Panic button

2008-09: Investors Really Did Sell Low

Repeated loud warnings by financial advisers fail to reverse the human tendency to panic when the market plunges and to rush in after it’s gone up.

Withdrawals from 401(k)s and IRAs surged between 2001 and 2003 after high-tech stocks declined, but the money went back in in 2005 through 2007 after the S&P500 index had soared nearly 27 percent in 2003 and 9 percent in 2004, according to new research by Thomas Bridges, a graduate student in economics, and Professor Frank Stafford, for the University of Michigan Retirement Research Center.

“They think I have $500,000, and if I don’t take it out now it’s going to be $50,000. It’s a panic mentality,” said Stafford, who was surprised by what they found.

Withdrawals increased again after the 2008-2009 market collapse pummeled investors stock portfolios. The Michigan researchers found they withdrew their retirement savings for a variety of reasons, but primarily to pay mortgages and medical bills and also to make major home repairs.

His take on these grim findings: “These are the guys from Main Street trying to figure out Wall Street, and they can’t do it.”Learn More

Boomers Still Cautious About Stocks

Mutual fund investors poured some $17 billion into domestic equity funds in January, reversing 2012’s trend, according to the Investment Company Institute (ICI), an industry trade group.

But it’s too early to declare that fund investors have fully recovered from the 2008 market collapse, even as the bullish S&P500 stock market index flirts with its 1,565 all-time high reached on October 9, 2007.

Fund investors surveyed by ICI still remain less willing than they were prior to the big bust to take what the survey questionnaire calls “above-average or substantial risks” in their investments.

This trend cuts across most age groups, from 40-somethings to retirees. The exception is the under-35 crowd: 26 percent identified themselves as being in these higher-risk categories, slightly more than the 24 percent who did back in 2007.

But boomers nearing retirement and current retirees burned in the 2008 market collapse keep paring back their risk profiles. Older investors are moving “from capital appreciation to capital preservation,” said Shelly Antoniewicz, an ICI senior economist. Even 35-49 year olds, who still have two to three decades of investing ahead of them, are not quite back to where they were earlier in the decade when they were more willing to take risks in the stock market.

“What we have seen historically is that there is a relationship between stock market performance and inflows into equity funds. When the stock market goes up, we tend to get larger inflows into equity funds,” she said. “What we’ve noticed in the past two to four years is this historical relationship has gotten weaker.” …Learn More

Working Over 70: Still the Exception

For Vita Needle Company’s elderly employees, work is the essence of the fulfillment they feel in their lives.

Howard Ring, a 78-year-old engineer – like many of his coworkers – initially went back to work after retiring, because he needed more money.  And Vita Needle would hire him.

“What I found there was more than just a job,” he says.  In this video, Ring and his elderly coworkers talked about what they derive from work during an October panel discussion at the Newton (Mass.) Free Library.

Is Vita Needle a window into the future? Will growing ranks of retired but still-vigorous boomers return to work after a couple of years, when they grow bored with golf or bridge?

Returning to work – or remaining employed – has proved extremely difficult in the wake of the 2008-2009 stock and housing market collapses.   More late-career workers lost their jobs in the Great Recession than in previous downturns, and their jobless spells lasted longer, according to a forthcoming study by the Center for Retirement Research, which funds this blog.  Now that the economy is growing, it isn’t generating enough jobs for the elderly who do want to work, the study found.

Vita Needle’s heavy reliance on older employees is “unique,” said Marcie Pitt-Catsouphes, director of the Sloan Center on Aging & Work, which is also at Boston College. …Learn More

401(k)s Bleeding Cash

HelloWallet’s survey landed with a thud in the media this week: one in four U.S. households with a 401k or IRA raided it to cover necessities.

The vast majority of raids are cash withdrawals, not loans – $60 billion in cash in 2010. These grim statistics throw weight behind those who argue we are watching a retirement crisis unfold in slow motion. The pressures on saving are aggravated by stubbornly high long-term unemployment: layoffs explain why 8 percent pulled out cash. But the Great Recession isn’t the only culprit.

Wages, adjusted for inflation, have declined over the past decade, health costs have soared, and consumers remain heavily dependent on their credit cards. In this environment, no wonder saving is often viewed as a luxury.

The 2010 data reveal behavior at a time individuals were still smarting from Wall Street’s financial crisis. But back in 2004, the average 401k balance for all boomers age 55 to 64 was only $45,000 – it was only slightly lower by 2010.

To put that $60 billion in perspective, it is about half the amount U.S. employers put into 401(k) plans on their employees’ behalf that year.

Click “Learn More” to see more data on the cash withdrawals. Readers, what do you think is driving them higher?Learn More

chart: how much should I save?

Happy Retirement?

This article was originally posted on Squared Away on October 23.

A large majority of people in a survey released last week identified saving for retirement as their top financial priority. If that’s the case, then why aren’t Americans saving enough?

Stuart Ritter, senior financial planner for T. Rowe Price, the mutual fund company that conducted the survey, has some theories about that. Squared Away is also interested in what readers have to say and encourages comments in the space provided at the end of this article.

But first the survey: about 72 percent of Americans identified saving for retirement as “their top financial goal,” with 42 percent saying that a contribution of at least 15 percent of their pay is “ideal.”

Yet 68 percent said they are saving 10 percent or less, which Ritter called “not very much.” The average contribution is about 8 percent of pay, according to Fidelity Investments, which tracks client contributions to the 401(k)s it manages.

The Internal Revenue Service last week increased the limit on contributions to 401(k) and 403(b) retirement plans from $17,000 to $17,500. The so-called “catch-up” contribution available to people who are age 50 or over remains unchanged at $5,500.

The question is: why do Americans give short shrift to their 401(k)s, even as people become increasingly aware that their dependence on them for retirement income grows? Ritter offered a few theories in a telephone interview last week: …Learn More

Money Still Can’t Bring Happiness

The vast majority of us wouldn’t dream of trading time with our children for a 50 percent pay hike.

Then why, when asked to give up evenings off from work – presumably family time – for the big pay raise, would more than half of us go for it?

In short, how can the same people – more than 2,000 adults surveyed in August by New York Life – so flatly contradict themselves?

“We’re not even conscious of how our behavior conflicts with our values,” said Christine Carter, director of the parenting program at University of California’s Berkeley’s Greater Good Science Center, which studies happiness, compassion and social bonding.

This lack of awareness is especially true when money is involved. The human brain lights up like a Christmas tree when money is offered as the reward in neurological experiments, as the prospect of the reward releases dopamine that sets off a burst of pleasure.

But Carter, an expert in happiness, said the research also shows that, over the long-term, “our social connections” – not money – will bring us true happiness.

To stay on top of news about financial behavior, readers may want to sign up for e-alerts – just one a week – by clicking here. Or like us on Facebook!Learn More

xmas colored shirts

13% Haven’t Paid Off Christmas 2011

Consumer Reports says 13 percent of Americans are still paying off credit cards that they ran up to buy 2011’s holiday gifts.

That may be one reason more Americans plan to budget this holiday season – 52 percent – compared with last year’s 41 percent, according to Consumer Reports’ national survey. Among those who bought their 2011 gifts with credit cards, 58 percent paid them off by the end of January and another 13 percent in February – hats off to them. But the rest waited. Some are still waiting.

I can relate.

In the interest of encouraging Squared Away readers to reveal their financial failings in the comments area below, here’s one of mine: a credit card balance averaging $2,500 for more than 20 years. It’s embarrassing, and yes, this personal finance blogger knows why it’s important to pay off a credit card charging nearly 15 percent interest – what a waste of a few thousand dollars I could’ve put in my 401(k), for instance…Learn More

...10...1718192021...