Which is the most pressing objective for Americans in 2016 — retirement planning or getting out of debt? In one study, retirement planning topped the list and by a wide margin. But elsewhere, there are troubling signs that debt is becoming top of mind and may put retirement on the back burner.
One way or another, the two seemed to be linked, not unlike sickness and health. That is, if the ailment of debt gets cured, then planning for retirement can gain strength. In 2016, advisors who help with both may find they will be quite busy.
On the yes-to-retirement-planning side of the issue, 59 percent of more than 1,000 investors told researchers that retirement planning is their top personal financial objective for year 2016. That’s according to a poll taken for TD Ameritrade. Their second-ranked objective, at 38 percent, was wealth accumulation, a financial activity often considered to be part and parcel of retirement planning.
Some of these investors did include paying off debt on their list, but those investors comprised only 14 percent of the total. That may be expected, since the survey went to adults with at least $10,000 in investable assets who own or trade securities in brokerage accounts.
But there is another report where retirement planning does not figure so prominently. This is from First Command Financial Services, which runs an index on financial behaviors, attitudes and intentions of middle-class military personnel (commissioned officers and senior non-commissioned officers earning at least $50,000 a year). The latest First Command Financial Behaviors Index found that “get out of debt” is the top New Year’s resolution for 2016. This was named by 32 percent of those surveyed.
Retirement saving and planning did make the First Command list, but only in eighth place. That’s well behind not only the top-ranking “get out of debt” resolution but also behind such goals as “improve credit score,” “be financially independent,” and “use cash or debit more often instead of credit cards.” Just 24 percent of the military group said they plan to “start saving money for retirement or put more money into retirement savings" in 2016.
About the debt
That the “get out of debt” resolution is at the top of the First Command list may not come as a huge surprise, as it resonates with other reports that debt levels are rising nationwide.
During the 2008 recession and a bit after, many people had made strides in lowering their debt levels. But Federal Reserve consumer credit data show that debt has been rising in more recent years.
In early December, NerdWallet reported that the total amount of debt owed by U.S. consumers has now reached $11.91 trillion, with the average indebted household owing $15,355 in credit card debt alone.
If the rising debt trend continues, more and more Americans may push retirement planning aside as they scramble to pay down debt, but with potentially harmful consequences for their retirement future.
It’s not that people don’t care about their debt load. Among 482 adults having one or more personal loans or credit card balances this year, half said they made a "major effort" to reduce their debt, according to a third-quarter Wells Fargo/Gallup survey. In addition, 62 percent said they intend to make a "major effort" to reduce their debt going forward.
But the signs are showing that some Americans are beginning to lose confidence in their debt payment capabilities. For instance, less than 74 percent of 1,000 U.S. adults recently told researchers for the COUNTRY Financial Security Index that they were confident they could pay debts as they come due. That’s down from 78 percent just six months ago, the researchers said.
Millennials were especially challenged, with only 36 percent saying they feel very confident they can pay debts when due.
As may be expected, confidence in retirement planning is falling too. For instance, only 16 percent of adults in the COUNTRY Financial survey said they feel they are likely to have enough money to retire comfortably. That’s down 2 percentage points from earlier this year, according to the researchers.
The American Student Assistance (ASA) found a direct link between today’s debt and retirement savings challenges. The private nonprofit recently reported that nearly two-thirds (62 percent) of more than 1,900 adults with student loans have put off saving for retirement or other investments due to their student debt.
The LIMRA Secure Retirement Institute found a similar mindset involving school loans. One-third of 1,000 consumers that the Institute surveyed last July said they have reduced or would be willing to reduce the amount they are saving for retirement in order to help pay for their children’s or grandchildren’s college educations.
The role of the advisor
This holding back on retirement saving and planning in the face of rising debt would be compounded if retirement advisors also wait—that is, if they wait for customers to ask for retirement planning guidance.
Maybe not-waiting is the answer. The First Command index found that 59 percent of active-duty families who have a financial planner feel confident their financial situation will improve in the next year. That compares to just 33 percent who do not have a financial planner.
Moreover, consumers do value advisors. For instance, in an Allianz Life survey about 2016 resolutions, researchers found that, “if given free access to professional guidance, more respondents chose a financial professional (37 percent) than a nutritionist/dietician (28 percent) or a personal trainer (23 percent).” That’s even though 44 percent of the 1,000 surveyed individuals named “health/wellness” as their top focus for 2016.
InsuranceNewsNet Editor-at-Large Linda Koco, MBA, specializes in life insurance, annuities and income planning. Linda can be reached at [email protected].
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