Yesterday we learned that total household liabilities in the United States lifted to a new all-time high during the first quarter of 2017. It is encouraging to see that Americans’ willingness to take on additional debt has continued to increase in recent years, likely helped by greater confidence in their personal finances, job security, and the overall economy. However, rapidly rising debt loads can ultimately wind up limiting the amount of money consumers are able to set aside for retirement, a big problem considering that too many people are already not doing enough to ensure old-age financial security. For example, an earlier study by BMO Harris found that surveyed Americans ages 45 to 65 have saved an average of only $291,297, not even a third of the $938,529 they expect will be needed to fund their desired standard of living in retirement.
More than a quarter (26 percent) of respondents also expressed concerns that having to care for their children or aging relatives will hinder their ability to meet key financial goals, and just 16 percent of surveyed adults unsurprisingly reported being “very confident” in their ability to afford their ideal retirement lifestyle. Similarly, a poll conducted by Allianz found that 92 percent of Americans ages 35 to 48 believe there exists a “national crisis” when it comes to retirement preparedness, and 64 percent report that uncertainty about what actions should be taken is a major factor behind why they are not currently doing anything to ensure their old-age financial well-being. Millennials also struggle with retirement preparedness, and 37 percent of young adults in a Charles Schwab survey cited student loan payments as one of the reasons why they are not setting aside more money for the long-term.
Another 44 percent of Gen Y respondents said that they are not boosting their rate of retirement saving because they do not want to limit their discretionary spending, e.g. dining out and vacations, and more than one in ten (13 percent) admitted that they have already borrowed from their 401(k) plan. Additional financial guidance may be able to help with such issues because a report from BNY Mellon found that nearly half (46 percent) of surveyed Millennials are not getting any information on important financial matters, either through the workplace or through the education system. Fifty-one percent of Gen-Y respondents also described the most recent estimate of their old-age financial needs as being a “blind guess,” and 77 percent said that they would like someone to simply tell them the “stark reality” of the challenges they will face financially in retirement.
Sources: NAPA, BMO Harris, Think Advisor, Allianz, Charles Schwab, BNY MellonPost author: Charles Couch