Just Keep Pedaling

Help members shift retirement planning into high gear.

April 20, 2015

Just Keep Pedaling

Some bicyclists hit the trail after a long winter to enjoy the weather and congregate with fellow enthusiasts.

To keep astride while riding a bicycle, one must remain true to the methodology of propulsion: “Life is like riding a bicycle,” noted Albert Einstein. “To keep your balance you must keep moving.”

The bicycle analogy is not only true about life, but retirement planning. Consumers must know where they are going and keep pedaling with consistent saving habits, understanding investment options, and taking advantage of financial advice.

Research this week reveals what people think and how they behave in retirement planning. There are inconsistencies—and challenges exist in relationships between advisors and consumers.

What improvements can you make to “keep pedaling” with members as partners? Successful retirement planning might mean riding a bicycle built for two.

‘If I can bicycle, I bicycle.’ -David Attenborough, English naturalist

What do consumers think about retirement planning?

A “Comfortable Retirement Now Seen as a Financial Success,” notes Americans are at least thinking about retirement dollars.

Survey results show that enjoying a comfortable retirement was identified by 28%, “more than twice as many” who identified home ownership (11%) or being financially better off than parents (11%) as financial success indicators.

Still, merely one-third have “changed their savings behavior with regard to retirement” since the recession, and “it could be argued that the new goal” to reach a comfortable retirement remains distant.

Gallup says “Investors Moderately Confident About Retirement Savings.” Of retired investors, 88% say they are “financially prepared for retirement.” Only 47% are “very confident they have enough savings to last.”

Among the nonretired, 28% indicate they will have sufficient savings for retirement.

Results are noteworthy as “investors”—defined as those with at least $10,000 in savings—are better prepared than those without investments.

Younger investors need help in choosing investments, and older investors are concerned about adequacy of funds and making healthcare payments.

Indeed, “Americans Fear Running Out of Money in Retirement,” reports the Journal of Accountancy. Fifty-seven percent of CPA financial planner consultant clients have concern about fund shortages.

Health costs figure as a “chief factor” in such concerns.

Complexities in retirement planning grow as boomers age and combat unexpected events like divorce or adult kids moving home, along with “rise in dementia rates” that impact planning: “26% of clients have unexpectedly had to cope with dementia or diminished capacity.”

‘I never learned to ride a bicycle, and it is too late now.’ --Marlene Dumas, artist

U.S. Retirement Preparedness Seems Wobbly,” according to “Retirement security will likely be jeopardized for more Americans because of the shift away from defined benefit plans and fewer workplace plans,” and a new paper indicates more workers “will experience dramatic drops in their standard of living as they age.”

Key findings:

  • Workplace plans dropped from 61% to 53% between 1999-2011;
  • 68% of employees did not contribute toward employer plans in 2011; and
  • In households with the head of it age 55-64, 55% “will have to subsist almost entirely on Social Security or will not be able to retire.”

Of course, “Delaying Retirement Saving Can Cost You—A Lot,” and 68% of those 55+ confess they have a delayed start. Reasons for procrastination include other priorities (40%), confusion (23%) and “difficulty setting aside the money” (20%).

Compounding adds up. One saving 6% of a $36,000 income at age 25 will have nearly $500,000 at 65 with 3% employer match and 5% return. Someone starting at 35 must up savings to 12% annually, another beginning at 40 will put away 16.5% to reach the sum.

A closer look at various demographics shows interesting trends to complicate the issue.

Millennials Passive When Picking Investments” says They largely take advantage of choices employers offer, and tend to avoid making independent decisions; mutual funds are popular. But other options like exchange traded funds could also be important in millennial portfolios.

Women Nearly Twice as Likely to Retire in Poverty,” according to CNN. The gender wage gap is responsible as women earn 78 cents to every dollar earned by men, thus resulting in savings shortfalls.

“The median retirement income for women in 2010 was just 59% that of men.”

Meanwhile, “GenXers Outpace Boomers in Retirement Prep,” says Pittsburgh Business Times. Fifty-one percent of Xers have picked up their retirement savings pace since the recession, compared to 37% of boomers. Further, Xers more often feel totally responsible for retirement as they discount Social Security, inheritances, and pensions.

This is the case for 45% of boomers.

Overall, “Studies Confirm Poor Retirement Saving Habits.” Only 20% of Xers indicate comfort with retirement savings; two times as many millennials have a similar comfort level.

Only 57% of survey participants are investing dollars for retirement.

In all demographics surveyed, “a majority admitted a weakness for overspending,” particularly at restaurants and coffee shops. One-third earning $75,000+ “report living paycheck-to-paycheck.”

Employees Lack Understanding of 401(k) Plans” says Financial Advisor. Even those with opportunity to save in this manner “don’t always understand basic concepts…and that’s keeping them from taking best advantage of their plans…”

Although 92% indicate satisfaction with 401(k)s, lack of understanding means lower engagement and poorer outcomes. “Most individuals are unprepared to make decisions or take action to optimize their 401k) plans.”

‘Because, you know, I can’t work a bicycle pump.’ --Judi Dench, actress

Advisors Key to Retirement Confidence—But There’s a Disconnect,” says Financial Planning. Confidence is down; 86% of survey respondents say they are better positioned for retirement with an advisor’s help.

The problem is that clients believe a high level of trust is found with an advisor after five years. Advisors believe this trust is attained in two years; keeping consumers on a defined path requires trust.

Think about how to bridge that gap and consider “Four Questions Everyone Must Ask Their Retirement Advisor.” How do you measure up?

  1. What value do you offer?
  2. Is the planning you give comprehensive?
  3. Are you prepared with advanced financial planning background?
  4. How are you compensated, and how is this communicated to consumers?

Charles Schulz said, “Life is like a 10-speed bicycle. Most of us have gears we never use.”

Make sure your members know how to shift retirement planning into gear, and that you are there to demonstrate how to reach adequate savings speeds.

 LORA BRAY is an information research analyst for CUNA’s economics and statistics department. Follow her on Twitter via @Bray_Lora and visit the CUNA blogThe Research Roundup: Economic Perspectives.