Why we aren’t as dumb as they think we are

I write another blog, The Retirement Bubble, where I occasionally write on a topic I first raised in an essay at Barron’s in 2009. It has drawn more traffic than anything I have written there before and emails arriving suggest that it struck a chord with some folks. I want to share it with you too.


Today, I would like to take a look at what is passing through the minds of adult Americans when it comes to retirement. Yes, there are plenty of statistics indicating that the average American has nowhere near enough money to retire, but it is what they are thinking that is most important to me. That is what determines their actions now and in the future, not just what a “financial planner” thinks is appropriate. The good folks at Gallup provide a number of survey results to the public at their site and sprinkled among them are those that focus on retirement. Let’s look at a few.

First, forget the planners, do non-retired adults think they are prepared for the financial demands of retirement?

It’s easy to look at a graph like the one above and get wrapped up in the year-to-year changes, but do me a favor. Just look at the numbers on the far left, then the far right. This is a very dramatic change. The two lines have not traded positions exactly, but they are clearly closing in on that. No wonder some people think the world has turned upside-down.

On a year-to-year basis, there is something else interesting going on. The dots between lines are placed to generally represent the time of year during which the poll was taken. As you can see, they were taken during the first half of each year, typically April. Note the rather dramatic shift in both lines from 2004 through 2005 and how that continues into early 2006, before slowing.

The stock market bubble had collapsed a few years earlier so that was not news, the real estate indices told us that the real estate market just began to turn over in late 2006 and the term “sub-prime crisis” hit the headlines later in 2007. Only then is it assumed by many of the so-called experts that most Americans started to understand that yet another bubble had popped and well into 2008 before the general public really began to get a grip on the severity of the crisis.

How strange. Before there were trillion dollar deficits, before there were “stimulus bills”, before there was a Tea Party, and while the real estate market was in full bull mood, adult Americans were already getting worried about their retirement finances. The 2004-5 period where the two lines start their dramatic shift was not a period of “crisis mentality”.

You know, just maybe the general public is not as dumb as they are made out to be by some of the “experts”. Sure, there are always people who get it all wrong, but as a group, they may be showing us that they’re more sensible and sensitive than they have been credited with. I like that thought. And who knows? Perhaps we have a “leading indicator” here, one that indicates what is coming rather than just what has happened already. If so, the recent dip from last year to a new high on the negative side and just one point short of a new low on the positive may be a leading indicator for the future. Not a pleasant thought, but something to consider.

The other factor I want to consider today is the “when” of retirement. That is affected by finances, obviously, but it is a lot more complex, including many other factors beyond money. This first graph is not surprising, given everything we have been through over the last decade.

It seems so simple and straight-forward. Well, human life is never quite that simple and straight-forward. Gallup also breaks the retirement age goal into three parts – those expecting to retire before 65, those expecting to retire at 65, and those expecting to wait until after 65.

As with the first graph, just focus on the first values and the final value. The change from the two surveys of late 1995 to the most recent in 2011 is dramatic, very dramatic. This is a very different picture than we get from the first “age” graph, although they cover the same period of time. Glance back and forth between the two. Exactly the same question is asked in both cases, but the second graph provides us with a lot more information than the first. That’s good to remember. When any the response to a question is boiled down to one average, you lose a lot. That “smooth” transition in the first graph looks a lot more rocky and troubled in the second, doesn’t it?

This is especially important to remember when a question looks extremely simple, but common sense tells you that answering it can be a very complex process for the person answering.

Now, let’s look at exactly the same information from the same surveys shown immediately above, but in yet another format broken down into a little more detail.

Results provided in a table rather than a graph seem more difficult to get a grip on, but tables like this one have “lines” too. Start at the bottom of each column and work your way up twice. The first time just to get a sense of the flow. The second time a little slower to see a little more of the rise and fall. Those columns are your “lines”. It’s a little more difficult to visualize the results, but it also provides more data. Above all, it’s the “line” under Over 65 that stands out most clearly.

In past posts, I have talked about the necessity for us to grasp the severity of the crisis and its effect on our futures. From that will come a change in behavior and the sooner, the better. Well, it appears that the change is not only underway, but that it began before the crisis was a crisis. The difference between the 2008 survey as the crisis became obvious and the 2011 survey is nowhere near as dramatic as the change from 1995. But ignore 1995. That was a long time ago. Just focus on the difference between 2002 and 2011. I think that’s pretty darn impressive too.

The purpose of an exercise like this is two-fold. First, we get an idea of what is going on in people’s minds. Second, we can look back to the past and follow at least some of the shift over time. This allows us to challenge any assumptions we might have had of what folks were thinking in the past. I know I had to stop and consider how much earlier the shift was underway than I would have guessed before. And there’s a third “fold” too. Maybe we gain a little more respect for the public, and for ourselves, in the process.

I want to take this last paragraph to thank all of you who left such kind comments to my last post, definitely including those who sent emails separately. I very much appreciated every one of them! But I have to apologize. I disappear, then I suddenly reappear, then I disappear again! Well, there are reasons for all that. Among others, I have been doing quite a bit of original research of my own and some of it will be relevant to our discussions. In any case, this post helps bring us up to speed with American retirement planning in the real world (i.e., our heads), not just the theoretical world (someone else’s head).


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