Two heads in a conversation

Listen to Your Elders Please

People do not like to hear advice from their “elders.” But shouldn’t retirement be an obvious exception?

The options for what most workers can do to salvage their retirement finances rapidly narrow as they get closer to retiring. After 50 or so, it’s also tough to find a better job, and only so much can be saved in short bursts – retirement saving requires years of diligence.

If you’re still listening, the following is sage advice drawn from two recent New York Life surveys of older workers on the cusp of retirement and octogenarians.

  • Workers in their 50s and early 60s said they started saving too late for retirement. They put the “magic age” at around 26.
  • Automatic savings vehicles such as 401(k)s (or even insurance or paying down a mortgage) turned out to be crucial to the sense of how secure pre-retirees feel about their futures. This was particularly true when children were living at home. …

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Arm wrestling

Men Save More – Women Save Better

This will not surprise you: men have more money saved for retirement than women.

Savings rates chartMen averaged $123,262 in their defined contribution plans, compared with $79,572 for women, according to a new report by Vanguard based on its 2014 recordkeeping data.

But these figures hide a larger truth: women are actually better at saving for retirement.

“Overall, women are better at this but men earn more money so they have higher wealth accumulation,” says Vanguard researcher Jean Young, author of the new report, “Women versus Men in DC Plans.”

Young’s research found that women are 14 percent more likely to enroll in a voluntary workplace retirement savings plan. Women save 7 percent of pay, compared with 6.8 percent for men, controlling for wages, job tenure, and plan design. They also save at higher rates than men at every income level.

Her findings also refute the old wive’s tale that women don’t like risky investing. …Learn More

Piggy bank in vice

Health Insurance Costs Squeeze 401ks?

U.S. workers’ wages, adjusted for inflation, are stagnating, but their share of health care costs keeps going up.

“Something has got to give, right? That something could very well be the 401(k) or 403(b) plan,” said Mark Zoril, a personal financial planner and benefits adviser to small companies.

Six in 10 workers agreed: the rising cost of their health insurance “directly affects” how much they set aside in their retirement savings plan at work, according to a new survey gauging the “financial stress” of more than 2,000 full-time employees with health coverage. The random survey was conducted by LIMRA, a financial services research organization.

Despite a slowdown in medical inflation, employees are paying a growing share of the tab for their health care. Average total premiums for family coverage under U.S. employer health plans rose 61 percent between 2005 and 2015, for example, but the employee’s share of the premium increased 83 percent to $4,995, according to the Kaiser Family Foundation’s annual report. Two out of three individual workers today pay deductibles of at least $1,000, up from 16 percent a decade ago.

Anita Potter, LIMRA’s senior vice president of research, said workplace benefits face increasing competition for workers’ limited resources. …Learn More

Blacks Invest Less Often

If two people – one black, one white – have good jobs with comparable incomes, the black person would still be less likely to have a taxable investment account, such as a mutual fund, a new study finds.

ChartNumerous reports have shown that black Americans have fewer retirement and other savings accounts, and less money in those accounts than white Americans. But the problem with many of these comparisons is that they lump people together, regardless of how much they earn.

A new study by the FINRA Investor Education Foundation looks at one type of account – taxable investment accounts – and controls for income as well as two other characteristics that influence wealth: education and age. The study, using data from a 2012 survey of more than 25,000 U.S. households, found that when everything else is equal, black American households were still 7 percentage points less likely to have taxable investment accounts than white households; and Hispanic households were 4 percentage points less likely to have such taxable accounts than white households.

FINRA also identifies other characteristics typical of the one-third of households with a taxable account. …Learn More

Photo of happy teens

Don’t Worry About Money. Just Be Happy

The adage that money won’t buy happiness has been proved wrong – at least up to a point. One famous study found that one’s well-being increases as income rises, though the benefits subside around $75,000 per year.

But what about the reverse? Do people who are happy earn more money? Yes, say two British economists.

Their study in the Proceedings of the National Academy of Sciences concluded this after following American teenagers for a more than decade through the National Longitudinal Study of Adolescent Health. In 1994 and 1996, this survey asked high school students to react to statements like “You were happy” and “You felt hopeful about the future.” In a 2008 follow-up survey, when most of them were around age 30, they were asked how much money they were making.

People who reported having a happy adolescence earned about $3,400 more than the average gross income of all the survey respondents; the average was $34,642. However, the opposite effect was more consequential: young adults who had a “profoundly unhappy adolescence” were earning 30 percent less – equivalent to a $10,000 hit to their earning power. …Learn More

Lightbulb = $

In Support of Allowances for Kids

With summer’s chaos subsiding and school starting, it’s time for a financial lesson wrapped in an allowance!

The conventional wisdom behind a weekly allowance is that it impresses on children the limited value of a dollar.  But the benefits of financial education are not well-founded in academic research. The benefits of an allowance might have something to do with kids’ confidence in handling their money, which research shows is central to how well adults manage their finances.

Kids between ages 8 and 14 who get an allowance were two times more likely to feel knowledgeable about managing their money than kids who do not – 32 percent versus 16 percent – according to a survey of 1,000 parents and 881 children by T. Rowe Price.  The kids with allowances also feel they know more about credit, student loans, and other financial matters. …Learn More

Retirement: a Priority for Millennials?

Saving for retirement is more crucial for Millennials than for any prior generation. Data are emerging that reveal how they’re doing.

millennialsVanguard’s 2014 data from its large 401(k) client base shows that 67 percent of young adults between 25 and 34 who are covered by an employer plan are saving – this is well above a decade ago.

A survey recently by the Transamerica Center for Retirement Studies found evidence that this generation makes retirement a priority: a majority of working adults in their 20s and early 30s – now the largest single demographic group in the U.S. labor force – view retirement benefits as “a major factor in their decision on whether to accept a future job offer.”

This indicates that Millennials are getting the message, said Catherine Collinson, president of the Transamerica Center for Retirement Studies.

The growth of automatic enrollment in 401(k) plans “has helped pull young people and non-participants into the plans,” Collinson said, “but I also believe it’s also due to heightened levels of awareness.” …Learn More