Americans want help with financial planning.
A recent survey showed that most Americans don’t want to do their own financial planning but they don’t know where to go for help. 60% of adults say that managing their finances is a chore and many of them lack the skills or time to do a proper job.
The need for financial planning has never been greater. For most of history, retirement was a dream that few lived long enough to achieve. In a society where most people lived on farms, people relied on family for support. Financial planning meant having enough children so that when you could no longer work, if you were fortunate enough to reach old age, you could live with them.
The industrial revolution took people away from the farm and into cities. Life expectancy increased. In the beginning of the 20th century life expectancy at birth was about 48 years. Government and industry began offering pensions to their employees. Social Security, which was signed into law in 1935, was not designed to provide a full post-retirement income but to increase income for those over 65.
For decades afterward, retirement planning for many Americans meant getting a lifetime job with a company so that you could retire with a pension. The responsibility to adequately fund the pension fell on the employer. Over time, as more benefits were added, many companies incurred pension and retirement benefit obligations that became unsustainable. General Motors went bankrupt partially because of the amount of money it owed to retired workers via pension and health obligations.
As a result, companies are abandoning traditional pension plans (known as “defined benefit plans”) in favor of 401(k) plans (known as “defined contribution plans.”) This shifts the burden of post-retirement income from the employer to the worker. Instead of knowing what your pension income will be, employees are responsible for investing their money wisely so that they will have enough saved to allow them to retire.
In years past, people who invested some of their money in stocks, bonds and mutual funds viewed this as extra savings for their retirement years. With the end of defined benefit pension plans, investing for retirement has become much more serious. The kind of lifestyle people will have in retirement depends entirely on how well they manage their 401(k) plans, their IRAs and other investments.
Fortunately, the people who are beginning their careers are recognizing that there will probably not be pensions for them when they retire. Even public employees like teachers, municipal and state employees are going to get squeezed. Stockton, California declared bankruptcy over it’s pension obligations. The State of Illinois’ pension obligations are only 24% funded. Other states are facing a similar problem.
In fact, many Millennials we talk to question whether Social Security will even be there for them. They also realize that they need help planning. Traditional brokerage firms provide some guidance, but the average stock broker may not have the training, skills or tools to create a financial plan. Mutual fund organizations can offer some guidance but getting personal financial guidance via a 800 number is not the kind of inpersonal relationship that most people want.
But there is an answer. The rapidly growing independent RIA (Registered Investment Advisor) industry offers the kind of personal guidance that people want to help them create and execute a successful financial plan that will take them from work through retirement. Many RIAs are also Certified Financial Planners (CFP™). Many are fiduciaries who put their clients’ interests ahead of their own. Dealing with a local RIA is like dealing with a family friend who’s can act as your personal financial guide.