5 Factors That Confuse Retirement Savers
Planning for retirement can be confusing — sometimes to such a degree that it is debilitating, argues industry insider Christopher Carosa.
In “The Five Killer Concepts that Most Confuse Retirement Savers,” a recent post on FiduciaryNews, Carosa offers insights into the factors that create the most confusion for savers. Carosa identifies five factors that he says have this effect to a greater extent than others.
1. How to Save
It isn’t hard to find ways to save, says Carosa — there actually is an embarrassment of riches. And therein, he says, lies the problem. “Less certain is knowing which one is the best for the particular needs and circumstances of the individual retirement saver. The inaction caused by this paralysis has left making workers vulnerable when it comes to their retirement,” he writes. Carosa cites experts who contend that the lack of practical education on retirement saving and saving devices is one of the roots of the problem, since it spells an inability to make informed choices.
2. How Much to Save
The next problem area is determining how much to save. “As with retirement savings vehicles, there are a number of competing paths to go down here, too. Unfortunately, these paths tend to feature the banal mean of average retirement saver rather than the broad reality of an array of unique individuals,” says Carosa. He adds that “the ‘rules of thumb’ associated with these paths can offer more damage than good.”
Among the experts he cites is Robert R. Johnson, President and CEO of The American College, who adds the interesting perspective that when saving for retirement, one needs to “save for the best possible scenario — that is, a long lifespan,” which raise the stakes, since “you can’t afford to outlive your money.”
What will the cost of living be next year? How about in 10 years? Now imagine the cost of living up to 30 years after the retirement party, and whether you’ll be ready to handle those expenses. Being ready for that is another of the greatest confusion generators, says Carosa.
“No one has a crystal ball that gives them 20/20 vision into the future. This makes answering important financial questions with 100% precision nearly impossible,” he writes. But he offers a note of comfort in citing Rodger Alan Friedman, a founding partner of Steward Partners Global Advisory in Washington, D.C., who says that handling this “is not an insurmountable obstacle if you begin planning and saving early enough.”
Once one has determined how one is going to save, and how much, it’s time to decide how to invest retirement funds in order to meet those goals, says Carosa. Given what he calls the “universe of investments” and professionals’ divergent opinions on how to invest, Carosa asks, “how can we expect the everyday saver to not be confused?” and adds, “This confusion frequently leads to improbable assumptions.”
5. Whom Do You Trust?
The final significant source of confusion, Carosa says, is determining which professional to work with. “The retirement saver is once again confronted with the paralysis of analysis. Which pitch is most believable?” he writes, and cites expert opinion that becoming educated is a key.