What college and life has not yet taught
In college, I studied economics. Not one course provided education on saving for retirement. Furthermore, while I read a considerable amount for both business and pleasure, infrequently do I find much written about retirement plans. So how and where do we learn about such matters? Unfortunately, empirical research is not always shared.
For those of us too young to have experienced long-term job security and pension plans, the onus of retirement planning falls squarely on ourselves. According to the Bureau of Labor and Statistics, from 1980 through 2008, the proportion of private wage and salary workers participating in pension plans fell from 38 to 20 percent.
Conversely, the number of people is rising who participate in plans such as 401(k)s where employers subsidize investment accounts that are owned by the employee.
Are you wondering why this difference has occurred? Traditional pensions are tied to employers who, consequently, bear the responsibility for ensuring that employees receive pension benefits in retirement. Employers like IBM, GM and Ford claim they can’t compete with foreign and domestic rivals that aren’t burdened by similar retirement-benefit costs. With the volatility in stock prices and low interest rates, which boost pension costs, many companies that once offered such benefits have abandoned traditional pensions.
Such changes have led to widespread concern about the adequacy of households’ retirement savings. With declining retirement benefits and longer life expectancies, working beyond 65 years old is both more necessary and more possible. The relationship between an individual’s survival expectations and their planned retirement age is ambiguous, and thus the retirement landscape is shifting dramatically. Today, the responsibility for a comfortable retirement rests mostly on the individual. Therefore, individuals’ approach to retirement must be altered along with their perceptions about their ability, willingness and need to work at older ages.
In economics, there is concept called the life-cycle hypothesis. The evolution of this concept has come to include the life-cycle model of savings behavior. This model of savings behavior explains how households should time their savings in order to smooth consumption over their lifetime. The objective of this model is to help explain and educate how households would save more when income is high and less when income is low. For those of us with children living at home, our consumption is most likely rather high, and therefore our ability to save is mitigated. Food, clothing, camps and sporting activities all cost money, so households often spend more during this period.
Alternatively, once the children leave home, parents typically reduce total household costs. However, too often they increase their spending on themselves. The long-awaited trips, boats and toys are now accessible. Studies show that in excess of 51 percent of people choose to spend money freed up by lower expenses rather than laying a foundation for their future. Here’s the tricky part: How do we educate ourselves about how to save and about what expenses lie ahead?
If you are concerned about the adequacy of your retirement savings, you are not alone. If you don’t already know what a Keogh plan is, or a self-funded 401(k), Roths or about long-term care insurance, you may want to do some research.
Regardless of the fact that many of us have various levels of income and different ideas of how we would like to spend our retirement, we all may very well share the common desire to make sure that our basic needs are met in our future.
How you save can be as important as how much you save. The amount you save is incidental to establishing and initiating a plan to save. If you feel that you don’t have enough net worth to justify meeting with a financial planner, you are probably wrong. You certainly have nothing to lose. As little as $25 to $100 a month can make a difference.
Judson Haims is the owner of Visiting Angels Home Care in Garfield County. His contact information is http://www.visitingangels.com/comtns and 970-328-5526.
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