Image: Bonsales/Shutterstock.com
By: FEDweek StaffA popular essay assignment in English class is to have the student write a letter to themselves of 20 or 30 years in the future, describing what kind of life they hope their future selves would have lived by then.
It is impossible, of course, to do the opposite—to send a letter to yourself of 20 or 30 years ago describing what you know now that you wished you had known then. But if you could, what would you tell your younger self about finances?
A “Retiree Reflections” survey conducted by the Employee Benefit Research Institute asked that question, and perhaps unsurprisingly, the top piece of advice that retirees would give to a younger version of themselves is to save more and earlier.
That was cited by seven-tenths of the 1,000 retires surveyed in the spring in a polling designed to “understand use of a financial plan in retirement, financial advisor use and assistance, priorities in retirement, spending concerns in retirement, financial worries preretirement and post-retirement and reflections upon past financial decisions,” EBRI said.
“Approximately 12 percent would give themselves more specific investment guidance, highlighting tax-deferred investment accounts, asset allocation, or working with a professional financial adviser. Another 7 percent would advise changing their spending habits,” it said.
What else do they know now that they wished they had known earlier? Nearly half “did not understand how taxes would impact their retirement financial situation.” Four-tenths said they are paying different taxes than expected, and of those, six-tenths are paying more than they expected. And only four tenths had both identified financial goals in retirement and developed a written financial plan.
Those findings were similar to those of the Government Accounting Office, which in 2020 issued a report on financial challenges facing older women that involved focus group sessions with about 200. A common theme was that “they wished they had made better financial decisions when they were younger.”
GAO asked participants to fill out a written survey asking them “to provide advice for younger women about how to prepare financially for retirement.” Of the 163 who responded to that question, 91 mentioned saving more, 51 mentioned investing more, 42 mentioned seeking out financial education or financial advice, and 36 mentioned living frugally or staying out of debt.
“We asked women if there was something they did not understand about finances when they were younger that they wish they had known. In response, some women said they faced challenges understanding how investments worked or how important employer matching policies and compound interest were to building wealth,” GAO said.
That latter point is especially important, because the government offers the Thrift Savings Plan—and many other employers offer similar retirement savings programs—with the advantages of compounding tax-favored growth and employer contributions.
Here’s one way to look at it: of those with $1 million or more in their TSP accounts—some 72,000 as of June 30—the average time in the program was just under 29 years. For the 212,000 with between $750,000 and $1 million, it was just under 26, and for the 100,000 with between $500,000 and $750,000, it was just above 23.
That’s nearly 400,000 account holders with at least half a million dollars just in that one account. Some of them likely timed movement in and out of funds well, but only a small minority of TSP participants even attempt to time the markets with their accounts. Overwhelmingly, what has paid off for them is investing at least enough to capture the maximum government contribution of 5 percent, and the value of time.
Unfortunately, you can’t go back and relay those lessons to your younger self. But you still can tell the younger generation of today, whether they be family members, coworkers or just acquaintances.
And there’s no time like the present to make sure you’re applying those lessons yourself.
Backers of WEP, GPO Repeal Bill Hope to Force Vote in House
CSRS and FERS – Why They Exist, Why They Differ
Contractor for New TSP System Owns Up to Missteps
Exceptions to the 10 Percent Early Withdrawal Penalty
What Happens to Your Retirement Application
What Your Retirement Statement Tells You
Your FERS Annuity is Worth More Than You Think
Thanks to a Pension, Feds Are Doing Better than Most in Retirement Preparedness
Retiring from a Federal Job – Getting Started
askFW: Calculating a Federal Annuity – FERS and CSRS
askFW: Federal Annuity Calculation for LEOs and Firefighters
