College 529 Plans: a Video Primer

In this video, the president of a Boston-area community bank explains the fundamentals of 529 college savings plans, which most state governments offer.

Bob Mahoney recently put both of his daughters through college with money he’d saved in 529 plans. While it can be difficult for many parents to scrape together the money, he said 529 plans provide some hedge in the future against the ever-rising cost of a college education.

Mahoney suggested starting small and contributing, say, $1,000 or $5,000 each year and also asking grandparents to put money into the 529, in lieu of giving toys and other gifts.

As he explains in the video, the advantage is that 529 plans are free of federal and often state taxes on the investment returns earned while the future student is growing up.

One disadvantage is that they require parents to make difficult decisions about how to invest the money they’re saving. Mahoney’s advice is to avoid high-flying stocks and to approach 529s as one would approach 401(k) investing. And, like 401(k)s, low-fee funds also make sense for 529 plans. …Learn More

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Target Date Funds Keep Growing

The number of employers offering target date funds as an option in their 401(k) plans, and the number of workers using these funds, continue to increase.

In 2013, 86 percent of all employer plans offered target date funds (TDFs) – double the share of plans offering them in 2006 – according to Vanguard’s annual report on defined-contribution plans, “How America Saves 2014,” released in June.

Vanguard data also support TDFs’ growing popularity among employees: more than half of plan participants now have some or all of their retirement accounts in TDFs, compared with just one in 10 in 2006.

TDFs eliminate the need for employees to wade in and make complex investment decisions about choosing and updating their asset allocations. A TDF initially invests largely in stocks, but the portfolio becomes more conservative and the allocation to stocks declines as the individual approaches the targeted retirement date he selected. …Learn More

In-Home Senior Care – a Lot to Learn

The first baby boomers will turn 80 in 2026. Arranging in-home care by nurses, home health aides, physical and occupational therapists, or social workers will become a pressing concern for growing numbers of Americans. To sketch out the home care landscape, Squared Away interviewed Carol Levine, director of the families and health care project at the United Hospital Fund, a New York non-profit. She’s written widely on long term care, from academic articles to her new book, “Planning for Long-Term Care for Dummies.”

Is it logical that baby boomers will try to avoid nursing or assisted living facilities and will view home care as the way to go – at least for as long as possible?

You’re right. Most people, regardless of age, want to stay in their own homes. They think, “I don’t want to be in a nursing home. Therefore I’ll have home care” – as if they’ll both provide the same level of support or assistance. Home care may be even more complicated than nursing home care or assisted living, because it takes place in your own home, and because there are so many varieties.

Describe the two main types of care: skilled and personal.

The kind of care you need depends on your health condition and your abilities to manage your household – to get around, cook, shop. A medical condition that requires a nurse visit is one level of care. A lot of home care that is paid for by insurance comes after a health problem that lands you in the hospital. If you’re on Medicare, your doctor will have to document your need for skilled care, which means at least a nurse visit a few times a week. You may get a home health aide as well. If you just need someone to help out and monitor what’s going on, make lunch, do the laundry or do tasks like bathing, it’s called personal care. …Learn More

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Financial Savvy Means More 401k Returns

Financial knowledge is critical to one’s retirement security, finds a new study showing that 401(k) plan participants who scored higher on a test of their financial knowledge earned an additional 1.3 percentage points of investment returns annually on their retirement accounts.

Over a 30-year working life, that higher rate of return would add 25 percent to total savings at retirement.

Readers can take the quiz by clicking here; answers appear at the end of this blog post. …Learn More

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Test Yourself for Dementia

Dementia is a critical personal finance issue when so much is at stake in managing, investing, and spending one’s lifetime savings.  But one study found that, in the vast majority of older couples, the person in charge of managing the household finances continues to do so after dementia sets in.

Dementia can be difficult to perceive in oneself or a spouse or parent, because changes are usually so gradual, psychologists say.

Individuals can now get a rough assessment of their own or a loved one’s cognitive abilities with a test posted on the website of Ohio State University’s Wexner Medical Center in Columbus. Spokeswoman Elaine Scahill said more than 900,000 people have downloaded the test since it went online in mid-January as a public service.

The test, appropriately named SAGE – for Self-Administered Gerocognitive Exam – is similar to others used by mental health professionals as an initial screen; another one is the Montreal Cognitive Assessment. …

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Photo of an elderly woman and a nurse

Long-Term Care: Winging It

Americans have a very good chance of entering a long-term care facility. New research at the Center for Retirement Research, which sponsors this blog, finds that 44 percent of older men and 58 percent of older women will likely enter such a facility for at least a short stay.

Only 29 percent of adults age 40 and over, however, are “extremely” or “very” confident they’ll have enough resources to pay for such care, or for other types of care they may need in old age, according to a survey by the Associated Press-NORC Center for Public Affairs Research, an independent survey organization based at the University of Chicago.

The AP-NORC poll also revealed that people are poorly informed about how much care will cost if they need it.

They tend to underestimate how much nursing homes cost (about $6,900 a month) and overestimate the cost of a part-time aide coming to their home to help with personal care such as cooking or bathing (about $1,150 a month); their estimates about the cost of assisted living facilities (about $3,400 a month) were either too high or too low.

An additional complication, according to Jennifer Benz, NORC’s senior research scientist, is that “people don’t understand how the financing of long-term care works in the U.S.” The distinct roles of Medicare and Medicaid, in particular, caused great confusion. …Learn More

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More Plan Funerals Than Plan Elder Care

More adults are planning their funerals than are making arrangements for care in their final years of life.

That’s among the revealing findings about how Americans grapple with the inevitabilities of old age in an annual survey about U.S. attitudes toward long-term care. More than 1,400 adults were surveyed in March and April by the Associated Press-NORC Center for Public Affairs Research. (NORC is a social science research organization affiliated with the University of Chicago.)

“Experts believe that, like any other long-term financial planning, long-term care planning is the kind of thing you should get started with as soon as possible,” said Jennifer Benz, a senior research scientist for AP-NORC. But for many people, “it’s not even on their radar,” she said.

Nearly two out of three adults over age 40 said they have discussed funeral plans with family or others they trust, and more than half have also created a so-called advanced directive specifying how they would like their medical care to be handled if they become incapacitated.

While death and mortal illness are on people’s minds, there’s scant thinking about their long-term care arrangements. More than two-thirds reported they have done “little or no planning” for how they’ll be cared for in old age. …Learn More

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