Having a Dream vs. Paying for It — Something's Lost in the Translation

By Brenda Watson Newmann
Managing Editor, mPower

In This Story The Facts The Reason for the Gap Possible Solutions What This Means for You

If you wanted to fly to Europe, would you simply show up at the airport one day hoping you had enough money to pay for the ticket? Of course not.

So why are millions of Americans behaving this way when it comes to their life dreams, including retirement? Surveys indicate that while most people have aspirations, barely half of all Americans are taking concrete financial steps to reach their goals. mPower recently brought together financial and retirement experts and ordinary workers to find out why, and to see what can be done about it.

minute: read this article at a glance.

What are your dreams? When mPower asked 482 people that question, everyone had an answer.

"My dream is to retire at a young enough age to enjoy life," was one response. "I would say retiring at 55." Another person wrote, "I would like to buy a motor home and travel around the country with my wife after I retire." One person replied simply, "My dream is to be debt-free."

Read the full list of replies to the mPower Life Dream Research Study.

Unfortunately, fewer than half of those surveyed were following a financial plan to help them achieve their dreams. Only 40 percent said they had developed a timeline for saving for their dream, and 48 percent said they had developed a budget. On the other hand, 72 percent said they had started saving.

Like the person who goes to the airport without knowing the exact cost of the vacation, people who don't specifically plan to meet their goals may be in for a disappointment. Fortunately, the rise of "e-advice" (Internet-based financial advisors) and a continued emphasis on financial education and literacy may help people become more disciplined savers. These were the conclusions of a panel discussion of experts and ordinary workers sponsored by mPower in New York on Aug. 2.

The Facts

In mPower's survey of 482 Internet users, only 20 percent of the respondents said they felt it was "very likely" they would achieve their life dream. Another 55 percent said it was "somewhat likely." A majority of those surveyed had not developed a timeline or budget for achieving their dreams.

mPower's findings are in line with the 2000 Retirement Confidence Survey conducted by the Employee Benefit Research Institute (EBRI), which found that "many people appear to be falsely confident about their retirement security." In sum, there's a gap between what people want to do and what they are doing about it.

The Reason for the Gap

There are several possible explanations, members of the panel said.

One problem is the sheer volume of financial information available from many sources, said Dr. Christopher Hayes, a psychology professor at Long Island University who is the principal investigator of two national research projects focusing on the baby boom generation and gender investment comparison issues.

"Hearing in the media that you need a million dollars in order to retire scares the average baby boomer to death," he said.

People need to look at a goal and break it down into manageable chunks. "Starting (to save) is the most important thing," said Hayes. People get discouraged because they only look at the end goal and give up. They think, "I could never do that."

"We've got to guide people. We've got to coach them into taking action." — Steve Deschenes, president of mPower.

Dr. Lois Vitt, founding director of the Institute for Socio-Financial Studies, said that Americans were, for a long time, "taught" to be dependent on others for their retirement security — namely the government (Social Security) and/or an employer (company pension). Financial literacy programs are working on educating people about how to take charge of their finances, but it will take time for this to work its way through society.

Steve Deschenes, president of mPower, noted that many people are paralyzed by the fear of doing something wrong. "Eighty percent of people in 401(k) plans don't rebalance. Why? Because it requires making a new decision, and that leads to fears," he said.

"That's where an outside advisor helps," Deschenes said. "We've got to guide people. We've got to coach them into taking action."

Possible Solutions

Investment advice and education tailored to individuals and delivered over the Internet is one solution.

Matthew Fassnacht, J.P. Morgan's senior equity research analyst for Internet and eServices, recently completed a report that looks at "e-advice," or financial advice, delivered over the Internet. (mPower, parent company of the 401Kafé, has provided online investment advice to 401(k) participants since 1997.)

Fassnacht said the economies of scale provided by the Internet made financial planning advice more affordable for the average person. What's more, he said, people who might be embarrassed by what they perceive as their own inadequate financial knowledge might prefer the anonymity of the Internet in seeking advice or information.

"E-advice is one of the most exciting new frontiers in financial services." — Matthew Fassnacht, J.P. Morgan's senior equity research analyst for Internet and eServices.

"E-advice is one of the most exciting new frontiers in financial services," Fassnacht said.

The key, said sociologist Vitt, will be educating people in a way that involves "a human element and human encouragement."

Take the case of Randy Smith, a pilot with Southwest Airlines, a client of mPower. Smith, 42, is knowledgeable about investing, and is eager to share his knowledge with his co-workers. During "down time" on flights, he said, he encourages flight attendants and other crew members to save and invest. He has also written articles about investing that are distributed to the pilots. To catch their attention, he sometimes uses inside jokes about pilots' money habits. This "epitomizes the kind of education needed," said Vitt.

What This Means for You

Planning and saving for a major expense like retirement can seem daunting if you simply look at the goal. Saving for the kind of retirement you have imagined may seem impossible at first; but after the initial step of deciding exactly what you want your retirement to be like, you may be surprised at how little you may need to save every month to meet your goal.

"You have to believe it's achievable. You have to believe you can do it," said Vitt. Once a person starts saving money and sees how little they miss it, and how much it grows, they'll be hooked, she said.

Billie Moore, an office and data manager in Chicago, knows this. Moore, 52, said a former boss and his wife had encouraged her to buy a house early on, rather than continuing to rent, and helped guide her into saving. Now, she contributes to a 401(k) plan regularly. "I don't miss the money," said Moore, a panelist at the mPower discussion. "In fact, I need to do even more."

Wonder what other people are planning to do in retirement? More results of mPower's Life Dream Research Study.

You might try thinking about retirement saving in the same way you would approach a successful diet or exercise routine — one step at a time, and with the help of a friend or two. Are you more likely to jog every morning on your own, or if you're meeting someone?

The "friend" can be an online advisor such as mPower, or an online education site like the 401Kafé or IRAjunction.

The information provided here is intended to help you understand the general issue and does not constitute any tax, investment or legal advice. Consult your financial, tax or legal advisor regarding your own unique situation and your company's benefits representative for rules specific to your plan.

Having a Dream vs. Paying for It — Something's Lost in the Translation

By Brenda Watson Newmann
Managing Editor, mPower

In This Story The Facts The Reason for the Gap Possible Solutions What This Means for You

If you wanted to fly to Europe, would you simply show up at the airport one day hoping you had enough money to pay for the ticket? Of course not.

So why are millions of Americans behaving this way when it comes to their life dreams, including retirement? Surveys indicate that while most people have aspirations, barely half of all Americans are taking concrete financial steps to reach their goals. mPower recently brought together financial and retirement experts and ordinary workers to find out why, and to see what can be done about it.

minute: read this article at a glance.

What are your dreams? When mPower asked 482 people that question, everyone had an answer.

"My dream is to retire at a young enough age to enjoy life," was one response. "I would say retiring at 55." Another person wrote, "I would like to buy a motor home and travel around the country with my wife after I retire." One person replied simply, "My dream is to be debt-free."

Read the full list of replies to the mPower Life Dream Research Study.

Unfortunately, fewer than half of those surveyed were following a financial plan to help them achieve their dreams. Only 40 percent said they had developed a timeline for saving for their dream, and 48 percent said they had developed a budget. On the other hand, 72 percent said they had started saving.

Like the person who goes to the airport without knowing the exact cost of the vacation, people who don't specifically plan to meet their goals may be in for a disappointment. Fortunately, the rise of "e-advice" (Internet-based financial advisors) and a continued emphasis on financial education and literacy may help people become more disciplined savers. These were the conclusions of a panel discussion of experts and ordinary workers sponsored by mPower in New York on Aug. 2.

The Facts

In mPower's survey of 482 Internet users, only 20 percent of the respondents said they felt it was "very likely" they would achieve their life dream. Another 55 percent said it was "somewhat likely." A majority of those surveyed had not developed a timeline or budget for achieving their dreams.

mPower's findings are in line with the 2000 Retirement Confidence Survey conducted by the Employee Benefit Research Institute (EBRI), which found that "many people appear to be falsely confident about their retirement security." In sum, there's a gap between what people want to do and what they are doing about it.

The Reason for the Gap

There are several possible explanations, members of the panel said.

One problem is the sheer volume of financial information available from many sources, said Dr. Christopher Hayes, a psychology professor at Long Island University who is the principal investigator of two national research projects focusing on the baby boom generation and gender investment comparison issues.

"Hearing in the media that you need a million dollars in order to retire scares the average baby boomer to death," he said.

People need to look at a goal and break it down into manageable chunks. "Starting (to save) is the most important thing," said Hayes. People get discouraged because they only look at the end goal and give up. They think, "I could never do that."

"We've got to guide people. We've got to coach them into taking action." — Steve Deschenes, president of mPower.

Dr. Lois Vitt, founding director of the Institute for Socio-Financial Studies, said that Americans were, for a long time, "taught" to be dependent on others for their retirement security — namely the government (Social Security) and/or an employer (company pension). Financial literacy programs are working on educating people about how to take charge of their finances, but it will take time for this to work its way through society.

Steve Deschenes, president of mPower, noted that many people are paralyzed by the fear of doing something wrong. "Eighty percent of people in 401(k) plans don't rebalance. Why? Because it requires making a new decision, and that leads to fears," he said.

"That's where an outside advisor helps," Deschenes said. "We've got to guide people. We've got to coach them into taking action."

Possible Solutions

Investment advice and education tailored to individuals and delivered over the Internet is one solution.

Matthew Fassnacht, J.P. Morgan's senior equity research analyst for Internet and eServices, recently completed a report that looks at "e-advice," or financial advice, delivered over the Internet. (mPower, parent company of the 401Kafé, has provided online investment advice to 401(k) participants since 1997.)

Fassnacht said the economies of scale provided by the Internet made financial planning advice more affordable for the average person. What's more, he said, people who might be embarrassed by what they perceive as their own inadequate financial knowledge might prefer the anonymity of the Internet in seeking advice or information.

"E-advice is one of the most exciting new frontiers in financial services." — Matthew Fassnacht, J.P. Morgan's senior equity research analyst for Internet and eServices.

"E-advice is one of the most exciting new frontiers in financial services," Fassnacht said.

The key, said sociologist Vitt, will be educating people in a way that involves "a human element and human encouragement."

Take the case of Randy Smith, a pilot with Southwest Airlines, a client of mPower. Smith, 42, is knowledgeable about investing, and is eager to share his knowledge with his co-workers. During "down time" on flights, he said, he encourages flight attendants and other crew members to save and invest. He has also written articles about investing that are distributed to the pilots. To catch their attention, he sometimes uses inside jokes about pilots' money habits. This "epitomizes the kind of education needed," said Vitt.

What This Means for You

Planning and saving for a major expense like retirement can seem daunting if you simply look at the goal. Saving for the kind of retirement you have imagined may seem impossible at first; but after the initial step of deciding exactly what you want your retirement to be like, you may be surprised at how little you may need to save every month to meet your goal.

"You have to believe it's achievable. You have to believe you can do it," said Vitt. Once a person starts saving money and sees how little they miss it, and how much it grows, they'll be hooked, she said.

Billie Moore, an office and data manager in Chicago, knows this. Moore, 52, said a former boss and his wife had encouraged her to buy a house early on, rather than continuing to rent, and helped guide her into saving. Now, she contributes to a 401(k) plan regularly. "I don't miss the money," said Moore, a panelist at the mPower discussion. "In fact, I need to do even more."

Wonder what other people are planning to do in retirement? More results of mPower's Life Dream Research Study.

You might try thinking about retirement saving in the same way you would approach a successful diet or exercise routine — one step at a time, and with the help of a friend or two. Are you more likely to jog every morning on your own, or if you're meeting someone?

The "friend" can be an online advisor such as mPower, or an online education site like the 401Kafé or IRAjunction.

The information provided here is intended to help you understand the general issue and does not constitute any tax, investment or legal advice. Consult your financial, tax or legal advisor regarding your own unique situation and your company's benefits representative for rules specific to your plan.