Friday , March 22 2019
Home / Money / 401(k) / ‘Ignorance Is Bliss’ Seems To Be Most People’s Unfortunate Retirement Plan
Retirement planning

‘Ignorance Is Bliss’ Seems To Be Most People’s Unfortunate Retirement Plan

Doesn’t anyone realize that “ignorance is bliss” is not a retirement plan?

Ignorance is bliss — or is it?

Based on the latest research, it sounds like financial planners and financial writers are spinning their wheels when it comes to convincing people to save for retirement. No matter their age whether they’re young or older, even in their 50s and beyond, a lot of people don’t contemplate about the importance of saving for retirement until it finally arrives.

That’s a scary thought because unlike our parents and grandparents who received a company pension to go along with their monthly Social Security benefits, the company pension is becoming a relic of the past.

Unless you set aside money in a 401(k), people aren’t going to be prepared for retirement.

The problem is it doesn’t matter whether people are financially literate or illiterate or whether they have current financial woes are in a good spot financially, says Anek Belbase, a senior research associate with the Center for Retirement Research at Boston College.

People are focused only on their financial satisfaction of today rather than long-term concerns. That’s the way we’re wired, he says.

“Even if you don’t experience these problems, you’re not still concerned about retirement. It’s still too far in the future,” says Belbase who co-authored a study entitled, Dog Bites Man: Americans Are Shortsighted About Their Finances. Our findings confirm the literature that people just care about what is in in the near future. If it’s too far away it doesn’t affect your day-to-day satisfaction.”

 

Many households have little or no retirement savings and more than 38 million households don’t have a 401(k) or IRA, according to the National Institute of Retirement Security. That’s 45 percent of the nation’s households. It says the median retirement balance is $3,000 for all working-age households and $12,000 for near-retirement households.

The group says based on 401(k) and IRA balances, 92 percent of working households don’t meet conservative retirement savings targets for their age and income.  

Belbase says researchers thought if might make a difference if people were financially literate and in a better financial position but it doesn’t. Age doesn’t seem to make a difference either.

“It boils down to extensive literature that says people tend to be shortsighted and things that occur more than a couple of days away or a couple of months away just don’t register and doesn’t affect you that much,” Belbase says. “People go along with their day-to-day problems and feel like they address it, but retirement creeps up on them and it’s something that happens way in the future only happens once. It is one of those things that’s very hard for people to prepare for.”

The lesson for people to learn is to understand that weakness about themselves and instead of focusing on saving for retirement, let it be done for them automatically, Belbase says. That means going to your employer and enrolling in a 401(k) and forgetting about it after that.

“They should be aware of their own weakness,” Belbase says. “We’re not built to think about the distant future but act today. If they have access to an employer plan, there is no excuse not to spend that five minutes to enroll and then they are on automatic pilot.”

For those who are 50 and older and haven’t saved a lot for retirement, that’s going to be more of a challenge than those who are younger. But Belbase says it’s not too late to start and enroll but says those older might have to set aside 30 percent of their pay in a 401(k) to prepare for retirement.

So how does the country deal with the problem when people can’t think that far ahead?

The center is an advocate for employers to automatically enroll their employees in a 401(k) plan and many already do. They also back state initiatives that require employers enroll their worker in 401(k) plans even if they employers don’t match the contribution of employees.

“What we advocate is people need to be part of employer based pension plan where they are defaulted in,” Belbase says. “Once they get defaulted in and see their balance grow, that’s when they start seeing the value of saving and get into the habit of it, and that’s when they start growing their retirement savings. Even when people might have any inclination to save for retirement, when they’re defaulted into a plan, they tend to accumulate a balance over time and then they start saving.”

Belbase says about 40 percent of employers, especially small businesses, don’t provide a 401(k) plan. It’s too much effort for workers in those companies without one to open an IRA and start saving for retirement that way, he says.

“It makes it unlikely for them to put so much effort in to solve a problem in the future,” he says.

Belbase praised the recently approved plan in Illinois that goes into effect in 2017 within companies with 25 or more employees. For those who are not part of a retirement plan already, workers will be automatically enrolled into an IRA in which 3 percent of their paycheck goes into them. Employees can choose to opt out of the program known as Secure Choice that some suggest could become a model for the nation.

Bebase says 6 percent is a more preferable amount for people to save, but this program is a start for them.

Those enrolled in the Illinois retirement plan bear the cost of the administration.

 

 

Check Also

Reverse Mortgage pros

5 Upsides To An HECM Reverse Mortgage

As you near your golden years, the last thing that you want to have to ...

11 comments

  1. Would you be thinking about exchanging hyperlinks?

  2. I don’t usually comment but I gotta state regards for the post on this perfect one : D.

  3. We are currently recruiting for document review lawyer to join us at Carson McDowell ?? Anyone interested please apply at https://latestlawyerjobs.com/

  4. We are looking for IT technician to join us at Freeths LLP ?? Anyone interested please send us your CV and cover letter via https://latestlawjobs.com/

  5. Could anyone advise me regarding the deadline for BlackLion Law LLP Training Contract Application? Season’s Greetings and Best Wishes to you and your family

  6. As a Newbie, I am always exploring online for articles that can be of assistance to me. Thank you

  7. One more thing I would like to express is that in lieu of trying to accommodate all your online degree classes on times that you complete work (because most people are fatigued when they return home), try to receive most of your lessons on the week-ends and only a couple courses on weekdays, even if it means taking some time off your weekend. This is beneficial because on the weekends, you will be much more rested along with concentrated on school work. Thanks a bunch for the different points I have realized from your web site.

  8. Greetings! I know this is kind of off topic but I was wondering which blog platform are you using for this site? I’m getting fed up of WordPress because I’ve had issues with hackers and I’m looking at alternatives for another platform. I would be fantastic if you could point me in the direction of a good platform.

  9. Incredible! This blog looks exactly like my old one! It’s on a entirely different subject but it has pretty much the same page layout and design. Great choice of colors!

  10. Hi there! Do you know if they make any plugins to assist with SEO? I’m trying to get my blog to rank for some targeted keywords but I’m not seeing very good results. If you know of any please share. Kudos!

Leave a Reply

Your email address will not be published. Required fields are marked *