Copyright 2010 Gannett Company, Inc.All Rights Reserved USA TODAY
June 28, 2010 Monday FIRST EDITION
SECTION: MONEY; Pg. 4B
LENGTH: 633 words
HEADLINE: Common mistakes fuel Americans’ retirement-savings crisis; Classic flaws are tripping up savers, author concludes
BYLINE: Richard Eisenberg
Why aren’t Americans saving enough for retirement? In his entertaining and illuminating book, financial services executive Gregory Salsbury tries to find out.
To do so, he combines the key tenets of behavioral finance (how investor psychology affects financial decisions), results of his focus group interviews with pre-retirees and retirees, and a smattering of cutesy terms he created, including the book’s title.
Retirementology, Salsbury says, is a new way of thinking about retirement planning that considers both psychology and finance against a backdrop of the worst economic crisis since the Great Depression. According to the author, the “Meltdown of 2008” caused Baby Boomers to lose $4 billion in retirement accounts.
The chief reason the nation is suffering from a retirement-planning crisis, argues Salsbury (executive vice president of Jackson National Life Distributors), is that so many of us are making classic mistakes in the way we invest, spend, save, borrow and earn money.
Five of the greatest gaffes:
*We buy into the “red zone” hype. Salsbury dings the financial-services business for pushing the “retirement red zone” concept — a period starting just five years before retirement and ending five years into retirement.
“Millions of Boomers may be seeing red, but there is no zone in sight,” Salsbury says.
*We fall numb by “the number.” Another financial-services bogeyman is “the number” — the amount you supposedly need to comfortably retire. Salsbury maintains that nobody really knows what that number is.
*We’re not logical when it comes to saving for retirement. Americans worry about not having enough money to retire, yet fail to take advantage of savings programs available to them, Salsbury says.
A striking 70% of Gen Y workers don’t participate in employer-sponsored accounts, and more than 20% of workers 45 and older have stopped contributing to their 401(k)s.
*We’re nearsighted about investing. Behavioral economists call this “the recency effect.” You notice your mutual fund has soared in value over the past quarter or two, so you overload your portfolio with stocks. Or, after watching your stock holdings plummet, as in 2008, you go ultra-conservative and bulk up on money-market accounts.
*We pull money out of retirement savings before retiring. Salsbury says 46% of people cash out of their 401(k)s when changing jobs, rather than rolling the money over into another tax-deferred retirement plan.
One of Retirementology’s key conclusions is that Americans would be in much better financial shape if they’d stop treating retirement as a separate, static event in life. Planning for retirement is more like a 50-year project than a 10-year project, Salsbury says.
Salsbury also throws out a few smart, practical financial-planning tips along the way.
For instance, he shows how you can have much more money to save for retirement by kicking in an extra $100 or so to your mortgage’s principal payment each month. By doing this with a $200,000, 30-year, 6% mortgage, you’ll pay off the loan within 25 years and save nearly $50,000 in interest.
He also reminds readers how important it is to have proper beneficiary designations on your 401(k)s and IRAs. Errors could lead to “severe, unanticipated consequences,” such as needless taxes and the potential of disinheriting children.
But Salsbury sometimes recounts very basic money rules: Set a budget, avoid high-interest credit cards, raise your insurance deductibles, and don’t keep an excessively high balance in your checking account.
Those tips are all perfectly sensible, but they’re a little “famoneyiliar”: financial advice that most people already know.
Eisenberg is a freelance writer based in New Jersey
Retirementology: Rethinking the American Dream in a New Economy
By Gregory Salsbury
FT Press, 240 pages, $19.99
LOAD-DATE: June 28, 2010