Don’t Let Your Financial Attitude Ruin Your Retirement Plans

When it comes to retirement planning, everyone’s goal is pretty much the same: save enough so that you may live comfortably in your non-working days. But for a majority of Americans, this is easier said than done. While Americans do place goals like having a secure retirement high on their list of financial priorities, their attitudes and behaviors regarding money don’t necessarily align with their best intentions, according to the findings of a recent survey from BlackRock, a global investment management firm. The Global Investor Pulse survey polled 31,139 people in 20 nations, including responses from 4,213 Americans from July to August 2015.

The survey found that Americans overall are positive about their financial future (54%), however, many might not be making the right savings and investment decisions. For instance, a large share of respondents are holding high amounts of cash and often haven’t saved a large enough nest egg to meet their annual income goals for retirement. A good attitude goes a long way toward a secure retirement Having a positive outlook on your retirement plan doesn’t come from simply thinking good thoughts about your finances and saving money. Rather, “good behaviors” are driven by taking action with your finances to ensure you may be able to live comfortably when you finally do retire. Those who exhibit “good behaviors” are most likely to feel well prepared for retirement, according to the BlackRock survey, which found nearly nine in 10 (86%) Americans feel on track to reach their retirement goals if they become engaged investors. The behaviors of engaged investors, the survey noted, are individuals who:

• Keep less than 25% of their assets in cash
• Review their investments regularly
• Are most likely to use online sources and financial advisers to support their decision making.

Other good behavior of these types of investors include the willingness to take risks in order to achieve higher returns, and actively ensuring that their assets are diversified across multiple investment classes such as stocks, bonds, etc. “Folks with good attitudes tend to be more on track with their retirement goals than others,” says says James Ciprich, a certified financial planner and wealth adviser with Regent Atlantic in Morristown, New Jersey. “It’s important for investors to be confident in their approach, but you have to justify that confidence.” And that’s where coming up with a financial plan is a good start, Ciprich says, because doing so allows you to know what your means are financially. Americans face enormous retirement savings “gap” After saving money in general, the next most important financial priority for Americans is saving enough to live comfortably in retirement. Yet, an overwhelming majority (71%) are worried they won’t be able to do so, according to the survey results. And this could be due to the efforts of many Americans to prepare themselves for retirement falling short. Take Baby Boomers age 55-65, for example. This group told BlackRock they want to have $45,500 in annual retirement income, however, the nest eggs they have accumulated ($136,200 in average retirement savings) could only provide for $9,129 of estimated annual retirement income. Doing the math, this leaves a potential gap of $36,371 annually. “It’s clear the proverbial ‘nest egg’ is broken and misleads investors into guessing how much they want in retirement and whether they really have enough savings to reach their goals,” said BlackRock President Rob Kapito on the survey findings. “Americans need to look at the retirement challenge in a whole new way, starting with the number they should focus on, which is the annual income they need each year in retirement.” Taking this into account, the reality is that Americans need to make adjustments to their lifestyles in order to achieve financial security in the long-term, says Ciprich. “There are really no tricks around that other than saving,” he says. One strategy Ciprich suggests is establishing your lifestyle based on your own income and come up with a savings target. Then as income starts to grow, don’t allow your lifestyle to grow in line with it or exponentially above what you earn and are able to save. Cash might make you feel good, but too much cash is a bad thing Saving a lot in cash investments can create a level of comfort and security in knowing that you have funds in reserve that you can use in case of emergency. But having too much of your assets allocated to cash can actually be a bad investment when planning for retirement. Ideally, Americans surveyed by BlackRock feel they should have 33% of their net worth in cash instruments, however, they admit to holding 65%—far too high of an allocation to achieve their retirement goals, given low interest rates and inflation pressures that diminish the purchasing power of cash over time. “While it may be comforting to sit on a large chunk of cash, it’s a good way to get poor slowly,” says Ciprich. A person’s cash allocation should be in line with their own liquidity needs, Ciprich says, meaning if someone needs, for example,  50% of their net worth in cash because they are buying a house in the next 6-12 months, then that would make sense. “But from a long-term perspective it’s concerning, because even if the assumption is that people should have 33% of their assets in cash, that it a very high allocation for an investment that is probably not going to keep up with inflation,” Ciprich says. Ciprich suggests not looking at cash as being an asset class that’s part of a long-term portfolio, but rather to be used to cover a large near-term expense. “If I don’t have a near-term need for cash or liquidity, I’d rather have that money working for me,” he says. What is Your Plan? Do You Have the Right Attitude? “You have to have that roadmap—that plan saying this is how the money should be invested and these are the risks you need to take to achieve your goals,” he says. “There has to be a realistic approach to where you plan to spend and what you actually do spend.” If you are nearing retirement and would like to know if you financial plan will be enough to sustain your lifestyle  during your non-working years, take some initiative and use a sophisticated retirement calculator to really model your future.