Barriers to Retirement 4: Lack of Savings, Lots of Debt

This continues our examination of why most people will reach retirement ill prepare to retire

We discussed that most people rely on 5 sources of money to retire: 1) a pension, 2) Social Security, 3) home equity, 4) savings & 401K, and 5) investments. Previously, we analyzed that most people will lack a benefit-defined pension. Only 12% contribute fully of their pension. We explored the uncertainties of Social Security and the illusion of a paid off mortgage.

Today we confront the brutal facts about savings.

Most People Don’t Save—They Go Into Debt

Statistics indicate the average savings rate at 6%. That represents that the average amount of money we maintain in a savings account. Some of us save significantly more than 6%. The more saved, the better chances we can retire.

Unfortunately, others save significantly less than 0%.  25% have no savings at all. They not only do not save, they sell future savings—at an interest—on credit cards.  Some people owe between $7-20,000. The average American owes $117,000 in debt: house, consumer, and more. While most intend to pay the card down to $0 each month, they make minimum payments. Cars breakdown. Medical problems occur. Life happens. Since very few of us maintain sufficient savings, we use the money we targeted to pay the card down to cover the emergency. Consequently, most of us will reach retirement age in debt, rather than enriched with savings.

And I did not include student debt of $30-400,000 which prevents adequate savings.

We Lose the Power of Compound Simple Interest

Most of us remember the lesson on compound simple interest. If we started with a bank balance of $500, and put $25 a month into a normal savings account every month for 40 years—and do not take it out—that the multiplying effect of compound simple interest will increase our savings to 353,442. If we begin saving from 50 to 60 and put $500 a month for 15 years we would have only $252,788. Try this yourself using a compound interest calculator.

Yet, we still wait until the last years of work to start building our savings. I waited. You probably waited. I taught the principle to my children. They waited. Most young people let other things distract them from saving. Most older people regret they did not save.

Join me on Wednesday we I discuss the realities most of us face with investments

Barriers to Retirement 3: Lack of Home Equity

This continues my 6-part series exploring some barriers that may prevent people from retiring

In my earlier posts, I suggested that most people plan on retirement income from 5 main sources: 1) a pension, 2) Social Security, 3) home equity, 4) savings and 401ks, and 5) investments.

Prior to the industrial revolution, the family homestead provided housing security for most Americans. Home ownership decreased as people moved off of the farm into the cities near the factories. Many families rented rather than owned homes. Many lost their homes during the great depression. The boom following World War II, combined with the migration to the suburbs, increased the ability for families to own homes.

Reasons People May Lack Home Equity for Retirement

Nevertheless, many people will find themselves approaching retirement still paying on a mortgage. Several factors contribute to why people still owe on their home as they approach retirement. I do not judge why you may not have any home equity. I merely share possible reasons:

• The recent burst of the housing bubble leaves many homes worth significantly less than anticipated
• Decreased home values in your neighborhood for several reasons
• You moved frequently to follow job transfers and job changes. As a result, you could not live in one home long enough to build equity
• Home equity loans or frequent refinancing that added debt to your mortgage leave you with no equity rather than a paid off mortgage
• You decided to put your money to work rather than just sit doing nothing.
• Financial experts told you to maintain a high loan balance to reduce taxes
• Frequently upgrading to larger and costlier homes
• Taking out a second mortgage to cover a debt or business failure of children or other family members

Whatever the reason, and without casting blame, many people will not have home equity to help fund their retirement.

Join me next Monday as we analyze how savings and 401Ks may prevent retirement

Barriers to Retirement 2: Social Security Uncertainty

This continues my 6-part series examining why people may not be able to retire

Previously, I suggested that many people plan to retire with 5 sources of retirement income: 1) a pension, 2) Social Security, 3) home equity, 4) savings and 401Ks, and 5) investments.

Most Americans doubt that Social Security will deliver funds when they need it. I do not offer a political discussion on Social Security. I intend to explore the situations that may prevent people from counting on Social Security for their retirement.

3 Basic Problems

I share some problems with the basic structure that will cause a breakdown in the system. Links in my post will take you to much more detailed analysis and supporting data for my statements:

1. People Collect Social Security Longer: The median age at death in 1935 for males was about 65 and 68 for females. Currently, median age at death for males is 78 and for females 83. Most people try to retire between ages 62 to 70. In 1935 the majority of men only cashed maybe 13 Social Security checks before they died. Today, the majority will cash 80+ checks. The system will also pay a median of 144 more survivor benefits checks than originally anticipated. A large percentage of retirees will cash more Social Security checks than the number of paychecks they cased while working.
2. Reduced number contributing compared to receiving: The Social Security and Medicare Boards of Trustees recently published “Costs for both programs increase substantially through 2035 because (1) the number of beneficiaries rises rapidly as the baby-boom generation retires and (2) the lower birth rates that have persisted since the baby boom cause slower growth of both the labor force and GDP.”
3. More people with disabilities collect: Medical science allow people who would have died from certain disabilities to live. The number of beneficiaries from the Social Security Disability Income rose 84% since 1990. I personally applaud a country that provides for those who cannot care for themselves and recognize we can improve the system.

Unless our leaders address these issues Social Security will stop paying benefits in 2035.

Join me on Friday when I discuss how continuing mortgages jeopardize retirement

Barriers to Retirement 1: Insufficient Pensions

This begins a 6-part series outlining the barriers that may prevent many from retiring

You probably harbor a dream of retiring in your 60s. Your retirement will rely on a combination of 5 pillars: 1) a pension, 2) Social Security, 3) home equity, 4) a 401K and other savings, and 5) investments. Unfortunately, you may not retire—and not know it. Your 5 pillars, if you are like most people, have crumbled and will collapse under the weight of neglect or erosion.

Typical Pension Plans

America offers 2 main pension plans to workers. Most, especially the middle aged workers, do not comprehend the difference in the two. The difference will imperil their retirement.

1. The defined benefit (DB) plan guaranteed pensioners a predetermined retirement income (benefit) based on their longevity, salary, and terms defined by the employer. A defined benefit will continue until the person’s death.
2. The defined contribution (DC) plan guarantees the employer will contribute to the person’s pension (usually a 401K or variation) or match the individual’s contribution by a certain percent. The individual then lives on the money they have until the money runs out.

Vanishing and Frozen Defined Benefit Pensions

Most defined benefit plans are vanishing. The consulting firm Towers Watson published an article in September 2010 called Pension Freezes Continue Among Fortune 1000 Companies in 2010,  The article stated that Fortune 1000 companies

• Offering, and not freezing, DB plans dropped from 59% in 2004 to only 38% in 2010
• Freezing DB plans more than quadrupled — from 45 in 2004 to 208 in 2010
• With one or more frozen pension plans rose from 7% to roughly 36%.”

Ellen Schultz, the author of Retirement Heist: How Companies Plunder and Profit from the Nest Eggs of American Workers, shared this insight about why the decrease in an interview. She said “It wasn't an accident. It is the result of actions companies took starting in the 1990s to profit from their plans. Employers took perfectly healthy plans with a quarter trillion dollars in aggregate surpluses, and they siphoned out the money through a variety of means."

Mark Miller wrote in Are Vanishing Pensions Just Another Case of Corporate Greed? “The fate of DB plans is a critical retirement policy issue. Like Social Security, DB pensions are key to retirement security because they do something private accounts cannot: provide lifetime income. DB pensions and Social Security are far more valuable than private accounts because they insure against longevity risk -- the risk that you'll run out of money before you run out of time.”

Reasons You May Not Have a Pension when You Retire

1. You changed jobs so frequently that you never vested in a pension plan
2. You worked 2-3 part-time jobs. Part-time employees seldom qualify for pensions.
3. You worked for very small companies that did not provide any kind of pension
4. You either never contributed or contributed to little to a defined contribution plan
• The Journal of Financial Services Research in 2007 found that while 71% contribute to their Defined Contribution plans, only 12% make maximum contributions.
• The data also infers that 29% will have no pension to rely on for retirement. In addition, 88% will have much less than they can afford to live on)
5. Your company (like GM, Hostess, and others) “receive relief of their pension debts” by declaring bankruptcy

Join me on Wednesday when we discuss why you may not rely on Social Security

Find a Job: Discover Company Goals & Problems

Monday and Tuesday we discussed that phone calls must focus on the goals and needs of the hiring authority to get interviews..

Hiring authorities set goals for themselves, or their bosses set the goals for them. In addition, problems frequently beset businesses. They need to resolve the problems and achieve the goals.

What Information You Need to Discover

Decision makers will hire someone that convinces them that they can:

1. Do the job they want done (either achieve the goal or solve the problem)
2. Fit into their work team or organization
3. Provide a good return on investment (make or save them at least 5 times what they pay)

You need to discover their goals and problems. Prepare questions that will gather the information about:

• Goals, problems, or jobs they want done
• Team or organization’s strengths, roles, and holes they need to fill
• Definition of a good return on investment

Write down the answers you receive. Then, include 2 questions at the end of each conversation:

• “You have been most helpful. Is it OK if I call you again if I have more questions?”
• “Who else would you recommend I talk to?”

Where to Gather the Information

• Search the Internet. Read the company’s web site. Look for news releases, staff, sales information, and company history. Also, search for articles and other comments about the company in publications, trade journals, or other web sites.
• Talk to people you know who work for the company, know people who do, compete with the company, or buy from the company. Ask the questions you prepared. Include the 2 questions I mentioned earlier.
• Talk to the people your friends recommend. Identify the person that gave you their name. Request permission to ask a few questions. End your conversation with the same 2 questions.
• Call employees working in the group you want to join. Explain that you are preparing for a meeting with their supervisor (That is your goal isn’t it?) and would like to gather information.

Join me on Monday when I share methods to define where you want your career to go

Find a Job: Focus on The Goals & Needs Of Companies

On Monday we discussed that many people looking for jobs fail to get interviews because they focus on their personal needs when talking to hiring authorities. Today we continue this thought by reviewing how to focus on the company’s needs..

Hiring authorities hire you because you will help them achieve their goals or solve their problems. You have about 10-30 seconds to give them a good reason to let you into their office.

Possible Phone Script

The following phone outline allows you to give them 2 solid reasons for letting you into their office. Please note that the entire focus of the phone call is on what they want to achieve—and how you have already done what they want to do:

1. Introduce yourself by using your name and the name of someone who referred you
2. Ask if now is a good time for a 1-3 minute phone call
3. Tell them that the person who referred you said the hiring authority was looking to either achieve a specific goal or solve a specific problem. State that goal or problem.
4. Verify that this is indeed what the authority wants to achieve
5. State the 3rd base portion of 2 home run statements that apply to their goal or problem. Share measurable success that includes#s, $s, or %s.
6. Verify that the results you just described are the kind of results they want
7. Set an appointment to discuss how you can help them achieve their goal (or solve their problem).

Ensure that the entire phone call takes only 1-3 minutes. Do not try to tell your whole story in one phone call. You want them to set an appointment to learn more.

I taught this to most of the people who failed to get interviews. 10 of the 12 had jobs within 3 weeks. In fact, I shared this with one man the Wednesday before Thanksgiving. He received a job offer and started the next Monday. They just needed to give hiring authorities a reason to let them into their offices. A reason that meant something to the hiring authority.

Join me Friday when we discuss how to discover the hiring authority’s goals or problems

Find a Job: Don’t Focus on Your Needs to Impress Them

This week I will discuss effective phone calls to find a job.

Several clients recently complained that their phone calls to potential employers failed to generate interviews. In addition, one employer told me that the people I referred to him wasted his time and were ill prepare for the phone call. He commented that they did not know what he wanted and did not answer questions he asked on the phone. In others words, he said, they did not give him any reason to let them into his office.

I role played a phone call with 12 people. I played the hiring authority (not Human Resources) for their ideal employer. I answered the phone with “XYZ Company, Larry Stevenson speaking” I then followed their lead on the phone call. The reason for their failure revealed itself in 10-20 seconds.

Do Not Focus on Your Needs

In almost every single phone call the client failed to give a good reason for me to let them into my office. They though they had done so but did not. After the call I asked “What reason did you give me to let you in my office?”. Their answers included:

• “I’m looking for a job?”
• “I’ve completed your online application”
• “I sent you my resume.”
• “So-and-so told me to call you.”

In every circumstance, the client felt that those answers would impress the hiring authority.

They were wrong.

They could not grasp that the reasons they gave, while important to them, do not mean anything to the hiring authority. You see, the reasons listed above focus on the needs of the job seeker.

Hiring authorities do not have time to respond to your needs—especially if they do not know you. They worry that if you waste their time on the phone, you will waste even more time once you trap them in their office. You have to give them a reason that—focuses on their goals and problems—and how you can help them achieve them. That impresses them.

Join me on Wednesday when I share a phone outline that gets interviews