CFP Board eNewsletter
July 2007
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CFP Board eNewsletter |
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| Getting Ready for Retirement III: Generation-X Gets Serious about Planning |
As far as retirement was concerned, Tanya Samuels was a pretty typical twenty-something. "My attitude was, retirement is so far away and I have so much else to do," she recalls. "I spent my money on clothes, music, going out. When I did save, it was for a vacation, not for long-term goals like retirement. I thought there would be so much time for that later." Time, however, may not be on the side of Tanya and other members of Generation-X, a loose demographic term covering those born between the early 1960s and the early 1980s. Gen-X will be the first generation to feel the full brunt of current trends — such as increasing longevity, higher retirement ages, more defined-contribution retirement plans and fewer defined-benefit pensions, and potential changes to the Social Security system — that will fundamentally alter the social and financial nature of retirement. More responsibility for financing retirement will fall on the shoulders of Gen-Xers themselves. But like Tanya, many are deferring retirement saving until "later." According to the National Retirement Risk Index, compiled by the Center for Retirement Research (CRR) at Boston College, 49% of Gen-Xers are at risk of not being able to maintain their pre-retirement standard of living after they retire. The most recent Retirement Confidence Survey, published by the Employee Benefit Research Institute, estimates that some 68% of workers between the ages of 25 and 34 have less than $25,000 earmarked for their later years. The fact is, for Gen-Xers the time to start saving for retirement is now. Tanya, now 36, is ahead of the game. She has already accumulated some retirement savings through a previous employer. But after leaving that job, she admits she "didn’t save a penny for retirement." That changed for two reasons. First, she took a job with Financial Finesse, which provides financial education workshops and coaching services through employers. She’s now part of Financial Finesse’s 401(k) plan. And second, she watched how her parents fared in retirement. "My parents had been frugal when I was growing up," Tanya says, "and now they enjoy a better lifestyle in retirement than when they were working." Tanya’s transformation from procrastinator to proactive saver may be characteristic of Gen-Xers moving into their 30s. Liz Davidson of Financial Finesse says she’s seen a big change over the past few years, with more and more Gen-Xers becoming aware of the need to plan for retirement and to take advantage of employer-sponsored 401(k) plans. "There is a definitely a greater awareness among Gen-Xers of the need to plan," Davidson says. "And that’s a good thing, because Gen-Xers face challenges their parents and grandparents never had to face — lots of credit card debt, negative savings rates, and much longer retirements to fund because of increasing life spans." Bruce Young, a CERTIFIED FINANCIAL PLANNER™ professional who conducts workshops and does coaching for Financial Finesse, says over half of the phone calls he handles are from Gen-Xers, most of whom are looking for advice on getting out of debt. "A typical caller will earn maybe $30,000 a year, have two car payments a month, be two months behind on their mortgage, and have a credit card debt of $10,000," Young explains. "It can seem like climbing Everest. People wonder, ‘How am I ever going to do it?’ Well, the way to climb Everest is to set up several base camps. That means breaking the debt down and tackling each component individually. We try to show people how they can make changes that will reduce debt and allow them to take charge of their savings and retirement planning." "The first phone call is often reactive," Davidson adds. "People call up saying, ‘I’m carrying too much debt. I need help.’ But the second call is often proactive. Now that they have figured out how to save, they want to start planning for retirement." The Financial Finesse Web site has some tips to help get that process started, including articles like "Intro to Retirement Planning: Basics Are Key to Achieving the Dream" and "7 Secrets of 401(k) Success." You can also read more about the basics of retirement planning in "Getting Ready for Retirement II: Saving and Investing" from the June 2007 issue of It’s Your Turn. "Discipline is important," says Davidson. "We live in an instant gratification society. If you’re 35 and you’re planning for something that’s 30 years away or more, that’s at odds with how society processes information these days." So Davidson suggests putting your discipline on automatic pilot as much as possible. Instruct your bank to automatically deposit a certain amount into your savings each month, for example. Or, if you are part of a company retirement plan, arrange for your contribution rate to be gradually increased as your salary increases. While it’s true that Gen-Xers face retirement challenges their parents and grandparents never had to face, it’s equally true that they are in many ways better equipped to meet those challenges than their parents and grandparents ever were. "Gen-Xers actually seem more attuned to retirement issues than many older people," says Trisha Brambley, president of Resources for Retirement, which provides investor education strategies and retirement plan consulting to employers. "They know that Social Security is on its way out, and they don’t expect it to be there for them when they retire. But they have more resources to help them plan, whether it’s via the Internet, the telephone or one-on-one consultations with financial advisers." Brambley cites ‘target date funds’ as just one example of an innovative investment strategy available to Gen-Xers. A target date fund allocates investments based on the year you expect to retire. If you plan to retire in 2035, for example, your investments will be managed to secure the optimal return by that date. You specify the broad parameters of your strategy — for example, aggressive investments early on to maximize growth, followed by more conservative investments as your retirement date approaches — and then leave the details to a professional fund manager. Brambley says target date funds are becoming increasingly popular with Gen-Xers, and funds are now starting up with a retirement date of 2045! You can read more about this type of investment in the article "Target date funds: Retirement planning made easy?" on the financial information site Bankrate.com. Make sure to get professional advice before deciding if a target date fund is right for you. "It’s a natural thing to start thinking about retirement as you move into your 30s," says Tanya Samuels. "Everything gets more serious. People start getting married, having babies. Retirement can seem scary, but it’s one of the scary things I have some control over." Retirement is likely to be a lot scarier for members of Generation-X, that’s true. But the good news is, Gen-Xers still have plenty of ways to make a big impact on their futures — if they start now. This is the third in a series of four articles on retirement. Next month: The rise of unretirement.
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| Red Flags and Green Lights: Finding a Financial Planner You Trust |
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Hiring a professional financial planner can be a helpful step in securing your financial future. Because financial planning involves so many areas of your life — your personal goals and dreams as well as the details of your financial life — it’s important to take care in selecting a financial planner you can have confidence in and with whom you feel comfortable. Although many services provided by financial planners are regulated by governmental authorities, there are no legal restrictions on who can use the title "financial planner." To make sure you select a qualified financial planning professional, look out for these red flags when you begin meeting with financial planners: Trust and rapport are an essential part of an engagement with a financial planner. If you feel uncomfortable in any way during your initial meeting with a financial planner, trust your feelings and move on. There are tens of thousands of qualified financial planners across the country, and you will undoubtedly find many of them a good fit for your needs. CFP Board suggests using this checklist to determine your comfort level with any financial planner you are considering working with: CFP Board’s "Your Rights as a Financial Planning Client" brochure is available as part of a free Financial Planning Resource Kit, which includes other brochures to help you learn more about the benefits of financial planning. To request a free Financial Planning Resource Kit, call 800-487-1497 or visit www.CFP.net/request.
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| Financial Alerts |
Do you know how to protect yourself from a botnet? Can you tell the difference between a Certified Public Accountant and a CERTIFIED FINANCIAL PLANNER™ professional? What about the difference between a Chartered Retirement Planning Counselor (CRPC) and Chartered Retirement Plans Specialist (CRPS)? The Federal Trade Commission has provided tips to help you learn more about protecting yourself from Internet-based identity theft crooks, and NASD has provided a resource with information about what different financial credentials mean. Botnets and Hackers and Spam (Oh My!) If you haven’t already, you may want to consider adding the term "botnet" to your personal dictionary and perhaps ask your friends and family to do the same. Short for robot network, a botnet is a network of tens or hundreds of thousands of unprotected home computers that have been compromised by hackers to "robotically" send out millions of potentially offensive or illegal spam e-mails. One annoying consequence of your computer becoming a "bot" is that your e-mail account gets shut down by your internet service provider; another (far worse) is that you fall prey to someone able to steal your identity. A hacker searches for an unprotected computer and secretly installs malicious software that they can use to spy on your Internet surfing, steal your personal information and take over your computer to do things like send spam. Not only do you unknowingly become a spammer, you also risk becoming a victim of identity theft, the devastating effects of which can be catastrophic. Your best defense is to keep your computer as tightly protected as possible and make sure all of your security measures are up to date and patched in need be. This will greatly reduce the likelihood that your computer becomes a bot, you become a spammer and/or your identity is stolen. The Federal Trade Commission (FTC) has provided more information about botnets, hackers and spam and tips for protecting yourself from them at: www.ftc.gov/bcp/edu/pubs/consumer/alerts/alt132.shtm FTC also provides more in-depth information on preventing or recovering from identity theft in its publication "ID Theft: What It’s All About" and an extensive Web site focused on identity theft at: www.consumer.gov/idtheft/ Understanding Professional Designations For the last decade, more and more organizations such as NASD, SEC, NASAA, etc have urged seniors to do their research on individuals marketing themselves as a "senior specialist" before putting their money in the hands of a seemingly trustworthy financial professional with a seemingly trustworthy credential. The New York Times recently published a front page article highlighting the urgency of the situation: "For Elderly Investors, Instant Experts Abound" (free registration required). Lucky for the investor described in the article, the ending was a happy one; she was able to recover her money from a financial product she never should have been sold. This doesn’t always happen. Can you tell the difference between a Certified Senior Advisor (CSA) and Certified Senior Consultant (CSC) or a Chartered Senior Financial Planner (CSFP) and Senior Registered Financial Planner (SRFP)? Simply reading at the words of the many credentials used in the financial industry doesn’t always provide much insight on what the credential means or how much effort it takes to achieve. CFP Board has provided descriptions of Financial Services Credentials one is likely to discover when seeking financial planning assistance. But there are many more credentials out there. NASD’s Understanding Professional Designations database provides information about more than seventy financial industry credentials, including the requirements needed to obtain them and information about any investor complaint process or public disciplinary process related to each credential. This resource can help you determine which credentials you feel confident in seeking when you hire professional financial assistance. Read more financial alerts.
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| Is Credit Counseling Right for You? |
Everybody needs some good advice from time to time. If you are struggling with debt — whether it has to do with credit cards, student loans, car or mortgage payments, or any other financial obligation — a little help from a credit counselor might be right for you. The National Foundation for Credit Counseling (NFCC) is not a bad place to learn more about how credit counseling works. The NFCC comprises over 100 non-profit member agencies and more than 900 local offices across the country, many of which are part of the Consumer Credit Counseling Service (CSSS). NFCC members provide comprehensive money management advice, including everything from budget training and education to housing consultations for people planning to purchase a home or who have fallen behind on mortgage payments. Sessions are either free of charge or reasonably priced, and can take place in person, over the phone or sometimes online. Conversations with a credit counselor are always confidential. The DebtAdvice.org section of the NFCC Web site provides a helpful overview of the kinds of credit counseling available. Sessions normally begin with a review of your financial goals and objectives, as well as an analysis of your income and expenses, your assets and liabilities. You and your counselor then work together to develop a budget and a customized plan of action to get you out of debt and meet your goals. Many CCCS agencies are also active in promoting financial literacy among young people, conducting money management education seminars in elementary schools and high schools. For individuals experiencing severe debt, a counselor might suggest enrolment in a debt management plan (DMP). A DMP is a way to pay down outstanding debt by making monthly transfers to the counseling agency, which then distributes the funds among your creditors. As part of a DMP, the counseling agency can also serve as a mediator between you and your creditors, often negotiating reduced or even waived finance charges. Once the debt is paid off, your counselor can then help you rebuild your credit. To find the NFCC member agency nearest you, go to the Member Agency Locator at DebtAdvice.org. Still not sure if credit counseling is right for you? Well, you might want to try taking the Debt Test featured on the Consumer Credit Counseling Service Web site. Your answers to seven simple questions — such as ‘Is your savings cushion nonexistent or inadequate?’ and ‘Are you only able to make the minimum payments on your revolving credit cards?’ — will indicate whether a chat with a credit counselor might be in order. To find out more, contact the CCCS toll-free at 800-355-2227 or via e-mail at info@cccservices.com. Before talking to a counselor, though, you might want to review the CCCS checklist "How to Choose a Credit Counseling Agency," which offers tips on questions to ask before signing up for counseling. "Is it time for a financial SOS?," available on the financial information site Bankrate.com, also has resources — like ‘15 signs you need debt-reduction help’ and ‘How to pick a credit counseling firm’ — to help you recognize the warning signs of debt and take the necessary steps to get the right assistance. The Facts for Consumers page on the Federal Trade Commission Web site also has important information on choosing a credit counselor or credit counseling organization, as well as guidelines on how to decide if a debt management plan is the right option for you. If you want to be sure you’re choosing the right credit counselor, check out the U.S. Department of Justice’s list of approved credit counseling agencies. Other Online Resources American Consumer Credit Counseling (ACCC) Association of Independent Consumer Credit Counseling Agencies (AICCCA)
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| Workshops: College Funding and Planning and Estate Planning CFP Board’s Free Financial Planning Clinic: August 4, 2007, Sheraton Boston Hotel |
CFP Board’s Financial Planning Clinic is just a few weeks away, and participants will have an opportunity to learn more about financial planning and ask their financial questions to CERTIFIED FINANCIAL PLANNER™ professionals for no charge. Participants will also have the chance to attend workshops on college funding and planning and on estate planning. With the cost of a college education rising each year, it is more important than ever for prospective college students and their parents to understand the variety of college funding options out there. It’s also important to understand how important it is to get started as soon as you can. John Pallaria, CFP® will present a workshop that will provide action items to help start a plan for college funding. Vincent E. Bonazzoli, JD will also present a workshop on estate planning, which involves more than drafting a will and selecting beneficiaries. It also encompasses your welfare and needs and how they will be handled if you’re no longer able to care for yourself. This presentation will include a walk-through of estate planning basics and provide an action list of the steps people need to take to begin the estate planning process for themselves and their families. Read more about these workshops and register to attend CFP Board’s Free Financial Planning Clinic on August 4, 2007 from 10:00 a.m. to 2:00 p.m. at the Sheraton Boston Hotel.
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| About This eNewsletter |
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CFP Board's "It's Your Turn" eNewsletter is sent monthly to those who have subscribed through CFP Board's Web site, www.CFP.net/learn. CFP Board exists to make people aware of the benefits of financial planning and to encourage people to seek out individuals who can help them apply the financial planning process to improve their financial lives. This eNewsletter is designed to provide information about financial planning, financial planning tools and resources, consumer alerts and more. Suggestions and feedback are welcome at mail@CFPBoard.org.
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