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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

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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

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Debit Card Beats Cash as Budgeting Tool

Plastic or paper?  Americans have spoken.

In 2013, they made $4.1 trillion in purchases on their credit and debit cards, according to the Nilson Report – and that figure keeps marching upward.

Some researchers view this as a dangerous trend.  Plastic cards, they contend, put distance between a man and his bank account. Without the tactile sensation of handing over one’s hard-earned cash, it’s easy – too easy – to spend money and harder to save.

New research out of The Netherlands has an entirely different take on the cash versus plastic debate. The study, based on a detailed Internet survey of nearly 1,500 Dutch people about their financial habits, shows that they view the debit card “as the better expense monitoring tool.” (The study compared cash and debit cards, excluding credit cards.) …Learn More

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

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