Do men and women plan and save for retirement equally? The 21st annual Retirement Confidence Survey (RCS) provides some answers. The RCS found men and women are equally likely to save for retirement. Also, women are statistically as likely as men to report they are offered (43 percent vs. 49 percent) and contribute to (34 percent vs. 39 percent) a work place retirement savings plan. However, men (17%) are more likely than women (10%) to say they are very confident about several of the financial aspects of retirement.
Interestingly, although women tend to face higher health care expenses in retirement due to their greater longevity, women (35 percent) are more likely than men (26 percent) to think they will need to accumulate less than $250,000 for retirement. Another point of departure is that women are more likely than men to be very concerned about the possibility that Social Security payments will be reduced (68 percent vs. 52 percent) and the age at which they become eligible for Social Security retirement benefits will increase before they retire (54 percent vs.44 percent).
Apart from gender comparisons, the 2011 RCS reported some disconcerting news -- Americans’ confidence in their ability to afford a comfortable retirement has plunged to a new low. The percentage of workers not at all confident about having enough money for a comfortable retirement increased from 22 percent in 2010 to 27 percent this year, the highest level in the RCS’ 21 years. Also, instead of reducing spending and/or saving more to shore up retirement accounts, most workers are planning on delaying retirement and/or working part-time in retirement. My caution is always is that health concerns may not allow you to work as long as your figure to.
Monday, April 25, 2011
Monday, April 18, 2011
Decisions, Decisions
In Which Risks Are Worth Taking Jim Parker, a vice president at Dimensional Fund Advisors, writes, “Even the most self-declared risk-averse people take risks every day.” Parker notes that routine risks to our safety include crossing the road, exercising at the gym, choosing lunch and using electrical equipment. He adds, “There are the big decisions like selecting a degree course, choosing a career, finding a life partner, buying a house and having children. These are all risky decisions, all uncertain, all involving an element of fate.”
In making these decisions, Parker says we seek to “ameliorate risk by carefully weighing up alternatives, researching the market, judging possible consequences and balancing what feels right emotionally and intellectually, both in the short term and in the long.”
New research from Harvard Business School’s Michael Norton addresses how managers making decisions often err in one of two directions—either overanalyzing a situation or ignoring helpful information to go with their gut. More specifically, when deciding among potential products or employees, managers routinely take too much time considering all the attributes of their choices—even attributes that are irrelevant. Equally troublesome, their fear of the decision paralysis that can occur when evaluating too much information, often cause managers to decide to trust their instincts.
In an article discussing Norton’s finding, a sentence Dr. Seuss might have written caught my eye: “We know that sometimes people think too much, and sometimes they think too little. But we still don't know the right amount to think.”
I suggest that when it comes to financial decisions, it’s always wise to have a trusted financial advisor in your corner who understands the tradeoff between risk and return and how to build a portfolio that suits your risk tolerance level. A financial advisor can help you think and make solid decisions, giving you the best chance of achieving your goals.
Parker also believes investors need help making financial decisions about risk. “Advisors,” he writes, “help us take an objective assessment of the potential risks and rewards of various alternatives, by taking a holistic view of our circumstances and by keeping us free of distraction and focused on our original goals.”
I couldn’t agree more. Invest without the help of an advisor and you may be exposing yourself to unnecessary risks -- whether you’ve thought long and hard about your decision, or just gone with your gut.
In making these decisions, Parker says we seek to “ameliorate risk by carefully weighing up alternatives, researching the market, judging possible consequences and balancing what feels right emotionally and intellectually, both in the short term and in the long.”
New research from Harvard Business School’s Michael Norton addresses how managers making decisions often err in one of two directions—either overanalyzing a situation or ignoring helpful information to go with their gut. More specifically, when deciding among potential products or employees, managers routinely take too much time considering all the attributes of their choices—even attributes that are irrelevant. Equally troublesome, their fear of the decision paralysis that can occur when evaluating too much information, often cause managers to decide to trust their instincts.
In an article discussing Norton’s finding, a sentence Dr. Seuss might have written caught my eye: “We know that sometimes people think too much, and sometimes they think too little. But we still don't know the right amount to think.”
I suggest that when it comes to financial decisions, it’s always wise to have a trusted financial advisor in your corner who understands the tradeoff between risk and return and how to build a portfolio that suits your risk tolerance level. A financial advisor can help you think and make solid decisions, giving you the best chance of achieving your goals.
Parker also believes investors need help making financial decisions about risk. “Advisors,” he writes, “help us take an objective assessment of the potential risks and rewards of various alternatives, by taking a holistic view of our circumstances and by keeping us free of distraction and focused on our original goals.”
I couldn’t agree more. Invest without the help of an advisor and you may be exposing yourself to unnecessary risks -- whether you’ve thought long and hard about your decision, or just gone with your gut.
Monday, April 11, 2011
Is Cash in the Pocket Better Than Waiting for More?
In a recent article, Why We're Not Wired for Successful Retirements, Philip Moeller explores the psychology behind the answers to that question as documented in new research by Justine Hastings of Yale University and Olivia Mitchell of the University of Pennsylvania. Their paper for the National Bureau of Economic Research reveals the results of two tests they conducted to ascertain why people often fail to make sound financial decisions.
Interestingly, the findings Moeller reports on were based on research with consumers in Chile, not the United States. The first test involved posing six relatively simple questions to gauge respondents’ financial literacy. (Nobody scored 100 percent.) In the second test, people were offered the option of receiving the equivalent of about $8 if they filled out a shopping questionnaire right away, or a larger amount of money if they took the questionnaire with them and mailed it back within four weeks. (Not surprisingly, more than half the people chose the immediate payment; 30 percent chose to wait for more money and 17 percent took the questionnaire with them, yet failed to return it.)
Said the researchers, "We find that the impatience measure strongly predicts respondents' self-reported retirement saving and health investments. Financial literacy is also associated with more retirement saving, but it is less closely associated with sensitivity to framing of investment information."
For me, the research’s real lesson for those saving for retirement comes from reviewing the question most people answered incorrectly. Addressing compound interest, the question asks: Assume that you have $200 in a savings account, and the interest rate that you earn on these savings is 10 percent a year. How much would you have in the account after two years? Not too many people came up with $242. (You earn $20 the first year on 200, then $22 on $220 during the second year.) Understanding the long-term power of compound interest in tax-deferred savings accounts is crucial to motivating investors to sacrifice today for their benefit tomorrow.
The need for immediate gratification, a uniquely American characteristic, can be difficult to overcome, but doing the math may convince you.
Interestingly, the findings Moeller reports on were based on research with consumers in Chile, not the United States. The first test involved posing six relatively simple questions to gauge respondents’ financial literacy. (Nobody scored 100 percent.) In the second test, people were offered the option of receiving the equivalent of about $8 if they filled out a shopping questionnaire right away, or a larger amount of money if they took the questionnaire with them and mailed it back within four weeks. (Not surprisingly, more than half the people chose the immediate payment; 30 percent chose to wait for more money and 17 percent took the questionnaire with them, yet failed to return it.)
Said the researchers, "We find that the impatience measure strongly predicts respondents' self-reported retirement saving and health investments. Financial literacy is also associated with more retirement saving, but it is less closely associated with sensitivity to framing of investment information."
For me, the research’s real lesson for those saving for retirement comes from reviewing the question most people answered incorrectly. Addressing compound interest, the question asks: Assume that you have $200 in a savings account, and the interest rate that you earn on these savings is 10 percent a year. How much would you have in the account after two years? Not too many people came up with $242. (You earn $20 the first year on 200, then $22 on $220 during the second year.) Understanding the long-term power of compound interest in tax-deferred savings accounts is crucial to motivating investors to sacrifice today for their benefit tomorrow.
The need for immediate gratification, a uniquely American characteristic, can be difficult to overcome, but doing the math may convince you.
Monday, April 4, 2011
Our Thoughts and Prayers are with the People of Japan
The massive March 11th earthquake and tsunami that devastated northeastern Japan left more than 18, 000 people dead and thousands more are still missing. Close to half a million people have been displaced and the nuclear crisis at the Fukushima Dai-ichi plant has the public’s fear mounting. While the overwhelming cost to human life is of paramount importance, many also worry about how Japan's economy will be impacted.
The World Bank recently estimated rebuilding from the worst earthquake and tsunami in 300 years may cost the world’s third largest economy upwards of $235 billion Other numbers, many noted in a recent story Economic Impact of Japan's Quake by Kimberly Amadeo, are staggering.
According to Carl Weinberg, High Frequency Economics, 11 of Japan's 50 nuclear reactors have been shut down. Given that Japan's nuclear industry supplies a third of the country's electricity, production will be limited to less than 80% of pre-quake/tsunami potential for a long time.
According to Kyohei Morita and Yuichiro Nagai of Barclays Capital, the quake hit the north-east section of the country, responsible for 6-8% of Japan's GDP. They figure damages could exceed 15 trillion yen, or 3% of GDP.
With a total of 22 manufacturing plants, including Sony, still closed, the global supply chain of semiconductor equipment and materials will clearly be impacted.
Here are two more numbers to consider: The American Red Cross now lists “Japan Earthquake and Pacific Tsunami” as one of the choices for online donations at the Red Cross. Alternatively, you can make a $10 donation by texting REDCROSS to 90999. Among countless other organizations, UNICEF is also coordinating efforts to help the children of Japan. You can use the form on UNICEF's website to donate 100 percent of your desired amount to their fund designated for victims of the earthquake. Or you can simply text JAPAN to 864233 to donate $10.
The World Bank recently estimated rebuilding from the worst earthquake and tsunami in 300 years may cost the world’s third largest economy upwards of $235 billion Other numbers, many noted in a recent story Economic Impact of Japan's Quake by Kimberly Amadeo, are staggering.
According to Carl Weinberg, High Frequency Economics, 11 of Japan's 50 nuclear reactors have been shut down. Given that Japan's nuclear industry supplies a third of the country's electricity, production will be limited to less than 80% of pre-quake/tsunami potential for a long time.
According to Kyohei Morita and Yuichiro Nagai of Barclays Capital, the quake hit the north-east section of the country, responsible for 6-8% of Japan's GDP. They figure damages could exceed 15 trillion yen, or 3% of GDP.
With a total of 22 manufacturing plants, including Sony, still closed, the global supply chain of semiconductor equipment and materials will clearly be impacted.
Here are two more numbers to consider: The American Red Cross now lists “Japan Earthquake and Pacific Tsunami” as one of the choices for online donations at the Red Cross. Alternatively, you can make a $10 donation by texting REDCROSS to 90999. Among countless other organizations, UNICEF is also coordinating efforts to help the children of Japan. You can use the form on UNICEF's website to donate 100 percent of your desired amount to their fund designated for victims of the earthquake. Or you can simply text JAPAN to 864233 to donate $10.
Friday, April 1, 2011
Dimensional Stories: People Putting Ideas Into Practice
Someone recently asked me for information about the story of Dimensional Fund Advisors. I recalled this video and provided a link to it. I enjoyed watching the video again and decided I should share it on my blog. I hope you find it informative.
If you have questions about Dimensional Fund Advisors, you should consult with your independent registered investment advisory firm.
If you want to see a bigger version of this video, click on this link. Click Here>>
Disclaimer: This video contains the opinions of the participants but not necessarily Dimensional Fund Advisors, DFA Securities LLC, or Bernhardt Wealth Management, Inc., and do not represent a recommendation of any particular security, strategy or investment product. The participants' opinions are subject to change without notice. Information discussed in the videos has been obtained from sources believed to be reliable, but is not guaranteed. These videos are made available for educational purposes only and should not be considered investment advice or an offer of any security for sale. Past performance is not indicative of future results and no representation is made that the stated results will be replicated.
If you have questions about Dimensional Fund Advisors, you should consult with your independent registered investment advisory firm.
If you want to see a bigger version of this video, click on this link. Click Here>>
Disclaimer: This video contains the opinions of the participants but not necessarily Dimensional Fund Advisors, DFA Securities LLC, or Bernhardt Wealth Management, Inc., and do not represent a recommendation of any particular security, strategy or investment product. The participants' opinions are subject to change without notice. Information discussed in the videos has been obtained from sources believed to be reliable, but is not guaranteed. These videos are made available for educational purposes only and should not be considered investment advice or an offer of any security for sale. Past performance is not indicative of future results and no representation is made that the stated results will be replicated.
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