Americans’ overall level of financial confidence has continued to improve in recent years, according to the latest annual report on economic well-being from the Board of Governors of the Federal Reserve System. Specifically, seven in ten surveyed adults said that they are either “living comfortably” or “doing okay” at the moment, a slight uptick from the previous year but a marked improvement from the 62 percent reading seen in 2013 when this survey question was first asked.
Observed gains in overall well-being have largely been driven by higher educated individuals, and adults with a bachelor’s degree or higher were by far the most likely to report that they are at least doing okay financially. Challenges remain for many Americans, though, as 32 percent of respondents said that their income varies to some degree from month to month, and 13 percent reported that such volatility causes them to sometimes struggle with monthly expenses. Further, an alarming 44 percent of surveyed Americans said that they could not even cover an emergency expense of just $400 without having to sell something or borrow money.
With such a lack of short-term savings, it should not be too surprising that more than a quarter (28 percent) of non-retired adults indicated that they currently have no old-age savings or pension whatsoever. As for those Americans who did report having at least some money set aside for retirement, a 401(k) plan was the most commonly cited vehicle (see above). This tax-advantaged savings tool can be very powerful, especially if used consistently and with properly invested assets. However, 53 percent of surveyed adults with self-directed retirement accounts said that they are either “not comfortable” or only “slightly comfortable” in their ability to make the right investment decisions.
Fortunately, help is available by consulting with a professional financial advisor. That is evidenced by the nearly three-quarters of participants in a Charles Schwab survey who said that regularly working with an advisor has enabled them to be “extremely or very confident” in their ability to make the right investment decisions for their 401(k) retirement plan. Only 44 percent of the respondents who said that they do not seek professional advice were able to report the same level of investment confidence. Working with an advisor can also provide help with more general financial planning, such as determining the optimal age to retire, and whether your current rate of saving will be able to deliver your desired standard of living in old age.
Sources: FRBG, Charles SchwabPost author: Charles Couch