Music as Money Metaphor

To get a grip on retirement worries, overwhelming student loans, or squeaking by, it always helps to get more money or make a plan.

But finding a way to think about how to manage your money is also useful. It’s like making music, says Timothy Maurer, a Baltimore financial planner. At first, you have to master the “boring stuff, but eventually real songs start being produced.”

p.s. Maurer said that his brother Jon Maurer, who is “a far more accomplished musician than I,” is the pianist in this video.

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Various herbs

Financial Planners Diversify: Four Types

Brokers, registered investment advisers, fee-only, commission-based, dual license – the labels for financial planners can be intimidating.

In a consumer-friendly article, the Retirement Income Journal (RIA) in November identified four adviser types, based on what they do for their clients.

Most advisers still fall into the traditional Technician category. But the rise of other types – Strategist, Behaviorist, and Life Coach – partly reflects a profession rocked by the 2008 financial crisis. The number of advisers nationwide fell 3 percent last year, according to Cerulli Associates in Boston.

“[T]he combined impact of the financial crisis, boomer retirement, the advent of behavioral economics and fee compression is forcing more advisers to evolve,” RIA explained.

The following is an adaptation of RIA’s article, which was based on a presentation to the University of Pennsylvania’s Wharton School of business by fee-only advisers Paula Hogan in Milwaukee and Rick Miller in Boston.

The new year is around the corner, and perhaps you’ll want to hire a planner. But which of the following four types suits you? …Learn More

Photo: elderly home

Long-Term Care Policies Unpacked

The typical, elderly couple spends about $260,000 on health care and long-term care services during retirement – for the unlucky ones, the amount can be double. No wonder sales of long-term care policies this year will increase nearly 10 percent, according to the American Association for Long Term Care Insurance. At the same time, major insurers are pulling out of the market in droves, and premiums are surging due to higher demand by aging baby boomers, record-low interest rates, and rising medical costs.

To help navigate this increasingly treacherous market, Squared Away interviewed Larry Minnix Jr., chief executive of LeadingAge, a non-profit consumer organization in Washington.

Q: Is there anyone for whom long-term care insurance does not make sense?

A: Not many. I’ve seen too much of the consequences for too many age groups and too many families – long-term care just needs to be insured for. A majority of the American public is going to face the need for some kind of long-term care in their family. The only people it doesn’t make sense for are poor people – they have Medicaid coverage, mostly for nursing homes. And for people who are independently wealthy, if they face a problem of disabling conditions they can pay for it themselves. You find out at age 75 you have Parkinson’s or Alzheimer’s, but it’s too late to insure for it. Think about it like fire insurance. I don’t want my house to burn down, and very few houses do. But if mine burns down, I do have insurance.

Q: The Wall Street Journal reported that GenWorth Financial next year will charge 40 percent more to women who buy individual policies. Why?

A: Among the major carriers, private long-term care insurers have either limited what they’re doing or backed out of the market entirely. You’d have to get GenWorth’s actuarial people [to explain], but let me venture a guess. I’ve had private long-term care insurance for 12 to 15 years, but my wife couldn’t get it. She’s got some kind of flaw in the gene pool, and she was denied coverage. She may be the bigger risk, because I’m more likely to stroke out and die, but she’s more likely to live with two to three conditions for a long period of time.

Q: Your wife wasn’t healthy enough to get coverage?
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Financial Education Strategies Need Work

Brigitte Madrian

In a September paper distributed by the National Bureau of Economic Research, Professor Brigitte Madrian and her co-authors reviewed the current state of U.S. financial education. In an interview, Madrian, a professor in Harvard University’s John F. Kennedy School of Government, provided some fresh insights into education, regulation, and the role of the financial industry.

Q: Besides low financial literacy, why do people make bad financial decisions?

A: Procrastination. Inattention – one reason people accrue credit card late fees is that they forget to pay their bills on time. Advertising – people are swayed by the marketing of financial services and products. Not all products pushed by financial advisers or financial-services companies are appropriate for everyone, and sometimes people are swayed into purchasing products that may be right for someone else but aren’t right for them.

Q: Does financial education even work?

A: I believe the jury is out. We do not have a lot of compelling evidence on the impact of financial literacy programs. There have been lots of studies on programs, but many of them are of dubious scientific validity. Of the ones that are more credible in terms of methodology, some find very little impact on financial education and a handful find financially positive effects. …

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Blame Aid Policies – Not Tuitions

Admissions policies and financial aid packages at individual colleges – not just tuitions and fees – are significant determinants of student loan levels, according to new research.

No wonder there’s a cottage industry of financial planners who specialize in counseling families on college admissions: this granular – and often invisible – information about financial aid is critical to whether your child carries a burdensome debt load with his diploma on graduation day.

The media and policymakers – and (Squared Away adds) parents – “have assumed that tuition and university sticker prices are the primary if not the sole factor driving the rise in student indebtedness,” James Monks, an economist in the University of Richmond’s Robins School of Business, concluded in an October paper. “This assumption ignores the substantial impact that college and university admissions and financial aid policies” have in determining debt levels.

Certainly parents should pay attention to tuition and fees. But Monk found that public college admission policies that are blind to students’ financial circumstances produce students with “a higher average debt upon graduation,” which tends to fall on their lower-income students. When a college says that it is “need-blind,” it is saying that it looks at each student’s financial situation only after deciding whether to admit him or her based on test scores, grades and letters – this policy is typically aimed at increasing enrollment of low-income students. After agreeing to accept a student, the institutions try to help those who need it most through their financial aid packages. But this aid often falls short, requiring heavy borrowing by students.

In contrast, the target of some private institutions is to maximize the number of students graduating with no debt or limited debt. At institutions with such policies, Monks found that students have significantly lower debt levels than institutions that lack this policy.

Danielle Schultz, a straight-talking Evanston, Illinois, financial planner said most public colleges claim to be need-blind in selecting their incoming freshman class. But at a time when state budgets are tight, far fewer now have the financial resources to back up such a policy, she said, which drives up borrowing by their students. As for private colleges, she said they’re also feeling financial pressure and believes that fewer institutions than in the past can afford to maintain generous no-debt policies.

Rising debt levels is the result. U.S. college graduates had $26,600 in student debt last year, up 45 percent from 2004, according to a new report by the Institute for College Access and Success.

Schultz, who just successfully shipped her daughter off to college – Bryn Mawr outside Philadelphia – describes college application as a treacherous process rife with pitfalls.

“Schools are in the business of forking over the least money possible to get the most motivated kids and the most diversity,” she said. The onus is increasingly on parents “to think hard about what kind of dollars they are willing to fork over.” These days, it’s about the major: can the student get a job after college? Her rule: don’t borrow more than the student can expect to earn the first year after graduation…Learn More

What’s Up With Women?

The share of women enrolled in college is increasing, and more women are breaking into the top tier of business, government and non-profits.

But at the same time that women are achieving more status than at in any time in history, we still know much less than men about money and finance. What’s up with that?

Financial literacy is important to women, because they live longer and need more retirement savings. Another reason this matters is that women are, according to a recent federal report, more financially vulnerable than men, particularly when they become divorced, widowed, or retired.

Anyone who is not savvy “will have a much tougher time preparing themselves for retirement,” Roger Ferguson, the president of the TIAA-CREF retirement system, said at the retirement research conference in Washington.

In a now-famous survey designed by Annamaria Lusardi, a professor at the George Washington University School of Business, and Olivia Mitchell at The Wharton School, only one in five American women who were asked three simple financial questions got them all right.

And the problem of financially illiterate women is universal. Lusardi recently fielded her survey on a global scale and found the same abysmal results. “Whether you look at the Netherlands or Sweden or Italy or the U.S. – these are very different countries – women know less than men,” she said.

She is, nevertheless, optimistic, because women are also more likely to admit what they do not know. Half of women in a separate U.S. study said they didn’t know the survey answers, while only one-third of men did. This admission can be viewed as “a good thing for women,” Lusardi said.Learn More

Out-of-Pocket Medicare Costs Bite Deep

The bite taken out of Social Security checks to pay Medicare premiums and co-payments for doctor visits has more than doubled, from just 7 percent of benefits in 1980 to 15.5 percent currently.

People born on the tail end of the baby boom wave are suddenly waking up to retirement, which is barreling towards them. While many have no idea how Medicare works or how much they will pay for health care, the program’s future has emerged as a key issue in a presidential campaign with competing notions of how best to slow Medicare’s growth to a more sustainable level.

Whatever your political stripe, the costs of retirement health care are rising “significantly,” according to a forthcoming report by the Center for Retirement Research, which sponsors this blog.

Medicare covers a large portion of health costs, but retirees must pay Medicare premiums, which are deducted from their monthly Social Security checks, as well as copayments for doctor visits and other medical services such as some tests. These additional expenses are often, though not always, covered by employer-sponsored or private “Medigap” insurance policies, which smooth out these expenses for retirees…Learn More

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