Plan for retirement
Most people fail to save enough for retirement.
This is the unfortunate assessment given by Diane Garnick, CFA Research Foundation Trustee & Managing Director & Chief Income Strategist TIAA, USA.
While speaking at the Royal Fidelity Pension Breakfast at Lloyd Erskine Sandiford Centre recently, Garnick pointed out that people fail to save enough because they believe that not having children’s expenses, or transportation costs to and from work, will cut a lot of their expenses and so they do not plan sufficiently. However, in actuality expenses shift from childcare to healthcare and transportation costs soar, as many cannot drive themselves around.
Garnick also warned about the gender gap in that women spend fewer years in the workforce because of maternity leave and taking care of elderly parents. According to her, women tend to be more risk averse, but they live longer and they generally have older spouses, so they live alone longer, therefore women spend more on healthcare in retirement and these are circumstance that must be taken into context while planning for retirement.
Even though women are risk averse she believes they need to be more aggressive.
The Managing Director admitted, “Decision making is exhausting, so we cheat, we code, categorize, and evaluate our economic activities in seconds. However, retirement poses a challenge as pay checks stop coming in, but this is a unique opportunity to create a new, sustainable, mindset. But, this is not the stage of life we typically learn a new skillset. Many people have zero desire to focus on their finances, but rely on mental accounting intuition with simple changes, create distinct buckets for spending, prioritize each bucket and fund one bucket, then move on to the next.”
She advised, “We overweigh today, discount tomorrow, we rely on averages, yet no one thinks they are average. Mental accounting can help, especially women, replace either-or with cash flow needs in mind and guaranty necessities and then take on marginal risk.” (NB)