Takeaways From a Conference About Retirement Savings

I recently attended (virtually) a conference about retirement savings sponsored by the Employee Benefit Research Institute (EBRI). Below are some of my key take-aways:

Funded Contentment- I ever heard that phrase before. It means a person’s ability to underwrite a happy and meaningful life. The focus is on having enough money instead of reaching a specific number (i.e., dollar amount of retirement savings). Instead of a “greed is good and more is better” mentality, many retirees want to focus on meaning and purpose in later life.

Narrative Species- One speaker noted that humans are not a “numeracy species” focused on math and numbers but, rather, a narrative species. In other words, people learn best about personal finance (and other topics) through stories and case study examples.

Automatic Non-Decisions- An easy way for people to save money for retirement is to “turn decisions into non-decisions.” In other words, take action once to automate financial transactions such as payroll deductions for a 401(k) or regular automatic deposits to buy stock or mutual funds.

The Impact of Vividness- When people’s “future self” is made vivid through aging apps and other tools, they are more likely to make decisions and sacrifices today to have a better future in later life. For example, they might save and invest more money and eat more healthy food.

RMDs as an Income Withdrawal Strategy- Findings from a study of the effects of increasing required minimum distribution (RMD) age from 70.5 to 72 to 73 were reported using data from a sample of over 3 million IRA owners. The study found that not a lot of people take RMDs until they are required to do so. As the RMD age got pushed back, so did the frequency of people taking later distributions. In other words, changes in RMD age as a result of the two SECURE acts affected investor behavior because many retirees use RMD rules as a default income withdrawal strategy.

Retiree Financial Challenges- Retirees with significant sums in tax-deferred accounts are facing challenges from RMDs, which can trigger tax on Social Security, higher income taxes in general, and higher Medicare premiums call IRMAA. Even still, people have an aversion to withdrawing money from tax-deferred accounts earlier than RMD age.

The Impact of Guaranteed Income- Older adults with guaranteed lifetime income (e.g., pension or annuity) are more likely to spend money and less likely to feel financial stress than those who withdraw money from investments to pay living expenses. The latter group is subject to longevity risk (risk of outliving savings) and sequence of returns risk (risk of withdrawing funds during a market downturn) and tend to hold back on spending. The #1 fear of retirees is running out of money.

Cultural Norms- In some cultures, family members serve as a de facto “emergency fund” for each other. This expectation can hinder the financial progress of those who save. Some people may want to have a place for their money that relatives don’t know about because it is hard to say no to family members. 

This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.

Seventeen Bad Financial Habits

Good habits play a crucial role in personal finance by fostering discipline and consistency: 

1. Setting aside a portion of income builds financial security and emergency savings

2. Avoiding impulsive spending and practicing delayed gratification prevent unnecessary debt and promote smarter purchasing decisions

3. Regular investing, such as contributing to retirement savings accounts, takes advantage of compound interest and market growth over time

Conversely, bad financial habits can drain wealth, increase stress, and prevent people from achieving financial security. Below, alphabetically, are seventeen bad financial habits to avoid:

Cosigning Without Understanding the Risk- Being responsible, potentially, for someone’s debts.

Delayed Retirement Savings- Missing out on decades of investment growth and compound interest.

Financing Everything- Using loans for furniture, appliances, and vacations instead of saving up for them.

Forgoing Employer Matching- Missing out on “free money” (e.g., 401(k) match) to increase future retirement security.

Ignoring Credit History- Not monitoring or improving your credit can cost money over time.

Impulse Buying- Making unplanned purchases without considering their budgetary impact.

Incurring High-Cost Debt- Using payday and car title loans and high-interest credit cards.

Investing Without Research- Buying stocks, crypto, etc. without fully understanding them.

Lack of Tax Planning- Ignoring tax-saving moves such as Roth conversions, bunching, and QCDs.

Lifestyle Creep- Increasing expenses as income rises instead of saving or investing this money.

Living Paycheck to Paycheck- Not saving any money and using each paycheck to cover expenses.

Not Having Financial Goals- Lacking plans for savings, investments, and major purchases.

Not Shopping Around- Overpaying on insurance, loans, purchases, or subscription services.

Paying the Minimum on Credit Cards- Incurring high interest costs and prolonged debt.

No Emergency Fund- Leaving yourself vulnerable to unexpected expenses such as car repairs.

Not Tracking Expenses- Spending money mindlessly without keeping tabs on where it is going.

Using Credit for Necessities- Buying food, etc. with plastic and revolving a balance with interest.

Estate Planning for Pets

In my book, Flipping a Switch, I have a chapter titled “Green Bananas, ROLE Calculations, and Lasts.” A key take-away is, as people age, their time orientation changes. 

Sometime in her mid-70s, my Mom started using the phrase “People my age don’t buy green bananas anymore.” While the green bananas analogy is an extreme example, people do start performing return on life expectancy (ROLE) calculations as they age. In other words, “mental math” comparing how long things might last in relation to their age and life expectancy.

                                   

There is, perhaps, no better example of ROLE calculations than the decision to get a pet in your 60s and beyond. Unlike young adults, who fully expect to outlive one or more pets, older adults often stop to ask “what if the pet outlives me? What happens then?” Without advance  planning, when pet owners pass away, their pets often end up in an animal shelter and, unfortunately, many healthy pets who are not adopted are euthanized. 

What to do? I recently attended a class, Estate Planning for Pets, where I learned that pets are considered property and have no legal rights. Thus, it is up to pet owners to plan for their four-legged friends’ future. Below are five key take-aways:

Learn About Pet Life Expectancies- Average life expectancy for dogs and cats is 10-12 years and 10-14 years, respectively, but there are caveats. Larger dogs live for a shorter period of time than smaller dogs and spaying and neutering a puppy can increase lifespan. Indoor-only cats live longer than those who spend significant unsupervised time outdoors.

Consider Adopting an Older Pet- Older adults who want a pet often take a big gamble when they get a puppy. An alternative strategy is to visit a local animal shelter or pet rescue agency and adopt a dog or cat that is, say, 3 to 5 years old. This way, the pet’s remaining life expectancy will be more in synch with its owner’s.

Designate a Pet Guardian- Talk with friends/family about concerns for your pet’s future and identify someone to care for your pet if something happens to you (e.g., injury, death). Also designate a “Plan B” pet caretaker in case the primary pet guardian is unable to step up. Make a list of your pet’s favorite foods, medical issues, vaccination records, and exercise routines.

Create a Pet Care Fund - Set aside money for surrogates to care for your pet. Consider creating a pet trust fund based on pets’ actuarial life expectancy. The trust will include funding for pet caregivers to use for pet food, vet bills, etc. and also include a residual beneficiary to receive remaining funds, if any, after all pets named as trust beneficiaries pass away.

Don’t Assume- Some people do not make any contingency plans for their pet. Instead, they just assume “my family will take care of my pet.” Sometimes, however, family members cannot. If you assume someone will care for a pet, it is a hope- not a plan. That said, it is not uncommon for family or neighbors to temporarily take care of pets until a permanent solution is put into place including transferring a pet to a prepaid pet lifetime care facility.

This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.