At the July 2018 meeting of
the American Savings Education Council, there was a presentation about a spending
in retirement by the Employee Benefit Research Institute (EBRI). Below are some take-away findings that caught
¨Non-housing assets of three groups of retirees
were studied: those with assets of less than $200,000, those with $200,000 to
$500,000, and those with more than $500,000. Not surprisingly, the highest
asset group had the smallest decline in the value of their assets between year
2 and year 18 of retirement.
¨A significant number of households exhaust
almost all of their non-housing assets. On the other hand, a large number of
households actually continue to grow their assets throughout retirement. Many
spend considerably less than they could afford to.
¨Most retirees believe it is not difficult to
maintain their pre-retirement standard of living. However, 44% of workers are
not confident that they will be able to afford their current lifestyle. One
possible explanation for this difference is that spending patterns and daily
activities change as people get older.
¨A longer life expectancy means a higher
probability of entering a nursing home. The statistics found by the EBRI
researchers were that 15.3% of those who died between ages 70 and 74 and 61% of
those who died at or after age 95 reported a nursing home stay.
¨Drivers of overspending and running out of money
in retirement include potential financial shocks (e.g., divorce, widowhood, and
disability), uncertainty and confusion, and lack of knowledge about later life
financial decisions (e.g., long-term care planning and required minimum
¨Drivers of people unnecessarily living below
their means include bequest motives, the joy of having an increasing nest egg,
and fewer material needs in later life. In addition, investors hate to
experience monetary losses and pulling money out of personal savings may feel
like a “loss” to some people.
¨Uncertainty in retirement was predicted to grow in
the future due to the following four factors: 1. Fewer people will have defined
benefit pension plan income, 2. Potential reductions in Social Security,
Medicare, and Medicaid, 3. Longer life spans, and 4. Fewer children to rely on.
The New Jersey Coalition for Financial Education (NJCFE)
recently held a meeting that included a panel presentation about
cryptocurrencies. Below are some key points that were presented:
are virtual currencies that reside within computers. They are a digital representation
of value that is used as a store of value and a medium of exchange. While they
cannot physically be held like dollar bills, they can be digitally transferred
between people without a middleman (e.g., bank).
security behind cryptocurrencies is the mathematics behind their software.
Instead of the “In God, we trust” wording seen on U.S. paper currency, the
slogan for cryptocurrencies is “In math, we trust.” Cryptocurrencies are not
backed or supported by any government or central bank.
are hundreds of cryptocurrencies in existence with Bitcoin and Ethereum among the
most well-known. Transactions between parties are anonymous and they do not
need to know each other. Users are identified by unique alpha-numeric addresses
and have a “personal wallet.”
people lose their password, or people die without telling other trusted parties
their password, their cryptocurrency account will not be able to be accessed
and all of its value will be lost.
is the underlying technology behind cryptocurrencies. It is a permanent publicly
distributed ledger that is visible to the entire network. Blockchain is
literally “flattening the world” and is expected to grow exponentially and be
adopted for use in a wide variety of industry sectors.
are best used for purchase transactions and not for storage of value. Their
value can be very volatile and is derived by market forces of supply and
demand. Governments generally oppose cryptocurrencies because they cannot
collect sales tax on purchases made “in the ether.”
concerns have plagued cryptocurrencies. They run on a network of computers
using a process called mining that validates and logs transactions. Mining requires
computers to run on sometimes non-clean power sources constantly. There have been reported power
shortages in some areas where mining is done.
are bought and sold on the cash (spot) market and can also be bought through
initial coin offerings (ICOs). They are currently the “wild, wild west” and
there are many reasons for consumers not to use them. However, we should be
aware of them and of blockchain technology.
Every day, people are exposed to
risks which can cause a financial loss. Accidents, property damage, illness, disability,
and even death are risks they need to consider. Without a risk management plan,
people often have to go into debt or use funds set aside for other financial
goals in the event of a financial loss. Below are four insurance
Against Large Potential Losses- Purchase insurance for large financial
risks that could deplete your savings or future earnings. This includes at
least $300,000 ($500,000 is better) of liability coverage on property
insurance policies to cover the risk of court judgments resulting from an
accident at your home or with your car and disability insurance to
protect against the loss of income due to illness or injury.
Life Insurance- Purchase life
insurance if you have dependents who would suffer financially if you died.
Another good candidate for life insurance is a young adult without dependents
whose parents co-signed private student loans which are not forgiven in the
event of death. An online life insurance calculator
can be used to determine the amount of life insurance coverage that is needed.
Real and Personal Property- Purchase property insurance with a
replacement cost rider on personal property to replace items at their current
cost up to the policy limit. Otherwise, only the actual cash value after
depreciation will be reimbursed in the event of a loss.
Relationships- Establish an ongoing relationship with one or more insurance
professionals who can provide a periodic review of coverage and information
about available cost-saving options such as discounts for military service and
short commutes and “bundling” of auto and homeowners insurance.
I recently attended the annual conference of the American
Association of Family and Consumer Sciences. Below are some ideas that
resonated with me from this meeting:
People often learn from stories. When you hear
others’ stories, you realize that they are human just like you.
There are 300,000 items in an average American
home and 10% of Americans rent offsite storage space.
Some digital assets are under a user license
that expires at the time of a user’s death.
People can identify their own financial “rules
of thumb” instead of using established ones (e.g., 3 to 6 months of savings for
When doing strategic planning, people should use
the SOAR (Strengths, Opportunities Aspirations, Results) method instead of SWOT
(Strengths, Weaknesses, Opportunities, Threats) for a more positive focus.
A good activity to use for financial education
classes is “Six Word Story” (summarize a topic with a photo or graphic image and
exactly six words).
Workers need social and emotional intelligence
to succeed at their jobs. Employees are often hired for their “hard skills”
(e.g., subject matter knowledge) and fired for a lack of “soft skills” (e.g.,
working in teams).
People need to understand the emotions and
previous life experiences that drive their financial decisions.