With New York’s unemployment rate standing at 8.6 percent and a workforce continuing to experience stagnant wages, many individuals are forced to work for right now, as opposed to planning and saving for tomorrow. Retirement savings is not something the younger work force focuses on, but today’s financial experts opine that today’s worker must independently plan for their future.
“Gone are the days of the goodbye handshake, a gold watch, and a fat pension check,” says Richard Spriggs, a financial services planner with Ulster Financial Group at Ulster Savings Bank. Spriggs said it’s never easy to convince people to save, and even harder when everyday expenses and debt accrue. Spriggs cites rising education costs as one of the main culprits causing young people to suffer debt. “The cost of education is crippling, but there is a way to start saving today through your employer’s 401(k) plan. Companies that offer a match—if you put in an amount your employer will match it—is something that people should absolutely take advantage of. A match is a 100-percent return of your money. These plans are managed by a third party and there is a lot of research available to ensure your money is safe.”
Spriggs believes forming individual relationships with a financial advisors is key. “You should absolutely work with someone that wants to form a trusting relationship. A lot of companies that make big promises of financial gain view you as a depositor and not a person. In 2000, it was easy for me to help people make money, then in 2008 a lot of people’s trust got taken with regards to deceptive practices from big banks.”
Dollars and Discipline
Beth Jones serves as president of Third Eye Associates, an independent firm in Red Hook specializing in individualized financial plans. She stresses the importance of facilitating trusting relationships with clients and supported Spriggs, believing deceptive practices eroded trust within the financial world and contributed to the 2008 economic collapse.
A recently published New York Times article revealed the US is building criminal cases against big banks that knowingly manipulated high-interest rates. This action followed recent inquires launched by the Commodity Futures Trading Commission, an independent agency launched in 1974 with the mandate to regulate markets in the US.
Jones offers her view on the 2008 collapse. “I absolutely believe the big banks knew what they were doing and I do blame the big banks for the financial collapse. I see young people today are freaked out, and I recognize this, but I reassure them they do have time to plan for retirement,” she says.
Jones notes crippling education debt and predatory credit companies as financial trends she sees preoccupying today’s young work force. “Loan companies and credit card companies were knowingly being deceitful and were permitted to charge outrageous fees,” she says. “They targeted poor communities with their 45-percent interest rates. They targeted people who had no business having credit and manipulated loan rates.”
Jones says that certain jobs have strict educational requirements, but many careers can be obtained without having to pursue a costly university degree and thus an individual can avoid the burdens of obtaining a loan.
“When someone wants to pursue an education, I ask specific questions, like, 'How will it boost their income?', or 'What plan they have to pay for it in a long-term way?' Some loan agreements can force someone to pay back double what they borrowed when all the fees and interest rates are added in. I fully believe that the loan business in itself is a racket, and I urge people to be cautious when entering a loan agreement. Loan companies knew the large amounts of borrowed money were basically guaranteed by the federal government, though it’s not as simple as this; the companies acted like there wasn’t a guarantee in place. In my book, it’s criminal. Going back, the general public takes sound bites and doesn’t look deep enough. Be very cautious when applying for a loan. Know what you’re getting into.”
Jones says that even if an individual is burdened by loans, one important trait for retirement planning is discipline. “I know this is very hard, but it can be done despite these challenges. I recommend people try to put away 10 percent of their gross salary. If you take a step back and form a long-term plan, despite debt from loans and credit cards, you can come up with a positive plan.”
She says that despite decreased salaries and companies looking for cost-saving measures, a company 401(k) is still a positive option for saving.
“Many people still don’t take advantage of this. It offers them an opportunity to put money away tax deferred and let it grow. There are some plans that automatically take a portion of your paycheck and deposit it to your 401. I agree that today’s salaries are low, but I didn’t have the availability of a 401 plan when I was young.”
As banks seek to rebuild from the financial collapse, many if not all offer virtual banking with options to begin a high-yield savings account. On the surface, this may offer a young saver the chance to start a hassle-free retirement account, but Jones and Spriggs agreed that initial interest rates are a tease, with many offers coming with stipulations that can be detrimental to a client. “Read the fine print, the devil is in the details,” says Jones. “One client brought me an offer from American Express and the fine print only offered the rate for one month and many were not FDIC insured. You have to have FDIC insurance. If they don’t, it is not guaranteed and you don’t know what they’re doing with your money.”
The restoration of trust within the financial world is compounded by pressures to keep expenses and bills current, while also maintaining basic needs. Michael Passante, a certified financial planner with Focused Wealth Management agrees that trust is something that takes a great deal of time to build, and a financial plan’s success is totally reliant on the strength of it.
“Rebuilding confidence takes a great deal of hands on interaction with clients. The Certified Financial Planner Board [CFP] has gone to considerable lengths in attempting to educate investors on red flags that could indicate fraudulent activities. In the CFP Board’s consumer guide to financial self-defense, which I make available to clients, it states that 60 percent of CFP certificates know a victim of fraud or abuse at the hands of another advisor. Educating clients on how to spot these red flags promotes trust and helps them move forward with their financial lives.”
Sharing the views of Jones and Spriggs, Passante praises 401(k) savings plans and equated them to a pay raise.
“Anyone who has an employer match in their 401k should be taking advantage of it. Ignoring a match simply for the sake of not contributing to a 401(k) is essentially the same as ignoring a pay raise. This is money paid to you by an employer, the only difference is that it’s not taxed if it goes into a 401(k).”
All agreed that a 401(k) is a smart option for an individual looking to begin saving, but what recourse would a low-income worker have if he or she has severe financial constraints?
“That can be a difficult situation to handle. Obviously, lower wages can cause individuals and families to go through stressful periods in life. Saving for retirement is growing more and more important. Sometimes you can find ways to change spending habits, but in today’s difficult economy that isn’t always the case,” says Passante.
Jones agrees that the current economy is “sluggish” but remained optimistic that with careful research and discipline, a young individual can start saving today. “You have to be able to adapt when things change. The young people that do come to me for advice, they want to have some kind of idea how things will go in the future and I applaud that. Once you start training yourself to save, you find out that you can do it and I encourage them to start small,” she says.
Focused Wealth Management Focusedwealthmgmt.com
Third Eye Associates Thirdeyeassociates.com
Ulster Financial Group Ulstersavings.com