Most Americans Are Without a Financial Back-up Plan
New State Farm survey shows that while 81 percent of Americans believe it’s very important to have a financial “Plan B,” fewer than half have such plans in place
Bloomington, Ill., - If the unexpected happens and a major life crisis occurs, most Americans today would be unprepared to handle the impact. These findings are detailed in the new State Farm® “Financial Plan B” survey. In the study, while 81 percent of all adults say having a back-up plan is very important, only 45 percent say they’ve actually planned ahead and are ready to weather a life crisis.
“People naturally think the unexpected happens to somebody else. But setbacks can hit anyone and people need to be ready. Regrettably, most are not,” says Joe Monk, senior vice president and chief administrative officer, State Farm Life Insurance Company. “With the economic downturn and concerns about continued slow growth, it’s critically important that people take a clear-eyed look at their financial situation and develop realistic options they can have in place should unexpected financial difficulties pop up.”
The survey also shows that the pressure to have back-up plans is intensifying because whatever “rainy-day funds” people once had are now challenged in the wake of the economic downturn. In the survey, 35 percent of Americans say they have funds on hand to meet financial needs for just three months or fewer, with 15 percent lacking funds to meet commitments beyond a single month. Not surprisingly, in the event of a job loss, many respondents say they would accept a large salary reduction simply to restore household cash flow. Fifty-four percent indicate they would accept a lower paying job if they were out of work for six months or fewer.
The telephone survey, conducted for State Farm by Harris Interactive®, asked people to consider their financial readiness in the face of a major life crisis such as loss of a job, a divorce, the unexpected death of a spouse or partner, or a catastrophic illness that leaves someone unable to earn an income. The survey was conducted from May 6, 2011 to May 16, 2011 among a nationally representative sample of 2,017 U.S. adults aged 18 and older.
Not Ready, Not Realistic
The survey also found that many people may have a false sense of security when it comes to the adequacy of the plans they have embraced to prepare for the unexpected. In the survey, 69 percent say they feel well prepared or somewhat prepared in the event of a major life crisis. Yet in looking at the actual elements of people’s back-up plans, many “go-to” options create just as many problems as they solve.
*Sixty-one percent indicate they would take money from a 401(k) or other employer-sponsored retirement savings vehicle as part of their Plan B. Thirty-four percent would downsize their home and 22 percent would move in with family.
*Sixty-eight percent of people 55 or older say it is likely that they would take on an additional job if necessary.
*Fifty-eight percent of adults who have a financial back-up plan say it is not written down and only exists in their heads.
“For many people, their current Plan B’s don’t provide the kind of safety net they ultimately need,” said Monk. “Taking money from a 401(k) creates more vulnerability later in life, homes are not the piggybanks they once were, and not all people are in the position to take in extended family.
“Working multiple jobs also is not realistic for many Americans as they age,” added Monk. “Most sobering is the fact that most people don’t have back-up plans that are written down and documented, which means they often come up with solutions in the midst of a crisis - seldom the best time for clear, stress-free thinking.”
Plan A’s Suffering Too
The survey indicates many assumptions about retirement once thought to be unshakable also are coming under pressure. When asked, just fewer than a quarter of future retirees think they will be able to retire at age 60. Nearly one-quarter doubt they’ll ever be able to retire. Additionally, slightly more than six in 10 Americans say they will not be able to retire without Social Security and/or Medicare being available as they exist today. Given these rising uncertainties, State Farm recommends people consider the following tips to ward off the damaging effects that unexpected life events can have on savings and retirement plans:
*Start the conversation with loved ones. Financial planning conversations can be difficult and uncomfortable, but it’s important to start them before you’re faced with a crisis. Planning ahead for the unexpected can alleviate some of the stress you would otherwise experience.
*Work with someone you trust. Talk to your insurance agent or financial advisor about your Plan A - and your Plan B. If you don’t know where to turn, ask your friends or family members to recommend someone they trust.
*Put your plan in writing. By committing a step-by-step plan to paper, you can prepare in advance and make more rational choices. And if something unexpected happens to you, others will know your wishes.
State Farm’s “Your Life’s Plan,” an online, interactive life insurance needs calculator, can help people gain a basic understanding of their life insurance needs in a quick, fun and simple way. By answering a series of basic life questions, such as age, marital status and income, the interactive life insurance “odometer” adjusts to display approximate life insurance needs. The assessment can be sent directly to a State Farm agent for further consultation, making it easy to take the first step to establishing a Plan B.
It Can Happen To Anyone
Jeannine McCurrie, author of the “My Plan B Handbook,” says that that the unexpected can happen to anyone, at any time, so planning ahead is paramount. She says failure to embrace advanced planning can negatively impact people’s long-term financial stability more than most realize.
“On the eve of the 2008 financial crisis, my husband died suddenly and I needed to quickly find a way to provide for our family,” said McCurrie. “Fortunately, we made certain our finances were in order before my husband’s passing. This kind of preparation helped our family have the freedom to celebrate his life while ensuring the resources were available to map out our future.
“After emerging from this tragedy, I wanted to help others develop a financial Plan B to protect both themselves and their families. No one thinks these things are going to happen to them, but life is all about protecting those who you love,” added McCurrie.
In 2010, McCurrie was named a State Farm “Embrace Life” honoree for her efforts to assist others in preparing financially when the unexpected hits.
About the Survey
This survey was commissioned by State Farm Life Insurance Company to gauge attitudes around financial planning, including what Americans view as their financial “Plan B” in retirement and if an unexpected major life change or crisis occurs. This survey was conducted by telephone within the United States from May 6, 2011 to May 16, 2011 by Harris Interactive among a nationwide cross section of 2,017 adults (aged 18 and older). For this survey, the results for the overall sample have a “sampling error” of plus or minus 2 percentage points. The sampling error for subgroups will be higher. For a full methodology, please contact Bob Lapinski.
About State Farm®
State Farm insures more cars and homes than any other insurer in the U.S., is the leading insurer of watercraft and is also a leading insurer in Canada. Our 17,800 agents and more than 65,000 employees serve 81 million policies and accounts - more than 78 million auto, fire, life and health policies in the United States and Canada, and nearly 2 million bank accounts. State Farm Mutual Automobile Insurance Company is the parent of the State Farm family of companies. State Farm is ranked No. 37 on the Fortune 500 list of largest companies. For more information, please visit statefarm.com® or in Canada statefarm.ca®.
About Harris Interactive
Harris Interactive is one of the world’s leading custom market research firms, leveraging research, technology, and business acumen to transform relevant insight into actionable foresight. Known widely for The Harris Poll and for pioneering innovative research methodologies, Harris offers expertise in a wide range of industries including healthcare, technology, public affairs, energy, telecommunications, financial services, insurance, media, retail, restaurant, and consumer package goods. Serving clients in over 215 countries and territories through our North American, European, and Asian offices and a network of independent market research firms, Harris specializes in delivering research solutions that help us - and our clients - stay ahead of what’s next. For more information, please visit Harris Interactive.
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