I had the Honorable John Ninfo on my podcast recently who described his “Scared Straight approach” to teaching young people about the perils of credit. He saw the consequences in the decades he served as a Bankruptcy Court judge in the state of New York. After looking at this infographic from the WSJ and the accompanying article, the overwhelming evidence is that we should be employing similar scare tactics to the topic of retirement planning because we better hope that the next generation is better prepared for taking on this responsibility:

Rather than give your students the answers, ask them the questions:

• What percentage of young people 25-34 have a retirement account?
  • Follow-up question: When is the best time to save to take advantage of compounding of investment returns?
• What are some popular types of retirement accounts?
  • 401(k) and defined-benefit appear on the chart; IRAs (individual retirement accounts) are another option for investors to set up on their own.
• What is a 401(k)?
  • From the article: “A 401(k) is an employer-sponsored plan that allows workers to place pretax wages into a savings account. Companies aren’t required to make matching contributions, but they often do as an employee perk. Unlike defined-benefit pensions, which provide set payouts for life, 401(k) accounts rise and fall with financial markets.”
• Who makes decisions about how much to save, how much to put into a 401(k) and the ultimate outcome of saving in a 401(k)? YOU!
• General rule of thumb is that you should save 8X your salary in retirement. Looking at the median retirement savings for each age group above, are many of the groups achieving these saving levels?
• Another rule of thumb is that you can safely spend annually about 4% of your retirement savings without fear of running out of money. Taking the median retirement savings amounts for those with a retirement plan in the 55-64 year old range, how much income could they safely take out each year? Does this seem sufficient?
• You tell a friend about this class you had on retirement saving and they say “Why worry? Most companies offer pensions anyway. My Mom and Dad have one.” Using data in the chart above, agree or disagree with his statement.

Here are the two stats that should be most frightening (emphasis is mine):

And the savings gap is worsening. Fifty-two percent of U.S. households are at risk of running low on money during retirement, based on projections of assets, home prices, debt levels and Social Security income, according to Boston College’s Center for Retirement Research. That is up from 31% of households in 1983. Roughly 45% of all households currently have zero saved for retirement, according to the National Institute on Retirement Security.

I remember back in the 1970s my Dad asking my grandfather what his biggest worry was…his answer “running out of money in retirement.” The good news is that my grandpa’s worries were unfounded and he lived into his 90s. The bad news is that this financial worry may come home to roost for an increasing number of Americans. All the more reason to get the message about the importance of saving early.

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In this NGPF Podcast, Teacher Innovator Nancy Labricciosa shares her advice on how to hook students when it comes to retirement savings. We also have an engaging case study (Compound My Interest in 401(k)s”  in which students learn how to make decisions about saving in a 401(k) plan.

About the Author

Tim Ranzetta

Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.

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