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RETIREMENT
Retirement

How to improve your readiness for retirement

Robert Powell
Special for USA TODAY

Saving for retirement isn’t easy, especially given the cost of basic living expenses and debt payments.

Half of age 50-plus pre-retirees say they do not have a positive role model when it comes to financial planning, according to the Bank of America Merrill Lynch study.

But it’s even harder when you consider that most people don’t have positive financial role models and consider finance topics too taboo to discuss openly, according to a recent Bank of America Merrill Lynch study. And if all that wasn’t bad enough, the study, Finances in Retirement: New Challenges, New Solutions, also notes that 1) financial decisions are the most second-guessed of any major life decisions and 2) 65% of Americans say the language of personal finances is confusing and not user-friendly.

So, what can be done to combat those challenges? Experts offer the following:

Get smart

Americans are most likely to second guess decisions related to personal finance (36%) – far more than work (18%), health (15%) or their home or living situation (8%), according to the Bank of America Merrill Lynch study.

What to do? One, accept second guessing as a fact of life. “There is nothing inherently wrong with second guessing your financial decisions,” says Brad Klontz, founder of the Financial Psychology Institute and an associate professor of practice at Creighton University’s Heider College of Business. “In fact, overconfidence in your financial decisions has actually been associated with worse financial outcomes.”

Two, learn as much as possible about money. “It all comes down to getting educated about finances,” says Lorna Sabbia, head of retirement and personal wealth solutions at Bank of America Merrill Lynch.

Her advice: Read personal finance articles, identify advisers who can provide guidance, including your employer’s HR department, and connect with friends, families and others who can share their insights. Another resource: Bank of America partnered with the Khan Academy to create Better Money Habits.

Others share that point of view. “It makes sense for people to look at money and money challenges as something to learn about,” says Carol Craigie, managing partner and coach with Fiscal Fitness Clubs of America.

Money isn’t a taboo topic

Americans are seven times more likely to say that talking about personal finances is taboo than they are to say it can be discussed openly, according to the Bank of America Merrill Lynch study. What’s more, only 11% feel comfortable discussing their personal finances with them.

What to do? Learn the benefits of talking about money. “For example, for siblings, it’s important to be proactive in case they will need to support mom and/or dad later down the road – whether physically or financially,” says Sabbia. “It can also be a great opportunity to teach younger generations lessons learned about how grandparents or parents accomplished their goals, such as paying for college or buying a first home.”

Get a financial role model

Half of age 50-plus pre-retirees say they do not have a positive role model when it comes to financial planning, according to the Bank of America Merrill Lynch study. “We can't challenge our thinking around money or learn other strategies until we are willing to break the taboo and ask for help,” says Klontz.

Others agree. “Above all, finding a positive role model starts with being willing to openly discuss financial situations, as well as being comfortable discussing where you may need support and guidance,” says Sabbia.

Where might you find such a person?

“A financial role model can be several people and can be found in surprising places,” says Sabbia. “For example, while parents can provide a supportive gut check on purchasing a home or retirement planning, a colleague or friend can provide insights on day-to-day savings.”

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Like any role model, Sabbia says the person doesn’t just appear overnight. “So, it’s important to be proactive,” she says.

Look especially for someone who is closer to reaching their financial goals than you are yours. “Interview them, ask them for advice, strategies and suggestions,” Klontz says. “Become a student of financial success.”

For her part, Craigie recommends getting what she calls a “money buddy,” which is someone with whom you can share challenges and successes, and who wants you to succeed. “You don't have to share what you make or what your debt is,” she says. Rather, it’s someone with whom you can share goals for budgeting, savings and debt reduction and someone with whom can review your progress, and talk through potential solutions. “Just having someone to talk through financial issues reduces stress and health issues,” says Craigie.

Also, if you’re uncomfortable broaching a subject with a family member or friend, look for other types of role models. “Employers are a powerful and important resource in empowering people to save for retirement,” Sabbia says.

To be fair, some experts say hiring a financial planner is better than having a financial role model. “I am not sure the actual answer is to find a financial role model,” says Victor Ricciardi, a professor at Goucher College and co-editor of Investor Behavior: The Psychology of Financial Planning and Investing.

Says Sabbia: “A financial adviser can take a holistic view of your finances and work with you to build a customized retirement plan.”

Make the language of finance less confusing

Alpha, beta and Sharpe ratios are the words advisers use when building an investment portfolio for clients. But those words can make an investor’s eyes glaze over when they hear them. What to do? “The jargon in finance can be quite confusing, but the basics are very simple,” says Klontz. “Get clear on your goals and then find a fiduciary financial adviser to help you design and execute a plan.”

Make sure too that your adviser uses analogies to make financial words less confusing, says Craigie. “If we in the industry used common analogies, people would follow along much better,” she says.

Close the savings "intention-action" gap

According to the Bank of America Merrill Lynch study, there’s a gap between a pre-retiree’s intention to save for retirement and saving for retirement. Given that, Sabbia says pre-retirees ought to focus on three areas: One, identify where can you be more proactive. Two, examine what you are spending your money on, and where there are opportunities to cut costs – even small ones – to save more. And three, acknowledge that not everything goes to plan – priorities change or an unexpected cost occurs. “It’s okay to be flexible as long as you’re keeping an eye on your long-term goals and how you can get there,” she says.

Experts also say closing the intention-action gap requires a commitment and nudges. Craigie’s advice: Set aside one hour a week to pay bills and keep your budget up to date, and two hours a month for financial projects such as reviewing your net worth, insurance, tax plans and the like. Consider using a free web-based tool such as Mint.com. Also, create a reminder on your electronic calendar to pay your bills and review your budget the same day of the month, says Ricciardi.

Robert Powell is editor of Retirement Weekly, contributes regularly to USA TODAY, The Wall Street Journal and MarketWatch. Got questions about money? Email Bob at rpowell@allthingsretirement.com.

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