January 2012

Reports Explain Key Retirement Issue

The Society of Actuaries released a series of very readable reports dealing with specific issues, from how to handle a forced retirement to whether to withdraw savings incrementally.

“Around the time of retirement, there are so many decisions,” said Joseph Tomlinson, chairman of the working group that produced the new reports. The goal of the two-year project was to provide “friendly and unbiased” information, said Tomlinson, a Maine actuary and financial planner.

He said members of the professional organization also felt the public needed information that wasn’t from “someone trying to sell something – and we’re not.”

The online reports are free. Click here. …Learn More

Street signs at the intersection of Broad and Wall Street.

Questioning Wall Street Convention

Walk into your financial adviser’s or broker’s office, and the conversation inevitably leads to your portfolio’s “asset allocation” and “total return.”

Financial planners, the media, investors – we’ve been under Wall Street’s spell for three decades. But a small chorus of skeptics, bucking the orthodoxy, argues that brokers and planners don’t always match investments with an individual’s goals and needs. The human gets lost – in more ways than one.

“People are being guided by the asset management industry,” said Boston University finance professor Zvi Bodie, co-author, with consultant Rachelle Taqqu, of “Risk Less and Prosper: Your Guide to Safer Investing.”

The industry’s premise is that “you can’t afford not to take risk,” he said, referring to the tenet that more risk means a larger potential return. But what happens if you roll the dice and lose? “They never say that,” he said.

Keen to this critique, Barclays in London and a few other large investment houses have started pitching wealthy clients by focusing on their “unique” circumstances.Learn More

Young Adults Adrift in E-Spending Ocean

Collectibles purchased online range from Russel Wright dinnerware (shown here) to songs and video. Source: backhomeagainvintage.

Credit cards and malls are so yesterday.

Young adults move easily among an array of online payment and shopping options unimaginable a decade ago: PayPal, Groupon, telephone bill payment, smartphone apps that pay for store purchases, online retailers galore, automatic bank payments, and online gift cards.

Technology is moving fast: Amazon recently released an app called “Flow” that will recognize a product — from a book to a jar of Nutella — and then send the price, user reviews and a “Buy It Now” option to your smartphone.

It’s time to take stock of how easy it has become to overspend and how difficult saving is for young adults weaned on e-transactions.

“When it doesn’t feel like money, people don’t treat it like money,” said Priya Raghubir, a professor at the New York University Stern School of Business, neatly summing up her 2008 paper, “Monopoly Money: The Effect on Payment Coupling and Form on Spending Behavior.”

It’s extremely hard for young adults to change their behavior, “because they aren’t used to any other way of paying,” said Raghubir, 48, who remembers the old paper-transaction days when cash was king and checks were reserved for the big purchases…Learn More

A group of women in business attire holding signs with question marks on them in front of their faces.

Women Crave More Information

It’s common knowledge that women save less in their retirement plans than men do. This is a major problem, because they live longer, are more likely to require nursing home care, and need more money.

To learn why women save less, Karen Holden and Sara Kock at the University of Wisconsin, Madison, recently conducted focus groups with state employees and analyzed data for the Wisconsin Deferred Compensation Program. Similar to a 401k, the program for Wisconsin government workers also allows tax-deductible, voluntary contributions, though there is no employer match. Squared Away interviewed Holden about their findings.

Q: Do women save less, because they earn less?

Holden: Average lower earnings are a factor but more surprising is that, at any specific salary level, women contribute a lower percentage of their earnings than do men. Women on average contribute 6.28 percent of gross pay, compared with 7.03 percent for men. While lower pay and age differences accounted for some of that, being a woman led to lower contribution rates. …Learn More

A red thumbtack stuck into the number 20 on a calendar.

Target Date Funds Deciphered

This blog’s mission is to explain financial behavior – why we do what we do. It is not to provide personal financial advice about what to do. The mere mention of a “Target Date Fund” was a conversation stopper for me.

No longer. The Center for Retirement Research, which sponsors Squared Away, explains them simply and clearly in a new booklet. The name is inscrutable but the concept isn’t. In fact, your employer’s target date fund, if it is well designed, should make investing easier, not more difficult.

Check out the booklet, “Why Target Date Funds?”, (along with brochures about how to decide when to claim Social Security and how to manage your money after retirement).Learn More

Present and Future Selves Do Battle


Squared Away keeps hammering away at this point in various ways, because it seems so central to our financial well-being: we can’t fully relate to our future selves, which makes it difficult to save money.

This is the psychologist’s take on what mainstream economists would call “discounting” the future – that is, the future is less important than what’s going on today. Buying a new pair of shoes or an ice cream cone is a lot more fun than saving money for a future utility bill or a distant retirement date.

In this humorous Ted video, London Business School professor Dan Goldstein explains that all humans are engaged in an “unequal battle” between our present self (the consumer) and our distant self (the saver).

“The future self doesn’t even have a lawyer present,” he said. Goldstein entertains as he proposes ways to intervene in our inner battle.Learn More

Married Women Gain on Singles

iStock_000018997190_SmallFor decades, single women earned much more than married women over their working lives. But new research on historical wage trends finds that the earnings gap is finally closing.

Wages for married women without a college degree have increased faster over the past 50 years than wages for their single coworkers without degrees, making them nearly identical. While single women with a college degree still earn more than married women with a degree, the gap has also closed dramatically: Single women earned $1.12 for every dollar earned by married women in 2006, compared with $1.30 for single women who entered the workforce in the early 1960s.

Married women “have caught up tremendously,” said Chinhui Juhn, labor economist at the University of Houston, who conducted the research with Kristin McCue at the US Census Bureau for the National Bureau of Economic Research. …Learn More

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