Two new reports paint a less than rosy picture of the financial health of U.S. adults, with implications for those who aren’t doing so well and for those who are. Let’s start with some of the key findings.

A first for older Americans

To be first is often a positive thing. Think about the first person who walked on the moon or, having just watched the powerful movie 42 this weekend, the first person to cross the race barrier in professional baseball.

But this weekend’s Wall Street Journal highlighted a very different first.

"Americans are reaching retirement age in worse financial shape than the prior generation, for the first time since Harry Truman was president."

The Journal described many Baby Boomers as having too little in retirement savings…

"Households with 401(k) investments and at least one worker aged 55 through 64 had a median $135,000 in tax-advantaged retirement accounts as of 2016, according to Boston College’s [Center for Retirement Research]. For a couple aged 62 and 65 who retire today, that would produce about $600 a month in annuity income for life, the center says."

… and too much debt:

"The percentage of families with any debt headed by people 55 or older has risen steadily for more than two decades to 68% in 2016, from 54% in 1992, according to the Employee Benefit Research Institute."

As a result,

"Individuals will find themselves staying on the job past 70 or taking menial jobs as senior citizens. They’ll have to rely more on children for funding, pressuring younger generations, too."

The article largely blamed a familiar culprit — the transition from guaranteed pensions to 401(k) plans that required participants to choose how much to save and how to invest.

"'This generation was left on their own,’ said Alicia Munnell, director of the Boston College Center for Retirement Research."

Among the people profiled in the article was 56-year-old Kreg Wittmayer, who started investing through a 401(k) in his 20s, but cashed out twice — once after a divorce and another time after a job loss. Of his retirement account money, he said,

"It was just too easy to get at."

Another person, 63-year-old Parline Boswell, who has about $30,000 set aside for retirement, says she was advised by a bank to keep her funds in a low-interest money market account and only recently learned about tax-advantaged investing.

"You don’t have a lot of people who coach you on how to invest."

Economically unwell

The other recently released report, the Federal Reserve’s “Report on the Economic Well-Being of U.S. Households in 2017” (PDF), painted an equally unpleasant picture of Americans’ finances.

Among its investment-related findings:

  • More than 60% of non-retired adults think their retirement savings plan is either not on track or they’re not sure.
  • About the same percentage have little or no comfort managing their investments.

The report also detailed findings from a five-question financial literacy test. On average, people answered fewer than three of the questions correctly. The one that generated the lowest percentage of correct scores asked which of the following asset classes typically generates the highest long-term returns: Stocks, bonds, precious metals, or savings accounts. Just 42% gave the correct answer (stocks).

Analyzing the financial literacy data, the report’s authors pointed out a disconnect between people’s comfort managing their investments and their understanding of financial matters, noting that,

"The number of incorrect answers does not vary with investment comfort."

Implications

A few take-aways from these reports:

  • Longing for a return to the days of defined-benefit pensions will neither increase our retirement account balances nor improve our investment returns. We need to deal with today’s reality, maximizing our contributions to 401(k) plans or IRAs and seeking knowledge on how to invest wisely.
     
  • We need to treat retirement accounts as retirement accounts, avoiding the temptation to tap those funds early.
     
  • People who are doing okay with their investments could be more proactive in looking out for the interest of others (Philippians 2:4), offering to teach the principles of wise investing to those who want to learn, whether that’s a younger co-worker or our own kids.

What are your reactions to these reports? What implications do you see for your own situation?