Planning for Financial Security
We plan events like parties, vacations, and weddings but often fail to plan for the most important things in our life like our financial freedom and retirement security. Most people hire event planners because the event is time-sensitive and cannot be ignored. Retirement, on the other hand, is far away in the future and we do not allow such concerns to interfere with the current "good" life. The importance of financial planning and setting aside a tidy sum for the rainy day usually hits home when something unexpected happens like disability or job loss.
Why do so many of us fail to plan for our own financial security? The major reasons appear to be:
Life Style
Spending habits are hard to change. Why not live a good life today as the future will take care of itself? In our society current consumption usually wins over fiscal responsibility. We want that new gadget now and not when we can afford it. No wonder consumer debt is growing. Not much is set aside for emergencies. It requires a lot of discipline and determination to embark upon a regular savings plan. Saving is hard even if the employer offers a tax-deferred savings plan where contributions are deducted from payroll.
Sadly the participation rate in employer sponsored tax deferred plans is quite low among workers even though the employer matches the contribution. It is like voluntarily walking away from the "raise" offered as the matching contribution in 401k and other plans.
Procrastination
Most of us recognize the need for a regular savings plan and often resolve to make a beginning but keep on postponing the action. There is no urgency as lack of a plan does not interfere with current life style. The children are small and there is plenty of time before they go to college. The job is steady and income will rise with time. The occasional feeling of guilt can be easily ignored as no one outside the family knows.
Lack of knowledge
Where should one begin? What resources are out there? Who should one talk to? The economics courses in schools do not teach fiscal prudence and money management. Spending beyond one's means seems to have become an acceptable norm. Advertisers and credit providers promote current consumption versus frugality. A financial advisor may be a good choice but how does one see one? Most people do not realize that the preliminary consultation with a financial planner may not involve any cost or obligation.
Conclusion
The need for a comprehensive and personalized financial plan that takes into consideration the income, cash flow, current and projected needs, and the type of life style the person wants upon retirement cannot be overemphasized. Accumulation, preservation, growth and transfer of the estate to the next generation with minimum cost are essential parts of a financial plan. Dependence on Social Security may not be such a good idea as its solvency continues to be an issue and future benefits may no be there. The earlier one starts the less one has to put aside as the compounding of income and appreciation over a long time horizon can make the assets grow. The time to start is now and the sooner the better.
Pavittar Safir is a Certified Financial Planner and Registered Representative of MML Investor Services.
Mr.Safir has extensive background in annuities, structure settlements, reinsurance and financial planning and has held senior level positions in the insurance industry for over 30 years. He retired as the Chairman of Cambridge Galaher Settlements and Insurance Services.
Moneywise is hosted by Rajesh Jyotishi with Shalin Financial Services, Inc.
An Investment Advisor Representative of FSC Securities corporation. A Registered Broker Dealer. Member of NASD/SIPC. For questions he can be reached at 770-451-1932, ext. 101
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