Life can feel like an exercise in financial chaos. Simply paying your day-to-day bills can be tough. Saving for other priorities -- the kids' college education or that family vacation to California -- can put a squeeze on your ability to save for retirement.
In fact, a lack of retirement savings is one of the most important issues facing Americans today, says Kemberley Washington, a personal finance writer and assistant dean of student programs at Dillard University in New Orleans.
Having a retirement plan of any kind is better than having no plan at all, Washington says. And it is best to start drafting that plan today.
The recent financial crisis has had a major impact on all aspects of the retirement system. What's most problematic, from your point of view?
The major issue with retirement planning is that fewer Americans are adequately saving for retirement. A study by the Life Insurance and Market Research Association states that only 1 out of 2 Americans is saving for retirement.
In addition, another study conducted by the Employee Benefit Research Institute's 2012 (Retirement) Confidence Survey shows that only 14% of participants are confident that they will have enough for retirement.
No matter your age, job or salary, it is important to save for retirement. In addition, it is important to understand how much money is needed for retirement. Making time to meet with a financial planner or commit to research to determine what financial steps are needed is vital in today's economy.
Now granted, there may be uncertainties you will experience on your financial journey, such as an unexpected illness, changes in Social Security, health care reform or sudden downturns in the market. But please understand: Having a retirement plan is better than approaching these bumps in the road without any plan at all.
How can individual investors get ahead? Should they change their asset allocation strategy? How should they allocate their assets among stocks and bonds?
Many employers now offer target-date funds. The purpose of these funds is to reallocate investments automatically during different periods of an individual's lifetime. For example, a worker who elects a target-date plan would be heavily invested in equities during his or her younger years, but as time progresses, the plan will reallocate a percentage of investments into safer investments, such as bonds, without any action on the worker's part. Ultimately, when this individual is near retirement, he or she will be exposed to fewer equities and more bonds.
If an individual decides not to participate in target plans, it is important to reallocate investments as he or she approaches the retirement date.
What are your thoughts on public and private pensions? Which is in worse shape? Will taxpayers have to bail out public pensions? Will corporations completely discontinue offering company pensions?
During my life, I have actually been on both sides of the fence. As a criminal investigator with the Internal Revenue Service, or IRS, one of the major perks that drew me to the job was the ability to retire after 20 years of service (with) a guaranteed salary for the rest of my life. Currently, I am working at a university, where younger employees are not offered the opportunity to have pensions. However, many of my older colleagues will enjoy a pension when they retire.
I think many employers are choosing to offer defined-contribution plans because of the many uncertainties in today's economy. While I can't predict whether taxpayers will have to bail out public pensions, it has become very clear pensions are becoming a thing of the past. More and more employers are simply moving away from pension plans and toward defined contributions such as a 401(k) plan.
Recently in the media, big-name money managers, such as Bill Gross and Robert Arnott, have made pessimistic forecasts about the economy and/or stock market. What should Americans take away from this?
Again, as I mentioned before, I believe having a plan is better than having no plan at all. Having a strategic asset allocation, reallocating near retirement and getting into the market as soon as possible would help individuals in reaching their financial goals better than those who are doing nothing at all.
What can Americans do to improve their retirement prospects at various points in their careers?
I can't emphasize enough how important it is to begin to plan for your retirement sooner than later. An individual who begins planning for retirement during the ages of their 20s and 30s has a better chance of reaching their retirement financial goals, since they have a better chance of recouping losses from the market.
For those nearing retirement who haven't starting saving, it may be essential to cut back on certain expenses, consider working past retirement age and downsizing in order to make ends meet.
This is why it is important to begin to take control of your financial future early on. Educate yourself on your retirement funding options and commit to taking the necessary steps to save for your future.
We would like to thank Kemberley Washington, CPA, assistant dean of student programs at Dillard University in New Orleans, for her insights. Questions for this interview were contributed by Barbara Whelehan, assistant managing editor for Bankrate.com.