Personal Financial Plans: Saving for the Future

By Anne Rosivach

Many American families are struggling to make ends meet and save for their future needs, according to a report from the Consumer Federation of America (CFA) and Certified Financial Planner Board of Standards, Inc. (CFP Board), but those with a financial plan do better and are more confident about meeting their goals. 
 
But only 36 percent of the 1,508 household financial decision makers who participated in the CFA/CFP Board 2012 Household Financial Planning Survey have ever prepared a comprehensive financial plan. Respondents with higher annual incomes and older respondents were more likely than middle-income families to have a financial plan.
 
Survey responses reflected the effects of the recession that began in 2008. Nearly 38 percent of households said they live paycheck to paycheck. Less than 30 percent indicated they felt comfortable financially, and only 34 percent think they can afford to retire by age 65. The survey was conducted by Princeton Survey Research Associates International (PSRAI).
 
Regardless of income, decision makers with a financial plan, whether it is one they have prepared on their own or with a professional, are more likely to feel they are on pace to meet all of their financial goals by a margin of 50 percent to 32 percent. By an even larger margin (52 percent to 30 percent), and across all income brackets, families with a financial plan are more likely to feel "very confident" about managing money, savings and investments.
 
What Is a Comprehensive Financial Plan?
The survey assumes that a comprehensive financial plan will identify a family's financial goals, and a plan for savings and investments that will help them meet those goals.  For most families, those goals will be income in retirement, college education for children, insurance needs, emergencies, and other expenses (e.g., assisting parents). The plan should include paying off credit card debt.
 
Most Americans have spending plans, the report says, but few have savings plans except for employer-sponsored retirement plans. Many respondents say that they do not earn enough money to save. "Advances in technology have made accessing and analyzing financial information much easier, but a lack of understanding about savings and investment options and how to best manage household finances remains a serious obstacle to Americans' financial preparedness," the survey reported.
 
Comparison with 1997 Survey
The CFA/CFP Board survey utilized a number of questions asked by a 1997 CFA-NationsBank survey, also developed with and administered by PSRAI. This made possible a comparison of consumer attitudes and habits in the more optimistic, low unemployment year of 1997, with attitudes and habits in 2012, in the aftermath of the recent severe recession.
 
The number of Americans who reported living paycheck to paycheck rose from 31 percent to 38 percent from 1997 to 2012, and the percentage who indicated they felt comfortable financially fell from 38 percent in 1997 to 30 percent in 2012.  
 
Other comparisons include:
  • In 1997, only 38 percent felt [they were] behind in saving for retirement compared to 51 percent this year.
  • In 1997, half (50 percent) said they thought they could retire by age 65 compared to only 34 percent this year.
  • In 1997, more families with college-bound children were saving for higher education (56 percent) compared to this year (48 percent).
  • However, the proportion of those who say they have a retirement investment plan in place is about the same (51 percent in 1997 and 49 percent this year).
 

Baby Boomers Delay Retirement

In a 2011 AICPA survey, 79 percent of CPA financial planners said they had at least one baby boomer client who has delayed retirement because of the economy. 

When CPA financial planners were asked how many extra years their boomer clients expect to work: 
  • 32.3 percent said one to three years.
  • 39.3 percent said four to six years.
  • 9.8 percent said seven to ten years.
  • 3.7 percent said more than 10 years.
Getting Help When Preparing a Financial Plan 
The 2012 survey revealed that slightly more than half of respondents said "it's hard for me to know who to trust for financial advice" (55 percent); "to me, investing seems complicated" (52 percent); and "I'm worried about losing my money if I invest it" (55 percent), a significant increase from the 45 percent who expressed this worry in 1997. 
 
Kevin R. Keller, CEO of CFP Board said, "Consumers understandably are more nervous about investing their money given recent revelations about financial fraud, manipulation, and abuse of clients. This doesn't mean that people shouldn't create a financial plan and be prepared. We encourage consumers to do their homework and find a financial professional who always puts the clients' best interests first and abides by a fiduciary standard of care."
 
Both the CFA and CFP Board recommend that consumers begin by assessing their own financial condition and develop a plan. One useful tool is the website LetsMakeaPlan.org, where interested consumers can learn more about preparing a financial plan. The site also lists questions an individual might ask of a financial planner and some red flags. 
 
CFA executive director Stephen Brobeck said that financial planning is an important component of financial literacy. Financial planners need to get the message out.
 
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