. For our video version please watch:
This information corresponds well with the Harris Poll I shared with you that 45% of 2,022 surveyed Americans in September of this year do not believe in their lifetime that their financial situation will rebound to the level it was prior to the 2008 global financial crisis. To stay in the game, you don't throw in the towel.
Life expectancy remains the wild card
Allianz identified that 52% of Americans made adjustments by cutting back on entertainment and dining out, 47% found ways to cut daily expenses, 11% decided that the kids need to support themselves more than they have, and 5% decided to downsize the house and move to less expensive area (this is just the first wave in my opinion).
As you prepare for the holidays and a brand new year, please allow me to help you get a better handle on your finances. Forget the markets. Forget all of them. Turn off the TV and put down that mobile. Do start with a new attitude. Decide now to approach your retirement questions with the attitude as you do your next vacation. Spend as much time planning your financial success as you spend planning the next trip. Decide where you want to go, when you want to arrive, and how you are going to get there.
Wes Moss is a financial planner who surveyed 1,350 retirees about net worth and income, assets, and home equity. Two of the things he found were that most people can be happy in retirement with about $500,000 in savings. He also found that people who call themselves happy generally spend 5 hours a year on their finances.
Don't get lost in the weeds
Before you go down the rabbit hole getting lost on what the market did, how hard the road to retirement is, and what the fees are, look in the mirror or at your partner and declare you are worth 5 hours a year looking at your finances. Then make a promise to yourself you must set aside no less than $500,000. Start now with your next check. It won't get any easier. Start setting aside an amount that you know you won't miss. Then it will get easier as you feel good about the progress you are making.
Do not bore me with your tales of woe. After Rickie Rich told me how much she and her husband's net worth dropped in 2008, how her home lost value In 2007, and how they realized that they were not as "in control" of their finances after a medical emergency, my reply is "We are all in this thing called life together and we know by now that this game is riddled with surprises. However, as you encourage your children to set and achieve their goals, our job as parents is to set good examples. So let's get started."
Goals are like archery targets: you have to see it to hit it
Rickie is the one in the family who pays the bills and manages the finances. She and her husband earn over $130,000 a year. They have about $30,000 in the bank and their goal is to become financially independent in 31 years. The cash is needed as an emergency reserve and there are no pensions. We assume there will be monthly Social Security income of about $3,000. To produce the balance of the income today in 31 years means their goal is over $7 million. Assuming a 6% return, this couple was shocked to discover they need to save about $6,300 a month. Rickie pointed out a 6% expected return was not a guaranteed return. This is true. After being frightened in 2008-09 she likes the bank and her husband follows her lead. When we assume the annual return is 1% a year they were even more surprised to see they need to save about $16,000 a month or 60% more than they earn before taxes. So the bank won't work for everything. Rickie and her husband decided to double their monthly investment from $400 to $800 and see if they might average 6% a year. It's not enough, but it's better than what they were doing, which was nothing.
Progress is progress
Use the time you have to your advantage in 3 ways:
1.Start saving something.
2.Allocate 5 hours in 2015 to your finances.
3.Determine what You need if you live to age 100 AND if a bread winner dies today.
I will prepare and someday my chance will come. Abraham Lincoln
by John L. Grace
The opinions expressed in this article are for general information only. They are not intended to provide specific advice or recommendations for any individual and do not constitute an endorsement by NPC. Securities licensed associates at Investors Advantage are Registered Representatives & Investment Adviser Representatives. Securities and investment advisory services offered through NATIONAL PLANNING CORP. (NPC), NPC of America in FL & NY, Member FINRA/SIPC, and a Registered Investment Adviser Investors Advantage and NPC are separate and unrelated companies.