Planning for Retirement -- Not a DYI Activity

As you contemplate your financial check-up, there are a many tools and calculators available to you. But where do you start? Banks, asset managers, brokerage firms all offer these tools to their customers. I was reviewing some of the tools available at my bank and there were over 50 financial calculators. That's right 50! I've been working in the financial services sector for over 20 years and I was so overwhelmed, I just logged off. If you have encountered the same scenario, find a financial advisor who can help you assess your retirement saving plan. Don't put off finding out "how you are doing" because you are overwhelmed by information. A financial advisor can cut through the clutter.

"How am I doing?"

Ed Koch, former New York City Mayor, would ask everyone he met one question, "How am I doing?" As a New Yorker, someone opening the door for you to express your opinion was not necessary, nevertheless, it was welcomed. This question is one that most people never ask regarding their retirement. How many participants do an Annual Review of their personal retirement plan? If they are working with a Financial Advisor, he or she will probably propose an Annual Review and perhaps recommend strategies like rebalancing to keep your overall financial plan on course. The reality is that no one can force us to do what we don't want to do. If your healthplan didn't pay for it, would you go for Annual Check Up? (How many of us don't do it even if it only costs us a $20 copay?) As we get ready to embrace Fall and the 4th Quarter, now is the time to start planning for 2008. Start gathering your statements. Read about the impact of the Market on long-term investing, and begin thinking about your personal Financial Annual Review? Spend more time planning for your retirement, then you would trying to figure the "perfect" Holiday present for Aunt Matilda.

A Retirement Reality Check for PPA

On its surface, PPA's safe harbor automatic enrollment provisions seem to simultaneously solve two common problems: low participation for plan sponsors and low savings rates by participants. However, a recent study by Plan Sponsor magazine revealed that plans with automatic enrollment achieved 80% participation compared to 75% for plans without automatic enrollment. This is a long way from the 90% to 95% that experts anticipated.

At the core is the reality that plans tend to apply automatic enrollment prospectively. PPA does not require employers to apply automative enrollment retroactivley so it is likely plans will continue apply the provision on a prospective basis. As a result, new employees will participate and begin saving for their futures. Existing employees, will continue to sit on the sidelines.

What is needed to changed employees from passive participants and non-participants to active retirement planners? Education! Increased financial literacy will help engage participants encouraging them to take charge of their financial futures.

Shocking Statistic

Here's a shocking statistic from Robert Powell at Retirement Weekly:

Of the 77 million baby boomers planning to retire in the next 10 to 15 years, 75% are hurtling toward unexpected financial difficulties, including having to go back to work. Unfortunately, many people won't realize how ill-prepared they are for retirement until it's too late.

Preparing for Retirement: Beyond Finances

While we tend to focus on the financial aspect of preparing for retirement, the Wall Street Journal (full article for subscribers only) talks about the emotional difficulties of shifting from career to retirement. Preparing for the psychological aspect of retirement is important – especially for those who define themselves by their jobs.

A majority workers may not give this much consideration because according to the Retirement Confidence Survey, approximately two-thirds of workers plan to continue working, at least part-time, during retirement. However only about 37% actually do. This has both a financial and psychological impact on retirees -- underscoring the need to approach preparing for retirement holistically.

Saving for Retirement

Preparing for retirement is a primary financial concern for most Americans. And while according to the 2007 EBRI Retirement Confidence Survey, 66% feel they have are saving enough, only 43% have actually done the math. That begs the question, how can you be prepared if you don’t know what you’re preparing for?

The Wall Street Journal estimates 20% to 30% of eligible Americans don't participate in their company's 401(k) plan. Those that do often make mistakes that could jeopardize their retirement security, such as investing too conservatively or contributing too little.

The growing concern over inadequate retirement planning has prompted employers to step up to help investors save by automatically enrolling employees in the company’s plan. Employees are allowed to opt out of such employer-directed moves. But few do, and that means employers' actions can dramatically change how workers' savings are invested.

While this may help some of the least prepared investors, these actions don’t do much for investors who are blindly saving. New education and coaching tools are necessary to help investors get on track and stay there.

EBRI

Employers Grab the Reins of Workers 401(k)s (for WSJ subscribers)