Retirement Planning Mistakes: Fear or Ignorance?

A new survey drives home some critical points about the recession's impact on retirement planning. We fear the stock market even in the long run and probably should be taught more about money in school.

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Retirement planning surveys show the same things over and over. Most people don’t have a formal savings strategy. Most are under saved. Most say they will work longer to fill the gaps. We’re in big trouble. Yada, yada, yada.

A new Fidelity survey of higher education employees reinforces these themes, noting for example that fewer than one in four have a formal investment plan for their retirement. Still, this survey caught my eye for two reasons:

  • Focus on higher education Any survey of university personnel is bound to be a better-educated sample than the typical random poll. Yet even this more learned group is singing the same old financial blues. More than half in the Fidelity higher education survey consider themselves beginners at investing; 63% say they are concerned they will not be able to retire comfortably. Makes you wonder if our education system is ignoring the important stuff.
  • Asset allocation findings In the survey, respondents of all ages were investing much the same way. Gen Y (ages 21-32), Gen X (33-46) and Baby Boomers (47-65) were pretty consistent with an asset mix of 50% stocks, 35% bonds and 15% cash. That allocation may make sense for older boomers. But it is much too conservative for anyone under 50. Subtract your age from 110; that is the percentage of your portfolio that should be in stocks.

The Fidelity survey drives home some critical points. First, if saving and investing issues confuse even the well-educated, it should be apparent that our schools are failing us in an important way. We need financial education to be part of the school curriculum. Sadly, as the survey also suggests, most of our teachers are not qualified to teach personal finance. After all, they think of themselves as beginners.

Finally, the recession and lost decade in stocks has got just about everyone guarding their money like a geezer. The stock market has had terrible decades before and always bounced back. The 1930s were a bust and when adjusted for inflation so were the 1970s. Both gave rise to powerful bull markets.

There is no guarantee we’ll get another bull market soon. But we’ll get one sometime. A portfolio that is half stocks and half bonds may be soothing right now. But if you invest this conservatively while young you risk missing out the next time stocks take off – and in the long run falling short of your retirement goals.

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