As financial experts sound the warning bells about the American retirement planning crisis, and how little the average worker has saved toward his or her golden years, all kinds of questions abound -- what exactly do retiring workers have squirreled away to provide for them when they quit working? How do they use assets or equity accrued over time throughout their careers? What types of investment vehicles do they use, and how do they get the money out -- and when?
Within all of this, there is the idea of investing versus saving, or, from another perspective, investing and saving. Part of understanding the retirement crisis is understanding our collective psychology and how we feel about money, whether we rely too much on one kind of financial strategy, or simply avoid tough financial issues until the 11th hour.
What do we have? Assessment of average assets
One factor is how much the average worker has to allocate toward future goals. U.S. Census numbers from 2011 show the national median net worth of households at somewhere around $75,000 – but that's only part of the picture: Breakdowns by age demographic show that older workers have an outsized share of net worth compared to younger age groups -- which just makes sense, since they've had more time to save, build equity, etc.
Assessing investment and asset use
A new study on retirement trends surveyed around 5,000 respondents to get a picture of how retiring workers prepare. The study found that fewer than half of surveyed retirees are using personal assets to get regular income.
This simple statistic can be viewed several different ways. Despite a rather cryptic interpretation from one of the partners at Hearts and Wallets claiming that retirees will not typically get large amounts of income from personal assets because of "diverse lifestyles," it is evident that many retirees are saving personal assets for emergencies.
This gets to the heart of the issue on saving and investing: Many Americans feel better served having money in the bank, equity in their homes, or even cash stuffed into a jar, hidden away somewhere. And while it's good to have capital at the time of retirement, whether you call it net worth, personal assets, or liquid cash, it's also good to have that money working for you as you age, which necessitates putting it into specified 401(k)s, individual retirement accounts, brokerage accounts, and other vehicles for capital gains. Many of these investment vehicles offer tax advantages geared especially toward aging workers. But although these programs are set up to benefit the average worker, they are only as effective as their popularity. In other words, investment vehicles require trust on the part of the depositor, where keeping liquid assets or personal assets often provides an individual with a feeling of empowerment.
That's the rub when it comes to hard-working career professionals sitting down and figuring out what amount of money to put into retirement accounts, what amount of money to put into real estate, and how to allocate all the remaining discretionary income after the bills are paid. That, and the responsibility to provide for the kinds of emergencies that always crop up for workers and retirees alike. Absent a crystal ball, aging workers have to make some educated guesses about what they will need, and when they will need it, while at the same time navigating the byzantine new world of Medicare coverage.
In order to fit a reasonable retirement savings plan into the picture, workers need the confidence to give up the direct control of some assets in essential ways. In short, you could say that workers need to be able to trust the financial community, and participate in employer-offered programs. The longer-term solution is likely much more complex, and requires not only trust, but access to investment vehicles through having a public that is better educated on the long-term use of money. New products and investment offers can help with this, and the current administration has provided its own encouragement in the form of new, more accessible retirement planning tools like the MyRA program. In terms of promoting retirement investing as a form of self-betterment and self-protection against an uncertain future, however, those poised to give advice may have a steep hill to climb.
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Justin Stoltzfus is a contributor to WiserAdvisor.