Study of Retirement Savings Among Arlington Residents

7/30/2019 Study of Retirement Savings Among Arlington Residents

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STUDY OF RETIREMENT SAVINGS AMONG ARLINGTON RESIDENTS

Prepared for: The City of Arlington

Renato Ganoza, Student

Tarrant County College Southeast Parkway, Arlington, TX

T: () - E:[email protected]

October ,
mailto:[email protected]:[email protected]:[email protected]:[email protected]


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STUDY OF RETIREMENT SAVINGS AMONG ARLINGTONRESIDENTS | 2

2100 Southeast Parkway

Arlington, TX 76018

(817) 688-4421

Financial Services

101 S. Mesquite St.

8th Floor

Arlington, Texas 76010

Attention: Mrs. Sherry Wright, CPA, Assistant Director of Financial Operations

STUDY OF RETIREMENT SAVINGS AMONG ARLINGTON RESIDENTS

Prepared for: The City of Arlington

We have completed a comprehensive study on the retirement savings rates of Arlington residents,

and compared them to national savings rates. This study was authorized on October 22, 2012.

Research on savings rates followed the course outlined in our proposal dated October 23, 2012.

This report compares selected data from Arlington residents with national data from a variety of

sources. Arlington residents are aware of the importance of saving for retirement, but many have not

actually started saving. We recommend that financial education be incorporated into the public school

system with the help of local banks and credit unions, and that the city of Arlington work with local

service providers like Catholic Charities and the United Way to expand their Money School program

for adults. We further recommend that retirement savings rates be included in the Champion

Arlington Economic Development Strategy.

We are pleased to have had the opportunity to work in the interest of the city of Arlington. We look

forward to our continued cooperation in the future.

Sincerely,

Renato Ganoza, Student

Tarrant County College


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CONTENTS

List of Illustrations 4

Executive Summary 5

Introduction 6

National Savings Rates 7

Background 7

Retirement Readiness 8

Local Savings Rates 9

Background 9

Retirement Readiness 9

Conclusions and Recommendations 11

Conclusions 11

Recommendations 11

Cost Analyses 13

Appendix 14

References 15

Further Reading 15


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List of IllustrationsFigures Page

1. Retirement Readiness . 62. Personal Savings Rate . 7 3. Average and Median Retirement Account Balances of People Ages 50-64 ............................ 8

Tables Page

1. Per-Capita Income 9


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Executive SummaryThe city of Arlington has hired Renato Ganoza to compare the retirement savings rates of Arlington residents to

national levels. Retirement savings at the national level are very low, and may lead to widespread economic stability asBaby Boomers retire. Arlington is healthy economically now, but many younger residents have failed to start saving for

their retirements. This failure to save potentially threatens Arlingtons long-term economic and social stability.

Renato Ganoza polled students at Tarrant County College on October 22nd

, 2012. While many students expressed

an interest in learning more about retirement funds and other long-term investment vehicles, they were largely ignorant of

the benefits of saving from a young age and few actively contributed to their retirement funds. This is in line with national

trends.

Renato Ganoza believes that financial education is the key to ensuring that Arlington residents begin to save. By

working with local banks, credit unions, and charities to foster savings rates for our residents, we can mitigate long-term

instability at a minimal cost.


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IntroductionWe have conducted a comprehensive review of both national and local retirement savings rates. This introduction will

describe our project and purpose, detail our scope and major sources of information, and outline our report format.

Project Description

The numbers are startling one in two Americans are not saving at all for

retirement. Fifty-six percent of 18 to 34 year-olds are not saving for

retirement. Only one in three Americans began putting money away for

retirement in their 20s. With rising health care costs, high living costs and

low bank balances, more older Americans are finding themselves in a tough

financial position and still working. Hoping to keep their kids from being

overburdened, only 24% of baby boomers are putting money away for their

future, down from 44% in 2007. ("July 2012 Newsletter")

Are Arlington residents in the same boat, and are there measures we could

take to help prevent economic instability in our city?

Scope Information

This study aims to measure the savings rates of Arlington residents and how

prepared residents are for retirement. Savings rates were compared against

figures compiled at the national level. Major sources of information for those

figures were:

U.S. Department of Commerce

U.S. Census Bureau Federal Reserve Bank of St. Louis Fidelity Investments

Data for Arlington residents was provided by the City of Arlington Financial

and Management Resources Department and a poll conducted October 22,

2012 at Tarrant County College Southeast Campus.

Report Format

This report consists of four main parts:

1. National Savings Rates: data on national savings rates and anevaluation of retirement readiness.

2. Local Savings Rates: data on Arlington residents and an evaluationof retirement readiness.

3. Conclusions and Recommendations4. Cost Analyses

RETIREMENT READINESS

CONFIDENCEMany Americans are confident they will beable to afford their retirement.

ENROLLED IN RETIREMENT PLANMany Americans are enrolled in retirement

plans.

WORKING PART-TIME AFTER 65Many Americans are willing to work part-time after 65 to afford their retirement.

MEAN SAVINGS RATEWhile Americans are confident they are

prepared, the numbers paint a differentpicture.

0%

20%

40%

60%

80%

Young

Americans

Retirees

Figure 1: Retirement Readiness

Confident about retirement

Enrolled in a retirement plan

Willing or able to work after 65

Mean savings rate


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National Savings Rates

Background

While national savings rates spiked during the economic recession of 2008, they quickly dipped back to a low level.

According to the U.S. Department of Commerce: Bureau of Economic Analysis, the national Personal Savings Rate as of

September 2012 is just 3.3% as seen in Figure 2 below.

Figure 2: Personal Savings Rate

Despite such low savings rates, two-thirds of Americans polled in August reported being satisfied that they have saved

enough money for their retirement. ("Pew Social & Demographic Trends")

What is enough for retirement, though?

At Fidelity Investments, the largest 401(k) administrator in the United States, the average balance of a retirement accountis $72,800. (Taylor) Its hard to imagine that being enough to support twenty years of retirement, even for the frugal.

Three-quarters of Americans aged 50 to 64 have an average total retirement account balance of just $26,395 according to

the U.S. Census Bureau's Survey of Income and Program Participation. The median value for half of these same Americans is

zero, meaning that as many as 50% of near-retirees have no retirement savings at all.

Figure 3: Average and Median Retirement Account Balances of People Ages 50-64

A full 75% of Americans nearing retirement age have less than $30,000 saved, as seen in Figure 3 above. Financial advisers


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suggest that people save from twelve to twenty times their annual income to maintain their standard of living after retiring.

Retirement Readiness

Almost half of middle-class workers, 49 percent, will be poor or near poor in retirement, living on a food budget of about$5 a day. (Ghilarducci) Even adults with a retirement plan like those at Fidelity on average, face a potential 28% income

drop in retirement. ("Fidelity Viewpoints")

68% of young Americans claim that they are willing to work part-time or full-time after 65 to support themselves. They may

not have the chance to do so only 12% of retirees actually do work full or part-time. Many retirees cite layoffs and a slow

economy as obstacles facing employment.


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Local Savings Rates

Background

While Arlington residents compare favorably to national averages among key metrics, we could do much more to bolster

financial education among younger residents.

Per-Capita Income

Per-Capita Personal Income for Arlington residents was in line with national standards in 2007, 2006, and 2005 according

to the U.S. Department of Commerce, Bureau of Economic Analysis. ("Annual Report Updating Financial Information and

Operating Data For Fiscal Year Ending September 30, 2007" 12) The figures are displayed below in Table 1.

2007 2006 2005

ARLINGTON 4.2% 4.8% 5.1%

TEXAS 4.3 4.9 5.4

UNITED STATES 4.6 4.6 5.2

Table 1

Unemployment

According to the Comprehensive Annual Financial Report for the Fiscal Year Ended September 30, 2011, Arlingtons

workforce of 208, 628 residents suffered a 7.8% unemployment rate and 1,262 foreclosures in 2010. ("Comprehensive

Annual Financial Report for the Fiscal Year Ended September 30, 2011")

Population

Arlington continues to grow. According to the Department of Community Development & Planning, Arlington added 330

new residents in just the second quarter of 2012. ("Quarterly Growth Profile - Second Quarter 2012"). According to the

2011 Annual Growth Profile, Arlington added approximately 558 residents and 219 housing units in 2011. ("Annual Growth

Program - 2011" 7)

Retirement Readiness

On October 22, 2012 I polled thirty students at Tarrant County College. The students were from different age and ethnic

groups. Questions asked:

How much do you have saved for retirement? How much would $5,000 invested today and compounded annually at 8% interest for 45 years be worth? Are you interested in learning more about retirement funds? Did you learn about money from your parents?

How much do you have

saved for retirement?

$0 - $,5000 $5,000 - $10,000 $10,000 - $15,000 $15,000 or more

25 3 1 1


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Even with a small sample size, trends are clear. The overwhelming majority of students polled had no retirement savings.

Several students had small retirement funds from $5,000 to $10,000. The two oldest students polled had the most saved,

with one $15,000 account and another valued at over $30,000.

How much would $5,000 invested todayand compounded annually at 8%

interest for 45 years be worth?

$15,000 - $25,000 $25,000 - $35,000 $35,000 - $45,000 $45,000 - $60,000 $60,000 or more

4 4 10 7 5

$5,000 compounded annually for 45 years at 8% interest would be worth $160,000. Many of the respondents seemed to

guess that linear growth would hold true, rather than exponential growth.

Are you interested in learning more

about retirement funds?

Not Interested Maybe Interested Interested Definitely Interested

2 8 15 5

The majority ofrespondents were definitely interested or interested in learning more about retirement funds and other

long-term investment vehicles.

Did you learn about money fromyour parents?

Yes No Cant Remember Other22 5 0 3

The majority of respondents reported learning about money primarily about their parents. Three respondents reported

learning about money from other family members, and five respondents said they learned primarily from school or self-

study.


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Conclusions and Recommendations

Conclusions

At the national level, Americans seem to fail to recognize the importance of saving for retirement. While poll respondents

pay lip service to the importance of saving money, most Americans retire with an inadequate amount of savings.

Arlington residents are in a good position to save money, but a poll conducted at Tarrant County College seems to show

that many locals have not begun to save for retirement themselves. Given that the average age of Tarrant County College

students is 26, this is worrying. (About TCC)

Many of the residents polled expressed a keen interest in learning more about retirement funds and long-term investment

vehicles. We believe there is a great opportunity for the City of Arlington to help residents learn to take control of their

financial futures.

Recommendations

On the basis of these conclusions, we recommend that the City of Arlington undertake the following actions:

1. Revise the Champion Arlington Economic Development Strategy to include retirement savings rates2. Work with local banks or credit unions and school districts to bring financial education opportunities to students

from a younger age.

3. Work with local charities to expand financial education programs for adult residents of Arlington.Revise the Champion Arlington Economic Development Strategy to include retirement savings rates

The Champion Arlington Economic Development Strategy is a comprehensive plan by the City of Arlington aimed at both

fostering economic development and enhancing the quality of life for Arlington residents. ("Champion Arlington

Economic Development Strategy")

In the current version of the plan, only one mention is made regarding savings: Encourage personal savings via a financial

counseling program and possible development of a savings incentive program.

Given that the current version of the plan dates to 2007 and we were unable to find any mention of the financial counseling

program or savings incentive program on the City of Arlingtons websites, we believe it makes sense to both review the

progress made and explicitly include retirement savings as a measurable benchmark in the report.

Work with local banks or credit unions and school districts to bring financial education opportunities to students from a

younger age

Financially savvy children grow into financially stable adults. By encouraging students to learn to handle their finances

from an early age, we empower them to more fully participate in our community as potential future investors and business

owners. By partnering with local banks or credit unions already offering similar educational programs for their customers,

we avoid expensive training sessions and additional stress on our teachers.

Work with local charities to expand financial education programs for adult residents of Arlington

Catholic Charities Fort Worth has been very successful in reaching out to communities in the Fort Worth and Arlington area

and providing free financial education and services. In 2011 alone, Catholic Charities Fort Worth:


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Delivered 300 Financial Education classes to over 1900 area residents. Delivered one-on-one Financial Coaching to 697 area residents. Provided credit counseling from a licensed counselor to 225 area residents. Provided financial assistance to over 8,000 area residents. Prepared tax returns for over 3,500 low-income area families.

Catholic Charities Fort Worth claims that 80% of clients who attended classes, credit counseling, and one -on-one

coaching experienced a changed behavior. Changed behaviors include: reducing debt, increasing savings, not having past

due bills (ifhad initially), and not using payday loans (if using initially).

Catholic Charities Fort Worth is just one of many charitable organizations operating locally. By supporting charities with

proven track records, we allow them to expand their operations and reach more families in need. An educated populace

helps make Arlington an attractive location for businesses.


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Cost AnalysesAll costs below are estimates.

Revising the Champion Arlington

Economic Development Strategy

Costs Vendors

The Economic Development Strategy is due for an

update. The cost of adding an additional benchmarkwould be negligible.

Associated costs would be initial research and

positing the data for review.

The Economic Development Steering Committee

responsible for the Economic Development Strategyhas retained the services of Market Street Services

Inc. of Atlanta, Georgia.

I propose we open a bid for local businesses instead.

Provide financial educationopportunities for K-12 students

Costs Vendors

Banks and credit unions may welcome the chance to

educate a future potential consumer base. Once wehave identified potential vendors we can perform a

comprehensive review of associated costs.

I propose we open a bid for local banks and credit

unions.

Work with local charities to expandfinancial education programs

Costs Vendors

We can receive and review cost estimates from local

charities.

I propose we contact local charities.

None of the recommendations we posit are inherently costly. We could further keep costs down by using free educational

materials and students and volunteers in all of our programs.


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Appendix A

Retirement Calculators

AARP Retirement Calculator

http://www.aarp.org/work/retirement-planning/retirement_calculator/

Vanguard Retirement Income Calculator

https://retirementplans.vanguard.com/VGApp/pe/pubeducation/calculators/RetirementIncomeCalc.jsf
http://www.aarp.org/work/retirement-planning/retirement_calculator/http://www.aarp.org/work/retirement-planning/retirement_calculator/https://retirementplans.vanguard.com/VGApp/pe/pubeducation/calculators/RetirementIncomeCalc.jsfhttps://retirementplans.vanguard.com/VGApp/pe/pubeducation/calculators/RetirementIncomeCalc.jsfhttps://retirementplans.vanguard.com/VGApp/pe/pubeducation/calculators/RetirementIncomeCalc.jsfhttp://www.aarp.org/work/retirement-planning/retirement_calculator/


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References and Further Reading

References

City of Arlington, Texas (Tarrant County, Texas). Financial & Management Resources Department.Annual Report Updating Financial Information and

Operating Data For Fiscal Year Ending September 30, 2007. 2008. Web.

.

"Planning for Retirement: Yes."July 2012 Newsletter. TCI Team, 2012. Web.Average and Median Retirement Account Balances of People Ages 50-64 in the

U.S., by Personal Annual Income as of November 2010. 2012. 29 Oct. 2012. .

Ghilarducci, Teresa . "Our Ridiculous Approach to Retirement." The Opinion Pages. The New York Times Company, 21 2012. Web. 29 Oct 2012.

.

Schwartz Center for Economic Policy Analysis. Web. 29 Oct 2012. .

. "Don't take a lifestyle cut in retirement." Fidelity Viewpoints. Fidelity Investments, 18 2012. Web. 29 Oct 2012.

.

City of Arlington, Texas. Department of Community Development & Planning. Quarterly Growth Profile - Second Quarter 2012. 2012. Web.

.

City of Arlington, Texas. Department of Community Development & Planning. Annual Growth Program - 2011. 2011. Web.

.

City of Arlington, Texas. Financial and Management Resources Department, Accounting. Comprehensive Annual Financial report for the Fiscal Year Ended

September 30, 2011. 2012. Web. .

Personal Saving Rate (PSAVERT). 2012. Economic Research, Federal Reserve Bank of St. Louis. Web. 29 Oct 2012.

.

"The Lost Decade of the Middle Class: Fewer, Poorer, Gloomier." Pew Social & Demographic Trends. Pew Research Center, 22 2012. Web. 29 Oct 2012.

.

"Quick Facts."About TCC. Tarrant County College District. Web. 29 Oct 2012. .

Taylor, Chris. "Are we saving enough to retire? No (but we think we are)." Reuters, 21 2012. Web. 29 Oct 2012.

.

Further Reading

Helman, Ruth, Mathew Greenwald, Craig Copeland, and Jack VanDerhei. "The 2012 Retirement Confidence Survey: Job Insecurity, Debt Weigh on

Retirement Confidence, Savings." Letter 369 ofEBRI Issue Brief. Employee benefit Research Institute, . Web. 29 Oct. 2012.

.

Poterba, James, Steven Venti, and David Wise. "Were They Prepared for Retirement? Financial Status at Advanced Ages in the HRS and AHEAD

Cohorts." Letter 17824 of NBER WORKING PAPER SERIES. Cambridge: National Bureau of Economic Research, . Print.

.

Morin, Rich, and Richard Fry. "More Americans Worry about Financing Retirement." Pew Social & Demographic Trends. Pew Research Center, 22 2012.

Web. 29 Oct 2012. .

City of Arlington, Texas. Economic Development Steering Committee. Champion Arlington Economic Development Strategy. 2007. Web.

.

Board of Governors of the Federal Reserve System. Changes in U.S. Family Finances from 2007 to 2010: Evidence from the Survey of Consumer Finances.

2012. Web. .

Documents

Study of Retirement Savings Among Arlington Residents