February 20, 2024

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Good day.

The traditionally recommended approach to retirement investing involves three things — a pension, a defined contribution plan or savings 401(k), and Social Security. Can you guess what percentage of retirees actually achieve this though? A. 6.8% B. 15.6% C. 24.9%

Here are the topics for today:

Are You Happy With Your Finances?
Retirement Planning is Outdated — What Must Change?
Some Financial Tips You Should Ignore

MONEY TIPS

Are You Happy With Your Finances?

Almost weekly, casual readers interested in personal finance are berated with swaths of seemingly conflicting data. One source claims that most Americans are struggling to make ends meet, while others are reporting that household net worths have grown in recent years.

We recently received another one of these data revelations, this time a positive one — Americans are apparently happy with their finances.

Yes, really.

A December 2023 survey via Harris Poll asked 2,120 U.S. adults about the state of their personal finances, and 63% called their current situation "good", 19% of which said it was "very good".

Expectations about the future were also hopeful, with 66% saying 2024 will be better than 2023, and 85% indicating that they feel like their personal finances could change for the better this year.

Yeah, but…

But what about that survey showing 60% of Americans are living paycheck-to-paycheck or those that paint a dreary picture of emergency savings and retirement?

There is an easily identifiable trend to be unearthed here — if you want to find data that confirms something you suspect, you can find it.

But what's the truth, which data point is most representative of the right perspective to have? This is a largely unanswerable question and points us back to what really matters — taking care of our own personal finances. That's all we can control.

The real question is this — are you happy with your finances, and what can be done to improve them?

The answers are the dull, boring truths that also happen to be the most impactful.

Save for a rainy day: Start by establishing an emergency fund to avoid taking on debt when the unexpected happens. From there, aim to build out 3-6 months' worth of expenses in savings and put it in a HYSA. Now, you've less stress on your plate and a safety net to fall back on. Financial happiness = increased.
Get rid of bad debts, and then even the good ones can go: Debt = stress and a financial burden, and it robs you of your most powerful wealth-building tool — your income. Fund your emergency cash and embark on a plan to pay off any other debts you have ASAP. Reduce your debt burden, and increase your financial happiness yet again.
Invest for the future so you don't have to work forever: We hope you enjoy what you're doing now, but even still, we all want to reach a day where we only work because we want to, not because we have to. That's what investing can do for you. After you've got savings and are en route to being debt-free, invest in your future self so you have the power of choice, which is the ultimate form of financial freedom and happiness.

RETIREMENT

Retirement Planning is Outdated — What Must Change?

Let's take a brief moment to congratulate ourselves — retirement planning has come a long way in recent decades. Largely thanks to an increased emphasis on financial wellness, investors have emerged from the early 2020s pandemic era with both higher participation and account balances.

What's the catch?

A different perspective on retirement planning points out that our current approach, largely focused on accumulating a lump sum of cash, is a little antiquated.

Pensions are largely a thing of the past and Social Security is an uncertain luxury over the long run, meaning the onus is almost completely on the individual to boot-strap their way into retirement with a 401(k) or similar.

While it's great to pile up a bunch of cash via capital gains, it also might be insufficient and unachievable for individuals of many tax brackets.

In fact, it's estimated that roughly 40% of retirees receive their only income from Social Security, meanwhile, the median 401(k) account balance amongst those ages 65-70 is still only $43,152 according to Empower — far from enough to retire with.

So, what's the solution?

Retirees might need to put more emphasis on income over piles of cash, and there are structural issues we need to address as well.

This isn't to say that investing for retirement should be abandoned, but rather that it should be part of a more broad approach to building a nest egg.

Some viable suggestions to assist with this include:

Delay your social security benefits, and develop a bridge plan to help you reach full retirement age to maximize the income you receive. Retirees who wait until full retirement age at 70 are in line to receive almost double what someone who claimed Social Security at age 62.
Start giving annuities a chance: The passing of SECURE 1.0 enabled employers to include annuities in their defined contribution plan offerings, but so far only about 12% have begun doing so. Despite their quirks and limitations, annuities offer a valuable alternative that many retirees are beginning to express an increased interest in.
We need to improve the way we create retirement account statements. Many employers and plan sponsors enumerate account balances, transactions, and investment holdings on their account holder statements, but often do very little to elucidate what the employee's current pace will equate to when it comes to monthly retirement income.
Financial education and advice need to become an essential benefit. Often due to a lack of financial literacy and time to learn about it, millions of employees plan blindly or myopically for their golden years, and end up missing the mark as a result. Employees want and seek financial wellness support from their employers, which are also often the source of their retirement planning.

MONEY TIP

A Few Money Tips to Ignore

If you're searching for tips on how to handle your money, you'll find no shortage of them anywhere. Whether it's online or your family (who are, of course, experts) chiming in, financial advice is everywhere, but some of it should be ignored.

It's overwhelming enough to manage all aspects of your financial life, so let's make it a little easier by filtering out some suggestions that can be ignored.

Avoid debt: Insert recycled Dave Ramsey joke here, and onto the real point. While debt can certainly weigh you down and even wreck your life when it's mismanaged, it can also help you when leveraged properly. Debt can be a capable tool that, if mastered, will serve you.
You have plenty of time to invest for retirement: In an ideal world, investing and saving for retirement should begin as soon as you have an income. The power of compounding interest is real and will make a huge difference to your ending balance the earlier you start. Don't wait until you're 30 to start thinking about life after work.
Credit cards are a gateway drug to debt: While there are certainly unfortunate situations where consumers get themselves into trouble with credit cards, you don't have to be one of those situations. Credit cards can be a great asset when used properly, and allow you to take advantage of things like cash back, travel insurance, welcome bonuses, and more. Just… don't spend money you weren't already going to spend.
Keep your finances private: While we don't recommend going around flaunting your salary, there's also something to be said for having open money conversations with your loved ones. Despite its outdated taboo, talking about money can actually be quite productive for all parties involved — how else can you or anyone else learn if no one shares their knowledge and experiences?

🌊 BY THE WAY

🪺 Answer: It's B. — Just 6.8% (NIRS)
🏢 The next real estate trend — office turned apartment (Axios)
💲 Less than half of Americans can pay for a $1,000 emergency (BR)
👨🏻‍💻 The war waged over remote work continues (CNBC)

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