couple

Breaking Up (the Pension) Is Hard to Do

In a divorce, splitting up the pension is trickier than dividing the house.

Divorcing couples and their advisers “who aren’t hip to divorce splitting of retirement plan assets often do it improperly,” said Howard Phillips, a Delray Beach, Florida, actuary and author of “Dividing Retirement Plan Assets in a Divorce.”  He knows, because he values pensions for couples negotiating their divorce settlements and then drafts the order that will be entered into the court.

Dividing a house is easy.  Two realtors pouring over sales of comparable nearby properties can readily agree on a value – once the house is sold, the parties pay the realtor and split the proceeds.  But a pension plan’s value greatly depends on how and when it’s counted and the method used to allocate that value between the spouses.

Phillips explained the basics of how defined benefit plans and defined contribution plans – 401(k)s, 403(b)s, and IRAs – may be handled in a divorce during a recent podcast for the Retirement Income Industry Association.  The following methods for splitting a pension 50/50 have strikingly different outcomes for the participant in the pension plan and for his or her former spouse:

Defined contribution plans:

  • Tracing assets: If one spouse comes to the marriage with $50,000 in a 10-year-old 401(k) account, only contributions made during the marriage – and investment returns on the new contributions – are divided.  If the plan now has $150,000, the amount that’s divided up can vary widely – or it can be zero if no new contributions were made during the marriage. The remaining balance goes to the spouse who started the 401(k) account. …
  • Learn More

Photo of someone doing a puzzle

Investment Managers Are Human Too

Mutual fund managers would seem to possess myriad advantages over the average individual investor: a business degree, a deep understanding of corporate finance, and years of experience.

But you wouldn’t know it based on how their personal portfolios fare.

A new study of mutual fund managers in Sweden found that that they “do not exhibit superior security-picking ability” when managing their personal portfolios, compared with similarly situated private citizens who also invest for themselves.

Using detailed tax and investment information contained in Swedish government data bases, researchers from the University of Notre Dame and Michigan State University were able to link individual fund managers to their personal equity portfolios and returns, which were then compared with the returns of non-experts with similar socioeconomic characteristics, such as education and age.

Based on the risk-adjusted returns for each group, the researchers found that the fund managers’ personal equity portfolios – individual company stocks and also the stock mutual funds they hold – performed no better than the private investors’ equity portfolios. …Learn More

Woman reaching for food

Hunger: Unspoken Among the Elderly

Retirees in one Orlando-area community sustain a lively conversation about every topic under the Florida sun, a conversation that threads through their rounds of horseshoes, dinner dances at the club house, and senior yoga.

But one subject must be handled with great discretion: hunger.

Judy Cipra knows this, because she and her late husband, Fran Cipra, started, and she continues to operate, Fran’s Pantry to collect money and buy groceries for 18 seniors who struggle financially in the Palm Valley retirement community, where my mother also lives.

“If you call me and you tell me that you need food, I don’t ask any questions,” Cipra said. “You just get it.”

Cipra said people reliant solely on Social Security are often embarrassed to be barely getting by.  Some fill their food gaps with soda crackers and peanut butter, she said.

But hunger among seniors is not uncommon.  About 15 percent of Americans age 60 and older were threatened with hunger in 2012, according to the National Foundation to End Senior Hunger.  And as the baby boom population ages, the number of these “food insecure” seniors is continuing to rise, exposing growing numbers of retirees to health problems and depression stemming from not having enough to eat. …Learn More

Excerpt of NY Times buyout offer

Evaluating a Pension Buyout Offer

Like many baby boomers, I’ve received an offer from a former employer that’s meant to entice: “The Company is offering you a limited-time opportunity to receive this benefit now, rather than waiting until you otherwise become eligible to receive payments from the Plan.”

My 17-year employment as a Boston Globe reporter entitles me to a $1,762 monthly pension for life, starting at age 65. I’m 57 now. But a few weeks ago, the company put two alternatives on the table: take a smaller pension that starts now or trade my pension for a lump sum of $170,000 in cash. The deadline for accepting the new offer: the day after Christmas.

The New York Times Co., which used to own the Globe, has no doubt made this offer to employees for the same reason most companies do: to reduce burdensome pension liabilities and create financial certainty. But what’s in it for me? And how should other boomers think about similar offers coming over the transom?

My first thought was this: I’m working now and don’t want or need a pension right away. This money is for my retirement. I view my decision as choosing between the remaining two options: my original pension at 65 or the new lump sum offer.

A senior economist here at the Center for Retirement Research, Anthony Webb, helped me compare these two options: …Learn More

save

Fewer Still Paying Off Last Christmas

‘Tis the season to acknowledge progress!

The share of Americans who are still paying off credit card debts they ran up during the year-ago holiday has dropped for a second consecutive year.

According to an annual Consumer Reports survey, conducted during the first week in November,
7 percent of Americans still had unpaid Christmas bills left over from last year. That’s down from
10 percent in 2013 and 13 percent the year before.

One likely explanation is the drop in the U.S. unemployment rate, to 5.8 percent last month from
7 percent in November 2013. Plummeting gasoline prices have also left more cash in shoppers’ wallets. But did a lackluster Black Friday – retail sales were down a whopping 11 percent, despite the stronger job market and falling gas prices – mean something else? Are shoppers just delaying their purchases, or could this be a sign of restraint?

This holiday, the vast majority of people plan to spend the same or less than they did last year, says a poll by the Consumer Federation of America and the Credit Union National Association. And here’s a suggestion for the 2014 holidays that could also help: pay cash.Learn More

Alzheimer’s: a Financial Plan Revamped

Ken Sullivan and Michelle Palomera with their daughters Leah (left) and Abby.

Ken Sullivan’s diagnosis of Alzheimer’s disease at age 47 unleashed a torrent of feelings: shock, isolation, fear.  It’s probably why he lost his demanding job at a large financial company.

The diagnosis was also emotionally devastating for his wife, Michelle Palomera.

But for both of them, it was a rude awakening to the myriad financial preparations required for Alzheimer’s.  Even though both are financial professionals, they had no idea how complex it would be to revise their existing financial plan, how hard it would be to find professionals with the specific legal and financial expertise to help them, or how long this project would take – 17 months and counting.

“This disease has so many layers and aspects to it,” Palomera said.

The risk to an older individual of getting Alzheimer’s is only 10 percent – and early-onset like Sullivan’s is even rarer.  But when there is a diagnosis, one issue is the lack of a centralized system for managing care and coordinating the myriad professionals and organizations involved.  These range from the medical people who diagnose and treat an Alzheimer’s victim to health insurers, attorneys, social workers, disability and long-term care providers, and the real estate agent who may be needed if a victim or the family decides they can’t remain in their home.

Sullivan and Palomera had always shared their family’s financial duties.  But Sullivan’s new struggles with details and spreadsheets left these tasks entirely on Palomera’s shoulders – all while juggling her job as a managing director for a financial company.  “If something were to happen to me, I have to be really air tight on having everything squared away so the trustee – someone – can manage the situation for our daughters and Ken,” she said.

After Sullivan’s June 8, 2013 diagnosis, the couple called family to gently break the news. Their next calls were to a disability attorney and a financial planner.   They’ve since gone through four estate attorneys to find one who could answer their questions and suggest the best options for themselves and daughters Leah, 9, and Abby, 11.Learn More

house

Primer: Home Equity → Retiree Income

Americans who are 62 or older had an estimated $3.6 trillion in total equity locked up in their homes in the first quarter of 2014, according to the National Reverse Mortgage Lenders Association. A new primer suggests they should start thinking seriously about using it to generate some extra retirement income.

The primer, published by the Center for Retirement Research at Boston College, which sponsors this blog, discusses two ways retirees can use home equity to generate income: by downsizing into a less expensive house or condominium or by taking out a reverse mortgage.

Click here to read the booklet online and learn how these strategies work and how much money each can provide.  Their pros and cons are detailed in the graphic below, excerpted from the booklet:

Learn More

1234510...