How Much For the 401(k)? Depends.

How much must 30-somethings save in their 401(k)s to prevent a decline in their living standard after they retire?

No two people are alike, but the Center for Retirement Research estimates the typical 35 year old who hopes to retire at 65 should sock away 15 percent of his earnings, starting now.  Prefer to retire at 62?  Hike that to 24 percent.  To get the percent deducted from one’s paycheck down into the single digits, young adults should start saving in their mid-20s and think about retiring at 67.

These retirement savings rates are taken from the table below showing the Center’s recent estimates of how much workers of various ages should save to achieve a comfortable retirement; they represent the worker’s contribution plus the employer’s contribution on their worker’s behalf. Expressed as a percent of their earnings, they also vary depending when a worker retires.

How Much to Save: Table

To derive these savings rates, the Center’s economists assumed that a retired household with mid-level earnings needs 70 percent of its past earnings.  They then subtracted out the household’s anticipated Social Security benefits. The rest has to come from employer retirement savings plans, which determine the percent of pay required to reach the 70 percent “replacement rate.” …Learn More

Sorting Out Medicare Enrollment Dates

Failing to meet one of Medicare’s many enrollment deadlines can be costly to new or imminent 65 year olds.

The Journal of Financial Planning helps aging baby boomers start out on the right foot with a clear run-down of at least five different enrollment windows for various parts of Medicare.

Getting these dates right is “very tricky,” and people often make mistakes that lead to higher out-of-pocket medical costs and gaps in their coverage, said Katy Votava, president of the consulting firm, Goodcare.com, and author of “Making the Most of Medicare: A Guide for Baby Boomers.”

“They often receive well-meaning but mistaken advice, and then they’re really in a pickle,” she said. “They aren’t eligible to apply when they want to or face penalties down the road. Coverage gaps can be a tremendous financial burden.”

Medicare enrollment chart

The image displayed was extracted from the Journal’s enrollment timeline, and the entire graphic and a Journal article by Votava can be viewed here.   The graphic is worth 1,000 words but here are some important don’t-miss dates: …Learn More

A Financial Plan for Alzheimer’s

First, the facts from the Alzheimer’s Association. At age 65, one in nine individuals has Alzheimer’s disease.  At 85, the risk exceeds one in three.  Its victims are more often women.

In the Ted video above, the global health consultant and writer Alanna Shaikh disclosed that her professor-father had Alzheimer’s. Since it can be hereditary, she’s preparing to possibly share his fate, by keeping her mind active and by learning to do things with her hands, such as knitting.

Shaikh doesn’t discuss financial preparations. But experts have some suggestions, chief among them getting one’s will, health care directive, and perhaps a power of attorney in order.  Paramount in this process is finding trustworthy people to handle your affairs. You can also arrange for a lawyer or outside mediator if family members disagree about your care.

The Alzheimer’s Association recommends putting a financial plan in place as soon as there is a diagnosis. “Financial planning often gets pushed aside because of the stress and fear the topic evokes,” the association said in this new booklet. “The sooner planning begins, the more the person with dementia may be able to participate in decision making.” …Learn More

Drawing of houses

Wanna Be a Homeowner? Take a Class

In case anyone has forgotten, buying a home can be damaging to your financial health.

But prospective first-time homeowners may want to take advantage of still-low mortgage interest rates and the recent, slower increases in house prices.  Homebuyer classes can provide an excellent crash course in the mysteries of mortgages, maintenance, taxes, and risks – information that can help preclude the kind of mistakes made during the subprime mortgage crisis.

There’s a tool on the website of the federal government’s Consumer Financial Protection Bureau (CFPB) to search for first-time homebuyer classes and housing counselors. Enter your desired zip code here to find classes and counselors nearby.

The agencies listed appear to be mostly non-profits and were approved by the U.S. Department of Housing and Urban Development.  It’s wise to do some research on a specific agency to find out where the non-profit’s underlying funding comes from and what services it offers.

So, is now a good time to buy a house?  Conventional wisdom says this depends on how long the buyer intends to live in the house – the longer the better to cover the high upfront costs of buying and moving and to ride out price fluctuations in the housing market. …Learn More

Retirees Live on Less

Many recent U.S. retirees in a new survey receive less than two-thirds of what they earned during their working years, and they’ve made significant adjustments along the way.

That finding for baby boomers who’ve retired in the past five years is contained in a larger national survey conducted by T. Rowe Price, the Baltimore mutual fund company. The full survey covered some 2,500 working and retired individuals, age 50 and over. All of them have at least some savings in a 401(k) account.

The majority of the recent retirees reported their annual income is between $25,000 and $100,000. Social Security is the largest single source of that income, and smaller but equal shares come from defined benefit pensions and from retirement savings plans.

Many of the retirees report their households are managing to get by on less than the 70 percent to 80 percent of their pre-retirement income that most financial planners and retirement experts estimate they need.  And four out of 10 are living on 60 percent or less.

The retirees surveyed said they’ve had to lower their living standards, and four out of 10 described their situation as adjusting “a great deal.” …Learn More

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Fraud Alert: Nursing Home Residents

An estimated 5 million older Americans are victimized by financial and related abuse every year, and people living in nursing homes and assisted living facilities can be especially vulnerable.

The federal Consumer Financial Protection Bureau (CFPB) says identifying financial exploitation is complicated by the fact that those perpetrating the fraud are often individuals the senior believes he or she can trust. Often, they are relatives or friends managing the financial affairs of a senior living in a care facility. …Learn More

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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