So How Is Everybody Doing??

 

By Mark Phillips

The last few years sure do feel like a big improvement over the nadir of the economic downturn in early 2010, which followed on the heels of the US stock market nadir in March 2009.

So how do we feel?

Generally a good bit better is what I hear. The overall mood of gloom has lifted a good bit.

How are we, here the collective average of us all, really doing?

Well, according to a study by the Federal Reserve Bank of the US (that Greenspan, Bernanke, Yellen led money supply agency) the reality, when it comes to our financial security, not so much better at all – on average.

Sadly, according to their work, the percentage of households at serious risk of not being able to maintain a similar lifestyle in retirement as we, on average, have/had enjoyed when working remains over 50%.

The percentage has not really improved from 2010 to 2013. This projection even assumes that everyone will work to age 65 – which is not the average age for retirement in the past few decades – the real age of retirement has been closer to 62. Further, the projection assumes that everyone would reverse mortgage their home and annuitize the cash out proceeds to help fund their retirement lifestyle – also something very few people are emotionally ready to consider.

http://www.marketwatch.com/story/retirement-index-shows-many-still-at-risk-2014-12-17

So, while many of us feel considerably better, we have, collectively, not really improved our financial situation.

What is the disconnect?

Job prospects have improves in many job sectors. Investment accounts have rebounded for the minority of people that have investment accounts. This rebound has not helped most people in a meaningful way – even if it has helped a minority greatly.

Is this us just living in the now and leaving the future for then?

Perhaps.

Are the numbers way off?

Not likely as I see and read evidence. Close to half of current retirees, many of them working during the 1983 through 2001 surveys, are living measurably below their pre-retirement lifestyle. This is consistent with what the earlier surveys had projected. It suggests that this was predictable and unsurprising – and that it is a strong predictor of the future as it stands.

I suddenly feel as if I have been visited by the Ghost of Christmas Future: “Tell me specter, are these images you show me the images of what will be or of what may be?”

I want to suggest you think of this communal/societal retirement security problem as a slow motion airplane crash, because it is in its own way. Over 50% of households are not ready for impact and will suffer for it.

Perhaps the safety announcement you hear (listening intently, right?) at the beginning of your air flights is a good metaphor: “If  the oxygen mask drops from the ceiling above you put your mask on first and then proceed to help your child and others around you.”

You know the oxygen mask is neither comfortable nor stylish – and yet you know that if it does drop down in front of you that you will look a whole lot better for having put it on so you will do it – right?

Here is my safety message for all:

First, ensure you have your financial security oxygen mask on:

·         Spending less than you make, save at least 10%, ideally over 15% of gross earnings

·         Protect your current and future assets (cash reserve, maximum disability insurance, adequate life and long term care insurance, etc.)

·      Save assets in an optimal tax treatment fashion before retirement, and extract them in a tax optimal fashion in retirement

·         Investing (not speculating) for long term growth and income

·         Establish a plan for aging and care as well as wealth transfer in alignment with serving your needs and goals

Next, proceed to help others with getting their financial security oxygen mask on:

·         Ask your friends what they want, really want, deeply want (not the stuff that they think they can have) in their life’s experiences

·         Ask them what is their plan and how you might help with that.

·         Share my above five point guide for getting a proper “Financial Planning Oxygen Mask” in place

·         Share your plans and the feeling of comfort that having a better understanding of where you stand gives you

·         Share interesting ideas and insights with others that have been helpful to you – or may be helpful to them

Because we may be a helpful component for your friends and family in this regard please introduce us and have us help.

After all, 52% of households not being able to maintain their working lifestyle even by working 3 extra years and revers mortgaging their home is simply an embarrassing group outcome. This, you may believe, will not be, and thus not effect you, however, my experience is that the shortfall of others you care about will effect you.

We all can help move the needle. We need to do so now as later will be too late.