What Is Financial Wellness & Why You Should Care

As a society, we continue to gravitate towards the holistic practice of wellness. We are not content with simply the absence of illness but instead, we are searching for the state of optimal physical, mental and spiritual health. These days I would be hard-pressed to find a city with a ‘main street’ or downtown that didn’t offer a variety of juice bars, yoga studios and farm to table restaurants. Additionally, the self-help arena continues to grow exponentially as we search for our purpose in this life and try to cultivate balance in our daily routines.  When we think about spiritual health, our desires can be misinterpreted as selfish distractions. Spiritual practices teach us that if we focus on what we want then we will be pulled away from the connection to our true self.  But as we continue to seek ways to improve ourselves and evolve we must introduce money, personal finance, into the conversation. Financial wellness isn’t about being materialistic or selfish, it’s about having security and the freedom of choice.

Decisions we make in our daily lives have a significant impact on our future.  As we take the holistic approach to wellness we need to push ourselves to create habits that will lead to financial freedom.  Right now there are 10,000 baby boomers retiring every day. Crazy, right?! 10,000 people every day! Too many of them are shocked at the lifestyle changes they need to make to stay afloat financially. The common message among them is, “why didn’t somebody tell me I needed to make changes sooner?”.  The hard truth is that how people receive income in retirement has been changing over the last 30 years.  Unfortunately, it’s smacked some people in the face at the least opportune time and it’s too little too late.  Today, the average millennial has less than $30k saved for retirement. This trend of having to fund your own retirement is not going away and any incremental change we make now will help significantly over time.

So how did we get here? Previously, as generations of Americans moved on from the working force into retirement they relied on pensions and social security to support their income and maintain their lifestyles.  In the 1970s the average retirement age was 65 and with the average life expectancy being 67 almost everyone had a pension.  It was traditional for someone, let’s call him Mike, to work at the same company for his entire career. Let’s take a simple look at Mike’s situation:

Mike’s average income over his career 40-year career was $4,000 a month.

When Mike retired at 65 years old his pension paid him $3,000 a month.

When Mike turned 65 his full Social Security benefit was $1,000 a month.

Just like that, he was at his pre-retirement income.  Pretty sweet huh?! Any savings Mike had accumulated while he was working could be used for vacations, home repairs, or he could invest it and leave the money to his children.  He wasn’t concerned about where his income was going to come from after leaving the work force.

Fast forward to today, less than 16% of Fortune 500 companies offer a pension. And because of our continued focus on wellness, the average life expectancy for a woman born in 1980 is age 77.  So not only are we living longer but we also have to fund our own retirements. Should we storm angrily in the streets and blame companies for this?! Well, not exactly. Pensions are a huge risk to employers because they promise to continually pay you a predefined amount of money in the future. Companies are forced to take on all the investment risk and accurately estimate how long you will live. Imagine how ugly this could get if they were to make inaccurate assumptions. (Just take a look at my home state of New Jersey…not a company of course but their severely underfunded pension is creating insensitive tax hikes and has people fleeing the state in masses). And quite frankly why would an employer want to focus on making all the right decisions on investments and how long ex-employees will live well after they’ve left their company? Heck, we don’t even want to do it for ourselves.

Let’s take Lululemon as an example. If they spent a large chunk of their profits trying to fund a pension and accurately evaluate the stock market then they wouldn’t have the resources to create a better pair of men’s shorts. Because let’s be honest the first go-around they were way too long and my husband needs to show just the perfect amount of upper thigh to the general public (otherwise nobody would notice his dedicated efforts to his sweet squat routine).  But seriously, it would diminish the brand if their efforts to evolve and innovate were hindered by a miscalculation of future stock market performance that was being used to fund a pension plan. Lululemon is not in the investments field so they shouldn’t force themselves to be, it’s now up to us as Americans to fund our own retirement.  But don’t get out your tissue box for the tears just yet, this actually isn’t all bad. Since we are in control of how much we save through company retirement plans, ie:401(k), we have flexibility. We can job change or take a career break to be home with kids and we can bring our retirement plans with us. Pensions can serve as golden handcuffs. They tie our hands to a company and have limited to no flexibility and portability.  And let's face it as millennials we LOVE having options!

But wait…there’s more. Social Security shouldn’t be forgotten but it also shouldn’t be relied on as our primary source of income in retirement.  The social security benefit was created back in the 1930s by President Franklin D. Roosevelt to help the massive poverty rates among seniors following the Great Depression. Most private-sector employees pay into the Social Security system and the benefit available is based on the 35 highest earning years of your working life. There are several factors that go into this calculation but that is the simple version.  As an example, the average monthly social security benefit as of January 2019 is $1,461. Could you survive right now on $1,461 a month? That might only support my daily latte and avocado toast habit. Giggle, giggle but seriously that boils down to less than $50 a day to live on, who could do that?!

But will Social Security be there when we retire? Well, I’m not going to go down that rabbit hole but here are some things to consider. Congress last amended the full retirement age (age in which you receive 100% of the benefit that’s owed to you) in 1983. As of now anyone who was born in 1960 or later will be able to collect their full social security benefit at age 67. But in case you haven’t heard, similar to most pensions, social security is underfunded and as Congress works to rectify this issue or at least keep it afloat, there are multiple approaches they could take. One idea is to raise the ‘full retirement age’, this is a completely rational approach as life expectancy goes up but I will be pissed about it anyway.  Secondly, they could amend social security to be a ‘needs’ based system potentially only giving you a percentage of your full benefit based on your overall financial situation. Of course, this all depends on what Congress decides to do and last time I checked I’m better off guessing on why my tantrum toddler is okay with having socks on his right foot and not his left. The possibilities are endless. So where does this leave you? You are carrying your own retirement torch. It’s up to you to take charge of your future and take charge of your life!

As we strive for a holistic approach to well-being we use the resources available to us and seek out ways to reach our full potential.  It is critical that we begin to include financial needs and desires into the conversation.  Here is some food for thought. In Abraham Maslov’s paper “A Theory of Human Motivation” he created a hierarchy of needs represented as a pyramid. From the bottom to the top of the pyramid the needs are physiological, safety, love and belonging, esteem and self-actualization. Click here for more info: https://en.wikipedia.org/wiki/Maslow's_hierarchy_of_needs

He believed that if we could not satisfy the bottom needs it would be challenging to move up in the pyramid to satisfy our other needs. Financial health falls into the second tier of the pyramid as “security” and if we do not feel financially secure this will become a roadblock to achieving overall wellness. Having financial security provides a backbone to our overall wellness and provides us with the freedom of choice.

Having an intentional goal and taking steps each day to reach that goal provides emotional stability. This will undoubtedly allow us to catapult that into other areas of your life. Prioritizing financial wellness as we continue to find the interconnectedness between mind, body, spirit will enable us to have the freedom of choice. We will not be limited or stuck in a situation because we fear losing financial security. Maybe it’s making the decision to change careers because you are no longer being fulfilled at work or it could be deciding to walk away from a relationship that doesn’t serve you anymore. Being financially free, you put yourself first and approach life with a clearer, more confident mind.

Now what?! Here are 3 things you can do right now in your pursuit of financial freedom!

1-      Be honest with yourself. Rate your financial wellness:

a.       How secure do you feel about your financial wellness today?  

    i.      Very confident

  ii.      Comfortable but I’m not 100% aware with what my whole picture looks like

iii.      Indifferent, I have savings but I have no idea if I’m on track to reach my goals

iv.      Uncomfortable! I haven’t sat down and outlined my goals and don’t have a plan to tackle this

2-      Download a free aging app. Say what?! How will this help? Believe it or not, studies have found that if you use an aging app to see your future self, you will save more today!

3-      Brainstorm / Visualize – As an exercise, take time to visualize your future. Write down all the things you want to achieve or things you desire without concerning yourself with how you’ll get it.