By sheer coincidence, most of June’s links ended up being about retirement. They cover different aspects of retirement and reflect just how many things we have to consider when we’re making plans for the future.
The financial news tends to talk a lot about how to invest our money. The talking heads say a lot less about how to save the money we need to invest. Saving money just isn’t as interesting as investing money, but in many respects it’s more important. Author and investor Charles Ellis identified four factors that will affect our total savings: earnings, age when saving starts, retirement age, and rate of return. Of those four, we only have total control over when we start saving. This might explain why the biggest financial regret for many people is failing to save money earlier in their lives.
Many people rely on 401(k)s as a primary source of retirement income. In recent years, there’s been more discussion about the fees involved with these programs. In a recent Supreme Court decision, the justices ruled that “workers should have access to the best fee structures available for their retirement plan.” In other words, employers need to make sure that if two, comparable plans are available, the plan with the lower fee gets offered to employees. This sounds great … on paper. But if you happen to be a small business owner, these changes may have the unintended consequence of making 401(k)s too expensive to offer.
If asked, I suspect almost everyone would say they’d prefer to live in their homes for as long as possible. Unfortunately, our current system doesn’t do a great job of supporting this desire. That’s why I was thrilled to see this story about communities banding together to support each other as they age. Something as simple as providing a weekly car trip to the grocery store can help people stay in their homes longer. These groups also offered an ongoing social connection, which is so important for our mental health as we age.
How we see the world is driven in large part by what we’ve just experienced. This is particularly true when it comes to investing. For instance, we may hear of a “hot” stock that’s doing really well. We think to ourselves, “Now’s the perfect time to buy.” But we’re making an assumption that the stock will keep going up. It might, but it could just as easily take a dip right after you buy. That’s the problem with our recency bias. We think it’s telling us one thing, but it’s really just tempting us to chase after performance.
Some of you may be counting down the days until you can retire. For others, you can’t imagine not working. You may worry about being bored, but for some people, they’re counting on retiring later to cover a savings shortfall. Whatever your plans, the data suggests we need to be cautious. We may not have the option to work after a certain point. A recent survey highlighted that 40 percent of people who retired earlier than planned did so for health reasons. On the bright side, however, the majority of middle-class retirees report working because they want to, not because they have to.