The State of Financial Planning For Retirement

A report by the National Financial Educators Council found that only 24% of American adults have a
high level of financial literacy.

Regarding financial planning for retirement in particular, recent studies and surveys from Charles Schwab,
RBC Wealth Management and Schroders Wealth Management, found that:

• Only 23% of households have a written financial plan.
76% say it is too difficult or confusing to create a financial plan.
56% believe that a plan is not useful because life is too uncertain.
57% rely on friends and family for financial advice.
• Only 53% understand how their savings and investments would work together to provide income in retirement.
• Only 49% understand the tax implications of taxable withdrawals from 401k/IRA savings.
• Only 44% understand Required Minimum Distributions.
65% do not know how much can be withdrawn from savings annually to prevent them from running out of money.

This is troubling. Everyone will need/want to retire at some point, and desire to be comfortable in retirement,
so why are so many so willing to be so unprepared?

Is it any wonder that web sites like Yahoo Finance are overloaded with ridiculous adverticles (advertisements poorly disguised as articles) from Sm**t Asset offering guidance (incorrectly) about how much to save for retirement, when to claim Social Security, or "Can I retire with $5M?"! All of them full of half-truths and misinformation if for no other reason than those questions cannot be answered without knowing the specifics of someone's situation. But there are troves of people who don't know where to go to get reliable information so they keep clicking on these "articles" hoping for good advice but only getting generic, outdated benchmarks that are directional at best and useless for individual circumstances. Honestly, it's just not that hard to create an individualized financial plan to determine exactly
where you stand, and what you can do to reach your goals. Like anything else, it just requires using
the right tools and being willing to expend even a minimal amount of effort. No experience necessary.

It reminds me of the diamond industry - full of mystique and mystery, with so few people properly trained that it's near impossible to determine what you are really buying, whether you can trust what you are being told, and how much it should really cost. I'm sorry to say that, but I was in the industry for 20 years and saw it first hand. I hate to break it to you, but in terms of pricing, diamonds are a commodity. All diamond dealers/wholesalers pay basically the same price for the same size/shape/grade of diamond, with some fluctuations for how far down the food chain they are. Can the consumer know for sure that they are receiving the grade of diamond that they are being charged for (i.e., getting good information)? Not if you don't do your due diligence, but I can show anyone how to grade a diamond, including how well cut it is, within a very small margin of error, in less than 10 minutes (I'm also G.I.A. trained Gemologist). There is no mystery if you have the right information, but the industry benefits from keeping you in the dark.

In fairness, in both financial planning and diamond grading there are a lot of details, and even small details can have a large impact. I can't provide enough detail in one conversation to make anyone as knowledgeable as a Gemologist,
and you may never gain all of the knowledge of a trained financial adviser, but you also do not need to reach that level
to create a reliable financial plan. There are tools available to help you, or you can hire a financial adviser, but either way, you only get to prepare for retirement once. Taking the chance of being ill-prepared, or utilizing poor information, and possibly running out of money in your 70's or 80's just isn't worth it. Don't give creedence to rules-of-thumb, what your best friend does, or any advice that does not directly apply to your specific situation. You can create a financial plan in an hour or two and that small amount of effort will show you, in black and white, year by year, how you will fare throughout retirement. If the plan needs adjustment to help you to be better prepared, it is much better to know that now while you still have time to take action rather than to find out later when you won't have the same options.

While retirement planning can be complex, requiring the coordination of many key decisions involving Social Security, Medicare, taxes, inflation, market risk, and longevity risk, that is exactly why having the best possible information to act on, the better. There is just no good reason to be poorly prepared for this by not having an individualized financial plan.

Last, and most important insight from the Wealth Management studies:

91% of those who had a financial plan said that it gave them confidence that they would be able to maintain their desired standard of living throughout retirement, with 33% of those saying that such a plan was critical to putting them on a better path to financial stability.
That speaks volumes. Stop guessing, start planning!


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