Field Work

Conference Will Guide Financial Advisors

At a dinner next Monday night, finance professor Zvi Bodie at Boston University and his co-hosts will kick off their third conference geared toward educating financial professionals about cutting-edge thinking in the field. “The Future of Life Cycle Saving and Investing” will focus on serving low-income individuals. However, Bodie said in this recent interview that the conference lessons apply to all financial consumers.

Zvi BodieSQUARED AWAY: Is this an annual conference?
BODIE: No. The first one was in 2006, the second in 2008. Truthfully, what inspired me to have these conferences, among other things, was the strong support of MIT economics professor Paul Samuelson. I decided I was sick of the baloney about personal investing that is served up on websites, brochures, etc. – all of which is designed for the benefit of the service providers rather than the customers. So much of it flatly contradicts what I teach. We’re dedicating the dinner to the memory of Paul Samuelson, who died last year.

SQUARED AWAY: What baloney?
BODIE: Say you’re a beginning investor. You go to any website – go to investor.gov. It’s a really nice looking website. This is the Securities and Exchange Commission, so you’d think, ‘Wow, I can trust this.’ But, actually, all this material was fed to the government by the investment industry. …
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Field Work

Employers Chop Down College Loans

Edward, Ashley, and Kirby Cash

Edward Cash would really rather spend his hard-earned paychecks from the Memphis Police Department on his daughter than on humdrum necessities like student loans, replacing a broken-down car, or saving.

“I need money, as much money as I can to take care of this new human in my life,” Cash said about 4-year-old Kirby.

Of course, he and his wife, Ashley Cash, a Memphis city planner, pay their bills, in between doting on Kirby.  But college loans are different: they get help.  The city government pays down $50 a month on each of their loan balances – as it does for some 600 employees.

In May, Memphis joined Fortune 500 companies in the vanguard of employers offering this benefit, including to its police force, which requires some college education, and the fire department, where time in college is not required but also not uncommon.

With college debt exceeding $1.4 trillion nationwide, help with student loans appeals to young employees, who say in surveys that paying them off is their No. 1 financial priority. Recognizing this, major employers are using the tuition benefit to recruit talent, including Fidelity Investments, Live Nation, Natixis Global Asset Management, Pricewaterhouse Coopers, and Staples Inc., according to company and media reports. …Learn More

Field Work

Before Retiring, Do this Homework

If you don’t know this chart on the Social Security website, you should:

Social Security table

The chart shows the so-called Full Retirement Age (FRA), which is the age at which you’re entitled to your full monthly Social Security benefit, a pension based on your earnings history.

Many boomers see their FRA as the time they ought to retire. But the question they should be asking themselves is: will the monthly benefit I’ll get at my FRA be enough?

At a time when many Americans are in danger of not having enough money for retirement, the answer is frequently no. …Learn More

array of different workers

Research

Older Americans Handling Work Demands

Older workers face fewer headwinds and better working conditions than their younger co-workers, according to the first analysis of a new survey of 3,900 blue- and white-collar workers between ages 25 and 71.

The U.S. workplace overall is “very physically and emotionally taxing,” according to the study – that’s why they call it “work.”  Two out of three workers of all ages reported in the 2015 survey that they are often required to move at high speeds under tight deadlines, feeling intense pressure to accomplish too much in too little time.

But after people pass the age of 50, things get a little easier.  Older workers report having more flexible work schedules, more predictable hours, fewer scheduling changes, less stress, and greater ease in arranging time off to take care of personal matters, the analysis found.

Their workplace situation isn’t all rosy.  Larger shares of older workers feel under-employed or have unsupportive bosses – this held true whether they had college degrees or not.

The analysis of the new American Working Conditions Survey (AWCS), by researchers led by Nicole Maestas at Harvard Medical School and recently published in an e-book, is an introduction to what will inevitably be more research using this new, publicly available data. The AWCS might, for example, provide new fodder for studying the factors that influence older Americans to continue working or to retire.

The new study found some striking differences between older and younger workers – and among different groups of older workers: …Learn More

Money Culture

401k Saving Harder at Lower Incomes

Sales assistant working in a supermarketOur 401(k) retirement system doesn’t work as well for lower- and middle-income workers as it does for those at the top.

That’s because they face more severe headwinds in pursuit of their retirement goals, concludes a new study.

Consider what happens when a worker’s earnings drop 10 percent or he experiences a bout of unemployment. These episodes are more common among lower-paid workers, and when they hit, they hit their 401(k)s harder than the 401(k)s of people who earn more, according to the study, “Defined Contribution Wealth Inequality.”

In theory, 401(k)s could work for everyone – if everyone had access to an employer savings plan (which they don’t).  And while people who earn more money obviously have more to sock away in their retirement plans at work, smaller paychecks aren’t necessarily a problem either.

The key to retirement for any worker is whether he or she has saved enough, along with Social Security, to cover about 75 percent of what they earned at work during the years leading up to their retirement. It’s true that lower-paid workers can’t save as much, but less could still be enough to reach their more modest retirement goals.

But earnings declines, unemployment, smaller employer contributions, and unwise investment choices – these “barely affect earners in the top 10 percent of the earnings distribution but are associated with less DC [defined contribution] wealth accumulation for those at the bottom,” concluded the researchers, Joelle Saad-Lessler at the Stevens Institute of Technology and Teresa Ghilarducci and Gayle Reznik at the New School for Social Research.

This disparity, they argue, has increased the retirement wealth gap in this country.  In the post-recession period 2009-2011, for example, more high-income workers saw their DC account balances increase than did workers in the bottom half.

The researchers tracked the same people over time in two groups – the bottom 55 percent of the earnings ladder and the top 10 percent. They were able to more precisely compare each group’s ability to save for retirement by using the actual earnings and employer contributions to individual workers’ retirement plans. Here are their other findings: …Learn More

singing

Behavior

A Day at the Golden Age Senior Center

Chung-Au Loi Tai

Boston – Four mornings a week, a van scoops up Chung-Au Loi Tai and delivers her to the senior center for a full schedule of activities. The 1:30 bingo game is her favorite.

She giggles when she explains why: she likes the Chinese Rice Biscuits that are handed out as prizes.

She is one of 350 mostly low-income clients of the Greater Boston Golden Age Center’s three locations around Boston. Most came to this country from China decades ago and raised families while working in Chinatown or the suburbs. Chung-Au, for example, worked in a shoe factory for nine years, and her late husband cooked in restaurants all over the city.

Now in old age, the Golden Age Center’s community of like-minded people spend their days learning English, new songs, and calligraphy, eating $2 lunches – a “suggested” donation – and getting help with their medical and other needs from the nurse and social workers on staff.

Finding things to do all day might seem trivial to working people – there are barely enough hours in a day. But the center’s carefully planned activities are critical to seniors’ physical and mental health and to their families, who are still out working. One big reason for these daily visits is to prevent the frail or cognitively impaired from becoming too isolated.

The Golden Age Center and similar centers around the country make up a patchwork of often poorly funded non-profit and local-government agencies that quietly fill a big need in the safety net for seniors. These agencies provide an array of services, including transportation, meals, exercise, medical supervision, and cognitive stimulation.  The federal Medicaid program pays the Golden Age Center a per-day fee for its low-income clients.

Ruth Moy, the executive director who founded the center in 1972, raises additional money from donations and other federal and local government programs.  “There is never enough money,” Moy said. “You just keep plugging away.” …Learn More

Prudential billboard

Behavior

Our Stubborn State of Financial Illiteracy

The U.S. retirement system is built on people having a working knowledge of finance.  Yet financial literacy among a big chunk of Americans ranges from unimpressive to abysmal.

This revelation was again confirmed in a survey that recently debuted by financial literacy guru Annamaria Lusardi, head of the Global Financial Literacy Excellence Center at George Washington University. In a 2011 survey, Lusardi had found that too many Americans were unable to answer three very simple financial questions.

This new survey is more ambitious, though the results are no more promising. It asks 28 questions in eight areas: earning money, budgeting, saving, investing, borrowing, insuring, understanding risk, and information sources.  In the nationally representative survey, about one in four people got no more than seven answers (25%) correct.

One telling finding is that the highest scores were for knowledge about borrowing, with nearly two out of three answering these questions correctly. I suspect this knowledge has been gained from experience – experience with high-interest credit card bills and onerous student loan payments, as well as mortgages.

Understanding risk questionIn every other financial topic surveyed, about half or less answered the questions correctly.  Questions about risk, which is at the heart of many financial decisions, fared worst – only 39 percent answered these correctly.

An important connection is made in the report regarding 18- to 44-year olds, who answered only 41 percent of the questions correctly (versus 55 percent for people over 45). Younger adults also answered “I do not know” most often. 

When it comes to retirement, those who would gain more from financial knowledge are the least knowledgeable.  Saving that starts in early adulthood can go a long way toward achieving retirement security, thanks to compound investment returns over the many years remaining prior to leaving the work force. It’s unfortunate that those who could benefit from compounding often don’t comprehend its effect. …Learn More

On the Web

Students Get Curious About Retiring

“I thought I was going to live forever.”

“I would’ve probably put more money away for later years.”

“I was a stay-at-home mom for 17 years, and I didn’t realize that during those years I wasn’t working I wasn’t accruing Social Security.”

Millennials asked what it’s like to be retired, and seniors answered in this video produced by The New York Times.

The video’s point, it seems, is that it’s not natural for 20-somethings to think about old age at all. “Retirement wasn’t in my vocabulary,” as one senior recalled about being young.

That’s why young adults, as soon as they enter the work world, should force themselves to make friends with a concept far in their futures – and then act on it. And here’s why: saving is more important than it has ever been, because they will carry much more of the burden of financing their retirement than their parents and grandparents ever did.

Even young adults who are paying off student loans should, at minimum, contribute enough to their savings plan at work to qualify for their employer’s matching contribution. Those who don’t plan ahead face a reliance on Social Security’s eroding benefits when they’re in old age, benefits that are the absolute bedrock of our retirement system but not enough for most retirees to continue the standard of living they had while they were working.

If you need convincing, listen to these retirees talk about how difficult it is to live solely on Social Security in the video below produced by Squared Away in 2012: …Learn More

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