April 2013

Translating Savings to Retirement Income

Determining how much money one will need in retirement is a mathematically and psychologically daunting task for many Americans. But new research has landed on a deceptively simple strategy for prodding workers to save.

Employees in an experiment at the University of Minnesota saved more for retirement after researchers provided them with a personalized chart with information similar to that shown below. Each employee’s chart translated a $100, $200, or $500 contribution, made every other week, into the amount of income each of these contributions would generate annually once they retired. If they saved more, they could see that it translated to more retirement income.

“We think people may have a hard time making that translation from an accumulation of wealth to an income flow,” said researcher Colleen Flaherty Manchester. “They’re used to the flow because that’s what they get every month or week in their paycheck.”

The income projections, she said, are “completing the circle for them to make it clear.” …Learn More

Photo: struggling to pay bills

Student Debt Binge: How Will It End?

This recent Huffington Post headline captured the march of shocking data about our growing societal burden: “12 Student Loan Debt Numbers That Will Blow Your Mind.”

Here’s a sample:

  • The student debt balance has hit $1 trillion and is still rising –  it is now exceeded only by mortgage balances, according to the Federal Reserve Bank of New York;
  • Student debt is held by 26 percent of households headed by someone between the ages of 35 and 44, and 44 percent of under-35 households, and it’s concentrated in poorer households, according to the Pew Research Center;
  • 80 percent of bankruptcy lawyers said student loans were driving more clients through their doors for relief.

It remains unclear where this era of student debt is taking society.  Sure, college graduates will bring in another $1 million in earnings over a lifetime.  But anyone who’s thought about it can’t help worrying this nationwide borrowing binge may end badly.

To help those grappling with how to pay for the fall semester, feeling the emotional fallout of debt, or trying to understand the larger issues, Squared Away pulled together some relevant blog posts published over the past 18 months. 

Click “Learn More” below to read more. …Learn More

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Financial Boot Camp Helps Army Enlisted

A U.S. Army requirement that newly enlisted men and women complete an ambitious personal finance course is having some impressive results.

At a time when financial education is increasingly being criticized as an ineffective way to raise Americans’ low saving rate, an 8-hour course held on 13 Army bases is significantly boosting how much military personnel are saving for their retirement – among both big and small savers. They also trimmed their debts.

The strong results, described in a new study by William Skimmyhorn, an assistant professor at the U.S. Military Academy at West Point, are also sending a ripple through the financial literacy community.

“The reason this study is so interesting is because it’s so unusual,” said Harvard University’s Brigitte Madrian, co-director of the household finance working group for the National Bureau of Economic Research. “There aren’t a lot of other scientific studies one can point to” that show empirically that financial education can improve an individual’s well-being, she said. …Learn More

Photo of hands holding underwater

To Live Cheaply, See the World

U.S. dollars go a long way in Indonesia.

Adam Shepard estimates that it cost him $19,420.68 to circumnavigate the globe from October 2011 through September 2012.

It was a budget tour filled with simple pleasures and wild adventures for the failed professional basketball player and successful book author. He helped poor children in Honduras, hugged a koala in Perth, rode an elephant in Thailand, bungee jumped in Slovakia, and hung out in lots of places with Ivana, whom he met while traveling and later married (she brought only $12,000, so he paid for the food).

If he’d kept his bartending job in Raleigh, North Carolina, his car, and apartment, he estimates he would’ve easily spent more than $20,000 during that same year.

Petting a koala was on Shepard's international to-do list.

“If you wonder whether an odyssey like mine is financially realistic for you, I answer with a resounding yes,” he writes encouragingly in his new e-book, “One Year Lived,” which is being published today.

You’d have to read it to find out how he did it – and how energetic someone has to be to pull off an escapade through 17 countries. Shepard’s book is a strong reminder to those of us who burrow at our desks day after day that, as the saying goes, there’s more to life than money. …
 Learn More

Woman painting wall

Women “Reactive,” Not Planning Finances

What motivates women to get to work on their personal finances? Change.

Emotions are also important motivators. But “the most compelling factor” spurring most of the women interviewed in a focus group to take action was a significant life change, Utah State University researchers write in the Journal of Financial Counseling and Planning.

Since April is financial literacy month, Squared Away is again making an appeal to women, who continue to make strides professionally, yet lag men in understanding how to manage their money.

“Major life changes like a premature death of a spouse or divorce are often the wake-up call to people to reassess their lives,” said Utah State researcher Jean Lown, who also teaches a workshop, Financial Planning for Women.

This tendency isn’t necessarily a good thing for women. Rather than being “reactive,” she said, women need to learn to plan ahead and prepare for the future.

For Megan Rowley, who conducted the focus group, the women’s stories hit home. While Rowley pursued her master’s and worked full-time at Utah State, her husband left a part-time job to complete his MBA. After they graduated, he found employment at a pipeline company in Salt Lake City, and she became a stay-at-home mother, said Rowley, who wants to become a financial counselor when her three young children are older. …Learn More

Jobless Boomers: How They Survive

Squared Away wrote about three unemployed baby boomers on Tuesday – an arts administrator, a corporate executive, and a social-services professional – who are having to scrounge for income to sustain themselves.

They are among the more than 1.5 million baby boomers caught in that painful limbo between a long and successful career and retirement – very possibly by default. All three want to get back into the labor force but may be forced to retire, because it’s more difficult for them to find employment than it is for younger workers.

While nearly half of unemployed adults between the ages of 25 and 49 were able to find work within seven months during and after the Great Recession, it took more than nine months for half of those over 50 to find a job, according to the Urban Institute, a Washington think tank. Many boomers may never find a job and will eventually retire.

“It’s different than being 35 or 45 and out of work,” said Kevin Milligan, an economics professor at the University of British Columbia. “We don’t necessarily expect these [older] people to go back to work.”

Milligan’s research last year determined that two-thirds or more of jobless Americans between ages 55 and 65 rely on their spouses for income. With only one spouse working, this creates hardships. These older households suddenly are able to save less in their 401(k)s. Milligan found that smaller numbers of boomers are also tapping their employer pensions or Social Security retirement benefits. …Learn More

Collage of yarns

Unemployed Boomers Resist Retirement

Brisk sales of Linda Novak’s crocheted scarves and baby blankets have subsidized the 62-year-old’s Manhattan rent since her 2012 layoff. Boston resident Marcus Queen, 58, receives food stamps while trying to reignite his beloved career: helping city kids get a leg up. Joseph Imperiale, 66, wants to get back into the business world, so he doesn’t have to tap his retirement savings yet.

Nearly three years after the Great Recession officially ended, more than 900,000 baby boomers laid off several months or years ago are still pounding the pavement, unable to find employment in an economy that produced only 88,000 jobs in March. They simply are not ready to retire – financially or emotionally – but they often feel that unemployment is forcing them to do so prematurely.

It takes boomers longer to find employment than it does younger job seekers, creating financial challenges unique to their stage of life. They could begin collecting their Social Security benefits immediately upon becoming eligible, at age 62, but the largely irreversible decision to accept a reduced monthly check would haunt them throughout retirement. They can’t afford to put more money into their savings – in fact, if things get really rough, they may have to raid the 401(k) to pay the bills.

UJA-Federation of New York, a Jewish social services agency, is increasingly seeing older workers “who lost their jobs a while ago and have depleted all their assets, and they realize they’re really in trouble,” said Elisabeth Kostin, the planning manager for the agency’s programs for the unemployed. She added, “If someone becomes unemployed as they’re approaching retirement, their value and worth is also depleted.”

Novak, Queen and Imperiale agreed to share their stories about how they try to keep their spirits up and the doors open. …Learn More

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