EL SEGUNDO, Calif.-Not surprisingly, American consumers are taking a long, hard look at their retirement nest eggs-or what's left of them.
According to Nancy Anderson, think tank director for workplace financial education provider Financial Finesse, credit unions should seize the opportunity to lead the way as members navigate unknown waters.
"Credit unions should be offering workshops, Webcasts and one-on-one sessions on proactive topics," she advised. "A few years ago people needed workshops on how to get out of debt; today they are switching to retirement planning."
A recent Financial Finesse study of financial issues found consumers are sustaining, and in some cases building upon, improvements in their finances, a trend evident since late 2009, when consumers started to take more control of their finances in response to the recession.
The company said the report, which tracks patterns in client company employees' financial questions and self-reported priorities and challenges, underscored some key economic and financial trends that employees and their employers should be aware of.
Anderson told Credit Union Journal employees had "sustained some of the gains" they have made in their money management since the recession.
"They have more of a base right now with their debt under control. They had been focusing on the short term-on paying their bills on time, on emergencies-but now they are looking forward and focusing on long-term issues such as retirement.
"We have seen more calls on long-term issues as people are making real changes in their financial lives," she added.
Findings From First Half
In the first two quarters of 2011:
- 71% of employees reported having a handle on their cash flow vs. 64% in 2010
- 88% reported paying bills on time, up from 82% in 2010
- 53% reported having an emergency fund in place vs. 48% in 2010
- 57% reported regularly paying off credit card balances, up from 51% in 2010
With many employees feeling they have addressed their immediate financial concerns, they are putting "significantly more focus" on their retirement planning and other long-term, proactive financial planning issues, Financial Finesse reported. Nearly 60% of questions received by the company's financial planners regarded long-term planning issues in Q2 versus 48% last year. Additionally, more than 25% of employees' questions were specifically about retirement planning, up from 20% in Q2 2010.
The recession was a wake-up call that already had people focusing on retirement and realizing many of them are behind, Anderson explained. She said the "gyrations" of the stock markets in recent weeks in response to the Congressional budget spat and subsequent downgrade of U.S. debt is a "further wake-up call."
"People know there are challenges-only 14% are confident they are on track to replace 80% of their income, which is a rule of thumb financial planners use for retirement," she said. "Many people do not even know if they are ready because they have not looked at financial calculators. The market fluctuation brings out awareness by making people focus on how much they have and how much they don't. It is hard to prepare for retirement these days, so for people that don't even know, they probably are not on track."
What Can Be Done?
So what can be done? Anderson said the steps to take depend on the age of the person in question. Gen Y must prioritize retirement, as even though its members still have 30 to 40 years, they must "take advantage" of that time. For Gen X, there may be catch up involved if they have not been contributing to a retirement plan.
"Gen X needs to do a calculation to see if they are on track," she appraised. "Many Gen Ys started their first jobs and were auto-enrolled in a pension plan, but that missed most people in Gen X. Gen X might need to put the max they can into a 401(k) and supplement with an IRA."
Baby boomers may have only five or 10 more years before retirement is upon them, meaning those who are behind on saving will need to look at alternatives such as reducing housing costs, pursuing reverse mortgages or other solutions, Anderson said.
Asked what the current mindset of consumers is after the downgrade, Anderson said Financial Finesse tracks priorities, and for many people the top priority is retirement.
"It is good that people are planning," she said. "The gyrations in the market have not led to a flood of panic calls."
After the market dropped in 2008 many people reallocated and are aware that stocks fluctuate, she continued, adding, "There is not a lot of panic, but there is concern. People are asking if their money is in the right place in a low interest-rate environment."
Although the advent of the Internet means there is a lot of information out there, there is a point of overload that can make it more difficult for people trying to figure out what information is useful and what to do with it, Anderson said.
"Sometimes there is misinformation. There are competing priorities to deal with. From research we are seeing a shift from reactive to proactive planning. It is good that people are no longer in emergency mode."
