Pre-Retirement Financial Review is a Must

My husband has taught high school biology for 30 years in Boston and works hard for his students. But he’s nearly 64 and it’s time to think about retiring.

Can we afford it? When we retire, will we eventually run through our savings? Is retirement scary – or what?

Questions like these are also probably haunting millions of baby boomers in the middle of the night. One out of three boomers in a recent Transamerica survey said they are not confident they will have enough income to retire “comfortably” and another third concede that they are only “somewhat confident.”

To find the answer for ourselves, my husband and I hired a financial adviser. It was the best thing we could’ve done. The point of this blog is to encourage other boomers to take stock of their imminent retirement, whether it’s around the corner or still a decade away.

We’d been kicking around retirement scenarios inside our marriage bubble. My husband has not fixed a retirement date in his head but is talking about the next one to three years. To be conservative, we posed this simple question to our adviser: can Garret retire in 2018?

Garret Virchick and Kim Blanton

Her answer was in the half-inch packet, which she delivered to our front door. We sat around our dining room table as she walked us through her quantitative analysis of our financial profile.

Many financial advisers like to talk about how they’ll manage a baby boomer client’s investments. In truth, simple index funds do the trick for us. Our adviser, Wendy Weiss of Weiss Financial Advisors in Cambridge, Mass., used to be an investment adviser for large financial firms, but spent very little time on our investments. The most important thing for baby boomers who, like us, are not wealthy is knowing how much income will come in the door every single month to pay the bills in retirement.

“It’s more important for my clients to find out how to use that 401(k) in retirement than it is for me to try to manage the investments for you,” she said. …Learn More

Social Security’s Legacy to Ex-Wives, Kids

Social Security Administration poster, 1956

Many women are fuzzy on how Social Security benefits for widows work and even more unclear about the program’s spousal benefits.

I know two of these women. Their situations nicely illustrate how this federal program promotes the well-being of older women and families.

One is my divorced aunt. She was surprised to learn, after my uncle died a few years ago, that her widow’s – or survivor’s – benefit, based on his decades of work as a housing developer, would be double the spousal benefit she’d received while he was alive. Divorced spouses are eligible for the same spousal and survivor’s benefits as still-married spouses, though only if the marriage lasted more than 10 years.

For a more complex experience involving Social Security’s child, spousal and survivor benefits, consider a friend of mine, who married an older man with whom she adopted two baby girls from China.

The couple divorced after 12 years, but John remained a loving older father. He showered his little girls with attention and, as they grew up, spoiled them with shopping excursions to the mall. But one of his best gifts came after he retired: Social Security benefits that provided financial security to his daughters and their mother.

John, like many older men, had difficulty finding steady work, but earlier in his career, he’d been a well-paid executive. On the strength of this earnings history, John signed up for his Social Security pension when he reached his full retirement age. His initial benefit was $2,209. In addition to this benefit, $828 per month went to each of his daughters, who were in elementary and middle school at the time.

Under Social Security’s rules, benefits go to children under age 16 when a parent is collecting a Social Security pension. This continues until the child reaches age 18 (or 19, if they’re still in high school). Each child’s benefit is precisely half of the parent’s pension, but John’s daughters received less than half because they bumped up against Social Security’s family maximum.

When John died a year ago, at age 73, his Social Security legacy continued. …Learn More

Young Workers’ Hopes Confront Reality

Part time vs full time chartAs the post-recession job market continues to improve, so has young adults’ optimism about their future opportunities, a Federal Reserve Board survey shows.

What’s poignant about this youthful optimism is that a changing labor market is making it increasingly difficult for young adults to get their careers off to the right start.

Surely, they sense this. Nearly two-thirds of adults between ages 18 and 30 told the Federal Reserve in a 2015 survey featured in a recent webinar that their schedules in “permanent” jobs were changing daily, weekly, or monthly. They strongly prefer future job stability over higher pay, despite the trendy flexibility of the “gig” economy, Uber driving, and freelancing.

“Permanent employment is not the same as stable employment,” Amy Blair, the Aspen Institute research director for the economic opportunities program, said during the webinar.   “Without a stable floor, it’s difficult for a person to invest in himself or herself to build a career.”

The U.S. Bureau of Labor Statistics (BLS) has identified 30 jobs it predicts will have the fastest growth, generating 5 million jobs by 2024.  Most of the top 10 are characterized by part-time, low-paying, or seasonal work that can make it difficult to put together a full-time schedule, Blair said. Many are the types of jobs that also lack health benefits, 401(k)s, and paid-time off.

The BLS’ top 10 are: …Learn More

illustration of guy parachuting

A Modest Victory in Financial Education

With so many Americans in the dark about how to prepare for retirement, educating them about why it’s critical to save seems an obvious way to tackle this problem. But very few solid studies prove that financial education actually works.

This field research should be counted as a positive result for a modest, low-cost financial education program.

Carly Urban at Montana State found that tellers and other low-level employees working at 45 randomly selected credit unions around the country clearly made progress after spending just 10 hours in an online financial education program. The information-based program required the workers to do some reading and walked them through specific examples and scenarios they might face.

Their improvements weren’t limited to increasing their knowledge of finances and retirement saving either. They also saved more, Urban said while presenting her findings at a webinar sponsored by the Center for Financial Security at the University of Wisconsin.

In the fall of 2009, the credit union employees completed the online education on the basics of everything from financial planning and investment risk to saving for college and working with a financial adviser. They were allowed to choose how much time to spend on each of 10 modules, and their employers let them take the courses at work – rather than use up valuable free time. …Learn More

Tax documents

Retirement, Saving and Your Taxes

Just one in four of the low-income workers eligible for the federal tax credit for retirement saving are even aware that it exists.

The IRS, as I said in a previous blog, practically “gives money away” through its Saver’s Tax Credit, which returns as much as half of the amount saved to the tax filer. The credit was designed to encourage the nation’s lowest-paid workers, who largely don’t save.

Yet a survey last year by the Transamerica Center for Retirement Studies found that people who are not eligible for the credit know more about it than people who are eligible. There was a pervasive lack of awareness in three groups in particular: workers earning under $50,000, women, and people with no more than a high school education.

We’re getting into the thick of the tax season, so we’ve assembled a list of our previous tax-oriented blogs – the first article explains the saver’s credit. The blogs, listed below, explore a variety of issues to consider when you’re doing your taxes: …Learn More

Feature

Unpaid Water Bills Open Door to Advice

Nearly half of the low-income residents in some sections of Louisville are delinquent on their city water bills. In Newark, water customers’ unpaid balances have been known to reach $4,000.

The shutoff and reactivation fees that some cities charge when they stop a customer’s water service create another problem in places like Houston: they add to the unpaid balances of customers who are already struggling financially. Cities are also becoming more aggressive about collecting on their debts, hiring third-party collection firms.

Researchers and the National League of Cities tried an alternative in the form of an ambitious pilot program involving five city water departments: Houston; Louisville, Kentucky; Newark, New Jersey; Savannah, Georgia; and St. Petersburg, Florida. Driving the program was the recognition that unpaid water bills are an indication of deep financial distress. So the cities, which are loathe to turn off this essential service, embraced a broader vision: providing financial counseling to empower families with delinquent water bills to better manage their situations.

While every city’s pilot program was slightly different, Ohio State researcher Stephanie Moulton said they had two things in common: an agreement to restructure residents’ unpaid water bills to make them affordable, and at least one private session with a financial counselor or coach already working for the city or a local non-profit. Some cities added other services, such as screening for public benefits if a job loss had caused a resident to fall behind on the water bill.

Houston, for example, trained and certified six customer service representatives in its Department of Public Works to act as financial coaches, said Bonnie Ashcroft, a departmental section chief. The counselors who coached clients on their household finances also advised them on how to reduce their water bills.

It’s not possible to do a rigorous analysis of the pilot’s overall effectiveness, because each city’s water department is unique. But individual analyses of each city found three that showed marked improvements in their water payments, Moulton said. These successes were presented in a recent webinar. …

In Houston, customers’ unpaid account balances declined, on average, from $544 to $374. Unpaid account balances in Newark went from $969 to $605. The frequency of payments in these cities also increased, Moulton said. Learn More

Dial illustration

Financial Stress Rings in the New Year

Having dug ourselves out of the worst financial crisis since the Depression, the nation entered 2017 amid rising wages and record-low unemployment.  Yet three out of four adults report being “financially stressed.”

And no wonder: half of the 2,000 adults in the December survey by the National Endowment for Financial Education (NEFE) said they are living paycheck to paycheck.

Americans’ specific financial issues are routinely documented in this blog and run the gamut from cash-flow shortages to poor retirement prospects.

The primary sources of financial stress identified in the NEFE survey were not enough savings and too much debt.  This was consistent with a second finding in which respondents said that solving these issues would also provide the most “financial relief.” Here are the other findings: …
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