It’s clear that financial
stress can have serious consequences on our well being. A study
from Fidelity found that stress from debt correlated to an increase in weight
gain and lack of sleep. A 2015 study
by SunTrust Bank found that finances are a leading cause of stress in a
relationship. A survey
done in the UK found that money worries was the leading cause of marriages
falling apart.
To avoid the stress of
dealing with finances, many people simply look the other way. Is financial ignorance really bliss? When I speak with people who do not
contribute to their 401K, IRA, or savings, they often tell me that they will
worry about their retirement later. For
many of these individuals, they truly believe things will somehow just
magically work out. I’ve heard many
reasons (excuses) people don’t save.
I’ve said exactly the same excuses in the past.
“I’ll
save for my retirement when I start earning more income.” Lifestyle
inflation often accompanies income increases.
Many can and should save at any income.
Time in the market to allow your money to compound is incredibly
powerful. Try to arrange your life and
your finances in a way which your future self can thank
your past self.
“The
stock market is so confusing. I need to
do more research before investing.” It’s better to start investing earlier even
if you don’t know everything about investing.
Let’s face it, you will never learn everything
there is to know about investing.
“I
have too many bills to take care before I start investing.” It’s
definitely hard to come up with extra money if all your income is owed towards
payments (auto loan, credit card bills, cable television, expensive cell phone
bill, eating out regularly, etc).
“You
only live once. I want to live for today
and will worry about retirement later.” It’s certainly possible that a freak accident
or medical condition can cut one’s life short.
The more likely outcome is that your
life will be long, and you need to plan accordingly.
What happens if you spend
your entire working career living paycheck to paycheck and ignore contributing
to your future retirement? New research
has found that the people 65 and older are filing for bankruptcy at a rate of 3
times more than in 1991. 12.2% of
bankruptcy filers are now 65 or older, up from 2.1% in 1991. For older Americans who are broke and nearing
retirement, bankruptcy may seem like the only option to get out of financial
trouble.
Some researchers suggest that
the explosion of bankruptcies are largely due to vanishing pensions (replaced
by 401K savings plans) and increased burdens on individuals to save for their
own retirement during their working years.
The rising costs of health care, stagnant or declining incomes, and
inadequate savings are pushing these older Americans off a financial cliff. Many older Americans receiving Social Security
checks still end up working because they don’t have enough retirement income to
support their lifestyles.
According to the Employee Benefit Research Institute, the
median household led by someone 65 or older had liquid savings of $60,600 in
2016 while the bottom 25% of households only had a liquid savings of
$3,260. These individuals are barely
hanging on. A lost job or emergency
health problem and this small financial cushion can be wiped out.
We are all vulnerable to live
changing financial disasters like unexpected health problems, job loss,
divorce, or death in the family. I’m
pretty sure most Americans, especially those that have worked all their lives,
never expected the need to depend on bankruptcy just to survive. I’m a big supporter of having a safety net to
make sure people don’t starve in their old age or go bankrupt due to the insane
cost of healthcare. I’m not sure how
exactly to fix the problem, but I’m sure many of us recognize that there is a
problem with the current health care and Social Security system.
I have to wonder if some of
these Americans really prepared the best they could during their working years. In 40+ years of working, was it impossible to
set aside any money to reserve for the future?
Were many of these individuals just practicing financial ignorance? Let these sad stories be a cautionary tale
for those thinking that their retirement will just magically work out. Often times, it doesn’t. Would you rather save for your own future? Or depend on meager government subsidies to
keep your expenses covered?
We try to save and invest as much as possible to reach financial freedom as soon as possible. Part of what motivates us is an anxiety of not being prepared for our future. As we get older, I would hate for us to be a burden on our children or our government. We want our children to thrive financially and not feel obligated to take care of us financially. We don’t want them to be dragged down by our poor preparation for our own retirement. We choose not to be ignorant of our finances.
We try to save and invest as much as possible to reach financial freedom as soon as possible. Part of what motivates us is an anxiety of not being prepared for our future. As we get older, I would hate for us to be a burden on our children or our government. We want our children to thrive financially and not feel obligated to take care of us financially. We don’t want them to be dragged down by our poor preparation for our own retirement. We choose not to be ignorant of our finances.
