Research Briefs for Financial Educators: Veterans, Early Retirement, Financial Fragility

By Barbara O’Neill, Ph.D., CFP®, boneill@njaes.rutgers.edu

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Personal finance research informs high-quality financial education briefings, publications, and 1:1 financial counseling sessions with clients. Below are findings and implications for practice from three recent studies:

Financial Status of Military Veterans- Elbogen et al. studied the financial status of newly transitioned veterans over three years and measured their financial well-being in two domains- satisfaction and functioning. Results indicated that troubled or moderate financial status, Black race, enlisted status, and high-stress levels predicted lower financial functioning. Older age, college degree, employment, and social support predicted better financial satisfaction. Veterans with troubled financial status reported greater difficulty adjusting to civilian life.

  • Implications: Findings underscore the importance of improving service members’ career and financial management skills to increase the likelihood that veterans will have the necessary tools to manage their finances after separation and achieve well-being. High-quality military transition support services are also essential.

Early Retirement Savings Cash-Outs- This study by Austin et al. found that younger adults with small retirement savings account balances are prone to small cash-outs, which can significantly impact retirement income. Results indicated that four of five (80%) people with an account balance of less than $1,000 and 62% with a balance of less than $5,000 cashed out. Various cash-out scenario analyses were run vs. no cash-out, assuming savings starting at age 22, earning a 5% return, with a 50% employer match, and retirement at 67.

  • Implications: Illustrations of savings lost via early cash-outs from retirement savings plans can be a powerful motivator to encourage clients to keep money invested in a tax-deferred account such as the thrift savings plan (TSP). The more cash-outs are taken and the higher the assumed rate of return, the greater the loss of account value and retirement income.

Financial Fragility-A study by the Stanford Center on Longevity found that most retirees and pre-retirees are financially fragile with the average retiree able to withdraw about $5,000 annually from savings. The median savings of respondents between ages 50 to 74 was $128,000 and 55% said their financial situation was fragile or being just able to get by financially.

  • Implications: Implications for financial practitioners who work with young and middle-aged adults are to help people picture their lives in older age to motivate them to plan. For example, have them write a letter to their future self or view an age-progressed photo of themselves. Emphasize how present decisions impact future well-being. Also, help clients understand the barriers they face and help them remove or surmount them. 
References

Austin, R., DePalma, A., & Cullen, L. (2022, June). The impact of small amount cash-outs on retirement income. AAII Journal. https://www.aaii.com/journal/article/17433-early-cash-out-can-significantly-impact-retirement-income

Deevy, M. & Vernon, S. (2022). Disconnected: Reality vs. perception in retirement planning. Stanford Center on Longevity. https://longevity.stanford.edu/wp-content/uploads/2022/09/Planning-Ahead-1.pdf

Elbogen, E.B., Zeber, J.E., Vogt, D, Perkins, D.F., Finley, E.P., & Copeland, L.A. (2022, Feb.). Financial status and well-being in recently separated military veterans. Military Medicine, usac030. https://academic.oup.com/milmed/advance-article/doi/10.1093/milmed/usac030/6540063

Morelli, S.A. (2022). Study shows most retirees are financially fragile-and how advisors can help. Insurance NewsNet. https://insurancenewsnet.com/innarticle/study-shows-most-retirees-are-financially-fragile-and-how-advisors-can-help

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