Given the fragile state of the U.S. and world economies, it should hardly come as a surprise that many Americans are now feeling financially insecure. A new study released last month by New York-based Guardian Life Insurance Company of America, that was the focus of a luncheon and panel discussion I attended at Guardian Life's invitation on November 2, reveals how wide the sentiment is.
Among the 1,202 telephone respondents, the survey found GenXers are most concerned about the economy and the least confident: They're most likely to believe the economy is headed in the wrong direction (82%). And GenXers are the least financially secure (47% feel unsecure), as compared to just over a third of the generation population who do not feel financially secure (37%).
The more pronounced concern among the GenX crowd can be attributed in part to the greater financial obligations that many within this cohort are now saddled with. Carol O'Rourke, an executive director at the Coalition for Debtor Education, noted during the panel discussion that GenXers suffered substantial losses in the wake of the housing downturn; and many are still facing crushing student loans, auto loans, home mortgages and credit card debt.
Insecurity among Generations X and Y (Millennials) about the finances and the state of the economy, the survey adds, is reflected as well in concerns about saving enough for retirement. The concern is in evidence, too, when respondents are questioned about how best to plan and manage their portfolios.
Nearly four in ten (39%) of GenXers and over half of the Generation Y (52%) feel so "overwhelmed" by the prospect of saving for retirement that they don't know where to begin.
Likewise, the survey adds, Gen X respondents are most worried that they will not have enough money saved for a comfortable retirement (59%). Half of respondents across all the generations share this view. Those who are most confident, not surprisingly, own whole life insurance or earn more than $100,000 annually.
The survey results note also that two-thirds (65%) of all respondents are more likely than not to deposit their money in a savings accounts to keep their finances steady rather than invest it in the hope of making more money. Those individuals who earn more than $100,000 annually are also more likely to invest their money with a view to earning more.
However, the report adds, most respondents (60%) also believe that it is more important to invest in their retirement fund because the economy is less stable than in prior years. Among GenXers, 47% believe that investing in their retirement fund is less important because the economy is less stable.
How to explain the seemingly contradictory desires among those who favor depositing their money into savings accounts while also wanting to fund investment accounts that can yield potentially higher returns? Michael Ferik, senior vice president-individual life at Guardian, attributed the opposing sentiments to "discombobulation" among respondents.
I beg to differ. Many people, I among them, are redirecting money from investment to savings accounts in order to have sufficient funds to cushion the blow of a financial emergency, such as prolonged unemployment, a medical operation or other unanticipated expenses. Yes, an IRA can offer much higher yields, but the potential gains have to be weighed against the tax penalty or, assuming the IRA is inside an annuity, surrender charge that would have to be paid in the event of premature withdrawals.
Ferik was closer to the mark, I think, when he suggested that investors' current aversion to market volatility is fueling a resurgence in sales of whole life insurance, a core product of Guardian Life that offers guarantees on premium payments, the death benefit and cash value. During the last four years, a time of significant economic uncertainty, Guardian Life's sales have increased by 30-40%, says Ferik.
All well and good. But as the Guardian survey notes, whole life policy owners are divided as to the appropriate place for the product in a financial plan. Fifty-one percent of respondents say they agree that it is wise to treat the policy as part of the financial portfolio. But nearly a third (32%) say it is best to "buy term life insurance invest the difference (a case of buyer's remorse?). Also, 17% say they "don't know" what the best financial strategy is.
Ultimately, noted Lawrence White, a professor of economics at New York University's Stern School of Business, individuals can only count on a secure retirement by planning (and saving for) for the long term; when investing in equities, by not trying to "time the market' and by keeping transaction costs (notably brokerage fees) to a minimum.
That's sound advice we all can agree on.
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