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The Aging Mind and Money

As we age, the things we forget are at first laughed off as “senior moments.” But when forgetting to send a birthday card becomes forgetting to pay the mortgage, the natural cognitive decline that accompanies aging becomes a serious financial issue.

With Americans living longer and an estimated 10,000 baby boomers turning 65 every day, a spate of fresh research has examined how and whether older brains can handle the challenges of modern financial life. But what the researchers have found out so far about the aging mind and money is somewhat of a mixed bag.

First, the bad news. Diminished cognition is an increasingly important concern in the financial arena, because the choices faced by retirees are getting ever more complex. One recent survey of people either experiencing cognitive decline themselves or observing it in a family member pinpointed the kinds of financial decisions that older people find difficult.

Among those surveyed, 41 percent said they or their family member forgot to pay their bills and 14 percent paid the same bill twice, according to the National Endowment for Financial Education and Harris Interactive. More than one-third had trouble with simple math or made rash purchases.

Retirees today face bigger financial challenges than that if they have to juggle their 401(k) investments and withdrawals. This is a change from the days when an employer simply issued a check every month from the defined-benefit pension plan, said Laura Bos, AARP’s acting vice president of financial education and outreach. …Learn More

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62YO Men File Social Security; Wives Pay

My father was never more in love with my mother than on the day he died in 2004, days before their 50th anniversary.

But he made one bad financial decision that she lives with today: he started up his Social Security benefits at age 62.

He felt he needed the money sooner than later. He had an inadequate pension from his first career, as an Air Force flyboy, and none from his Rust Belt business that went bust. But waiting to claim his Social Security would’ve increased the size of his check – and, after he died at 70, the money that’s still deposited into my mother’s bank account every month.

This happens to a significant share of couples, because almost 40 percent of all Americans claim their benefits the same year they turn 62. But a husband who waits until age 65 can increase his widowed wife’s future benefits by up to $170 a month, according to new research by Alice Henriques, an economist with the Federal Reserve Board in Washington.

What’s interesting about this study of nearly 14,000 older couples is that she teased out how much the husband’s decision was determined by the filing date’s impact on his own benefits, versus the financial impact on his wife’s spousal and, later, her survivor benefits. Similar research in the past had examined the impact of a filing date on their combined benefits during all their years of retirement.

Henriques was able to show that the husbands, when they made their decisions, took into account the impact on themselves of the claiming date they selected. But they showed virtually “no response to the large incentives” of having the ability to provide their widowed wives with more income in the future, she said. …Learn More

Older Patients Tell Doctors, “Charge It!”

New research has uncovered one reason for the alarming rise in credit card use among older Americans: medical bills.

When people age 50 or older experience “health shocks” – newly diagnosed medical conditions – their credit card balances rise, according to research published in the Journal of Consumer Affairs. The worse the medical condition, the more they charge.

A mild, new medical problem, for example, adds $230 to credit card bills – that’s a 6.3 percent increase on a starting balance of $3,654. If the new condition is severe, balances increase by $339, or 9.3 percent.

Separately, the researchers looked at the effect of out-of-pocket medical costs, such as copayments for doctor visits and prescriptions not covered by private insurance or Medicare. For each $100 that those costs increase, about $4.50 winds up on the cards, according to Hyungsoo Kim at the University of Kentucky, WonAh Yoon at the Samsung Life Retirement Research Center in Seoul, Korea, and Karen Zurlo at Rutgers University.

Their findings shed new light on why more older Americans, who have the greatest medical needs, are becoming reliant on credit cards with their high interest rates. …Learn More

Nobel Winners Are Unsure Investors

Medal for the Sveriges Riksbank Prize in Economic Sciences. © ® the Nobel Foundation

A Los Angeles Times reporter once called up several Nobel laureates in economics to ask how they invest their retirement savings.

One of the economists was Daniel Kahneman, a 2002 Nobel Prize winner who would become more famous after writing “Thinking, Fast and Slow” about the difference between fast, intuitive decision-making and slow, deliberative thinking. Kahneman admitted to the reporter that he does not think fast or slow about his retirement savings – he just doesn’t think about it.

Kahneman’s confession in the 2005 article seems even more relevant in today’s 401(k) world. Americans are realizing the investment decisions imposed on them by their employers may be too complex for mere mortals. For example, three out of four U.S. workers in a 2011 Prudential survey said they find 401(k) investing confusing.

Readers might take comfort in learning that even some of the world’s great mathematical minds have admitted to wrestling with the same issues they do: How do I invest my 401(k)? Should I take some risk? How about international stocks?

Here are the Nobel laureates remarks, excerpted from the article, “Experts Are at a Loss on Investing,” by Peter Gosselin, formerly of The Los Angeles Times:

Harry M. Markowitz, 1990 Nobel Prize:

Harry M. Markowitz won the Nobel Prize in economics as the father of “modern portfolio theory,” the idea that people shouldn’t put all of their eggs in one basket, but should diversify their investments.

However, when it came to his own retirement investments, Markowitz practiced only a rudimentary version of what he preached. He split most of his money down the middle, put half in a stock fund and the other half in a conservative, low-interest investment.Learn More

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Few Boomers Catch Up on 401(k) Saving

Only 13 percent of older workers take advantage of the “catch-up” contributions to their retirement accounts permitted by the IRS for anyone over 50, according to new data provided by Fidelity Investments.

This is hardly surprising, since prior research has estimated that only about 10 percent of all workers are contributing the maximum $17,500 per year that everyone, regardless of age, is allowed to contribute under IRS guidelines for 2013. Since the vast majority never reach that cap, the “catch-up” 401(k) contribution enacted to encourage people to save more when they hit their 50th birthday – an additional $5,500 per year – is largely irrelevant to them.

But the catch-up contribution data, which Fidelity culled from its 401(k) client database representing some 12 million workers, are yet another reminder of a fundamental problem with the U.S. retirement system: Americans simply are not saving enough to ensure their financial security in old age.

In short, members of the Me Generation don’t seem to be doing a great job of taking care of Me. …Learn More

Retirement Countdown: Sheila Downsizes

Sheila Taymore could not afford the $2,200 mortgage and home equity loan payments, the enormous heating bills, and the repairs – so many repairs – on the home she’d owned for decades.

Sheila Taymore, 60, of Salem, Mass.

But selling it was emotional: she and her first husband had raised two sons in that house in the seaside town of Swampscott, north of Boston. Her decision to move was triggered by a recent divorce and came about two years after the death of her mother.

“I walked around and cried and said, ‘Who cares about this house?’ I make all this money, and all my money was going towards my house,” said Taymore, a Comcast Cable salesperson – last year was her best year ever.

She is like millions of U.S. baby boomers struggling, often imperfectly, to prepare financially for their imminent retirement. Wall Street may tout investment savvy as critical to ensuring a comfortable old age, but less lofty decisions can be more helpful to those with too little savings and too few working years left to make it up.

Taymore is also planning to delay her retirement to age 70. That will give her a larger monthly check from Social Security and fewer years of retirement to pay for. That was an easy call, she said, because “I just love my job.”Learn More

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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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