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HSFPP Weekly Update #108—Start Saving Now!

Message from Bob & Chris: We hope all of you get to enjoy some time with your families during the holiday, remembering to be thankful for all that you have. The best wisdom would suggest that we enjoy what we have now, rather than wishing we had more; and also would remind us that people are more important than things. After all, in the final moments of life, what are we all most likely to remember: all our possessions, or the people who are most important to us, family and friends?

In keeping with these recommendations, this week’s update looks at the images teens see in the media versus what their retirement will be like if they consume beyond their means, not only spending their current income, but also borrowing future income via credit card purchases. This behavior is especially unrealistic considering that many teenagers would like to retire in their fifties.

Many companies are cutting back on, or ending, pension programs for their employees. At the same time, Social Security might not provide the same benefits previous generations have received. This means that young people need to begin saving and investing now. Even if they only have a part-time job and can save very little now, putting what they can into an IRA is a great start. The longer you save, the more your money can grow. Money invested in an IRA can be used towards a down payment for a home, which is the biggest and most profitable investment most people make over the long term. The point is to start now. Look at page 49 in the Student Guide or

http://www.nefe.org/hsfppportal/files/14230_Key%20Investment%20Principles.pdf

to see the benefit of starting early.

 

Web Site Pick of the Week:

http://www.ca.uky.edu/fcs/hsfp/lessonlinks.html

This page of our Web site provides links to all the material we have on each unit in the student guide, plus a special unit on car buying. Each unit includes links for students and teachers. It is a good place to find extra material to go with the student guide and the weekly updates.

 

Activity for Educators:

As an at-home activity, students can take a quiz about investing at the following Web site:

http://www.ftc.gov/bcp/conline/pubs/invest/quiz/index.html

Use the discussion questions below after students have taken the quiz. The LifeSmarts Program, discussed in last week’s update, is also a good place to learn about investing and other consumer issues.

In the New$.... Life’s no box of chocolates for today’s retirees, so start saving now

“Before embarking on a journey to an unfamiliar place, it's wise to consult with people who have been there recently. They can steer you away from scary roads and tourist traps, and tell you which restaurants serve the best pie.

“Likewise, workers who hope to retire someday can learn much from people who have already ventured into this unfamiliar territory. A new survey of recent retirees offers sobering insights for workers who envision a carefree lifestyle in retirement. Despite what you see in many TV commercials, retirement is no day at the beach.

“The survey, conducted by Brightwork Partners for Putnam Investments, analyzed people who have retired in the past two to six years. These retirees are old enough to have traditional pensions but young enough to have 401(k) plans, too.

“With traditional pensions disappearing fast, that would appear to give them an edge over future retirees. But many are having a hard time making ends meet.

“Among the findings:

“•The average annual income for new retirees, before taxes, was $36,000 in 2003. About 42% of retirees reported incomes of less than $25,000 a year. A quarter said their incomes were less than $15,000.

“More than half said their standard of living had declined from when they were working. Thirty percent said they were living comfortably, but not as well as when they were working, and 21% said they were struggling to make ends meet.

“•Savings accounted for only a small percentage of retirees' income. In 2003, income and withdrawals from investments made up 11% of retirees' income. Social Security made up 41% of annual income, while payments from a traditional or cash-balance pension plan accounted for 24%.

“Future retirees probably will need to rely more heavily on their personal savings for income. Many big companies are reducing or eliminating traditional pensions. And many younger workers are skeptical about the future of Social Security.

“•Retirement doesn't get easier. Some 67% of retirees said the longer they're retired, the harder it gets.

“Many recent retirees have discovered that maintaining their standard of living is much more difficult than they expected, says Merl Baker, principal at Brightwork.

“‘Contrary to some of the common images we see in ads about carefree retirees traveling and volunteering, that's not what's primarily on these people's minds,’ says Richard Monaghan, head of the Putnam division that deals with investment advisers. ‘What's on these people's minds is a secure retirement income.’

“•Money does buy happiness, at least in retirement. The survey found that retirees who were the most satisfied with retirement tended to have the highest income and assets.

“For example, about half of retirees with household income of $75,000 or more described themselves as ‘very satisfied’ with retirement.

“Only a third of those with household income of $50,000 or less described themselves that way.

“Retirees' regrets

“A majority of the new retirees said they wished they had saved more when they were working. Nearly 60% said they wished they'd started saving earlier. A third said they wished they had saved more through their retirement plan at work.

“Unfortunately, the message apparently isn't getting through to younger workers. Nearly 90% of 401(k) participants contribute less than the maximum allowed, according to a Putnam survey conducted in May. The average amount workers expected to contribute in the next 12 months was about $5,500.

“This year, workers younger than 50 can contribute up to $13,000 to a 401(k); workers 50 and older can save up to $16,000.

“Part of the problem is cultural, says Richard Geist, a clinical instructor in the Department of Psychiatry at Harvard Medical School. Many Americans don't like to talk about money, and they're reluctant to think about getting old, he says. Many workers also take a short-term view of their long-term prospects, he says.

“‘If they're living OK when they're younger, they assume they'll live OK when they're older without giving it much thought,’ Geist says.

“If you're putting off saving and planning for retirement, reflect on the experiences of recent retirees, particularly those who are having a hard time paying the bills.

“Among recent retirees, ‘There's just a sense that this all could have been a little better and a little different,’ Baker says.

“‘It's a poignant reminder for those of us who are still working that there's time to get it right and get it organized.’”

Source: Sandra Block, USA Today
http://www.usatoday.com/money/perfi/columnist/block/2004-11-08-ym_x.htm

 

Activity for Students: Take the investment quiz at

http://www.ftc.gov/bcp/conline/pubs/invest/quiz/index.html

 

Discussion Questions:

1.) What was your reaction to the quiz? Did it surprise you how much you knew or did not know?

2.) Why is it important to save and invest money, and also to be knowledgeable about investing?

 

Kentucky High School Financial Planning Program

http://www.ca.uky.edu/fcs/hsfp

The purpose of this Web site is to assist county extension agents, credit union educators, and high school teachers in improving the economic well-being of our constituency, beginning with today’s students; and also, to assist teachers in Kentucky in meeting KERA’s goal that all students become technologically literate. Weekly Updates are provided by the University of Kentucky Cooperative Extension Service, and are free to all educators.