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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

Field Work

Millennial Couple Squares Away Finances

The Knapkes hiking last May in the Rocky Mountains.

Heather and Tyson Knapke were like a lot of young couples starting out: they were in debt.

One household expense on their credit cards loomed larger than all the others: at least $1,000 every month for groceries and dining out. Some weeks, the Denver-area couple could be found at their various favorite restaurants Thursday night straight through Sunday night.

The food budget “was astronomical, and I had no idea,” Heather said.

Their lives changed dramatically after realizing about 2 1/2 years ago that their finances were spinning out of control. How this couple transformed their debt-laden household into one that is free of credit card and college debts and has a tidy emergency fund, with retirement saving now well under way, could be a blueprint for other Millennials in the new year.

Here is the order in which the Knapke’s accomplished this: reduce expenses, impose a budget, pay down debt, and start saving for retirement.

“I’m trying to get ahold of my finances early – earlier than most people – so compound interest works in my favor so I’m set when I’m older. That’s the goal,” said Tyson, who is 32.

How did the couple get into trouble in the first place? Before marrying, Heather, a 33-year-old hairdresser, had learned a few things about controlling expenses as she purchased shampoos and hair dyes for her clients. Her personal finances were, as a result, in decent shape. Then she fell in love with a man in debt. Tyson had graduated from the University of Colorado with a communications degree, $16,000 in student loans, and another $9,000 distributed among three credit cards. …
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Guy in front of chalkboard with equations

Field Work

Your Social Security: 35 Years of Work

This blog is for a part-time Macy’s saleswoman and immigrant whom I met in a hospital waiting room – she’d never heard of Social Security.

It is also for a 22-year-old contingent worker I know who lacks steady employment and isn’t regularly accruing credit toward the Social Security pension he will probably need when he retires.

And it is for a 62-year-old eager to claim his benefit right away, possibly short-changing his retirement.

A substantial share of retirees would fall into poverty were it not for the Social Security program passed during the Great Depression.  It’s especially important for two groups of people to understand how Social Security calculates their pension benefits: young adults making employment decisions that will impact them decades from now and older people figuring out when to retire.

Yet research shows that many people do not know the basic workings of a program that is crucial to their financial security.

Steve Richardson, a Social Security official in Boston, holds regular seminars to explain the pension program to the public. “The first thing I ask is – before I say my name – ‘How many people in this room know how many years Social Security looks at to determine your pension payment?’

“Not many of them know it’s your high 35 years of earnings.”

To qualify for a pension benefit at all, a person must work full- or part-time for 40 quarters – a total of 10 years. That’s not a difficult hurdle for most to clear during decades in the labor force. What’s central is the size of your future benefit check, which is determined by your highest 35 years of indexed earnings, Richardson said – and that brings us to the math thing. …Learn More

Research

What’s New in Public Pension Funding

A small group of researchers at the Center for Retirement Research, which sponsors this blog, produces a large volume of analysis of the nation’s state and local government pension funds.

Their work isn’t typical of the personal finance information that appears in this blog. But it turns a bright light on the financial condition of the pension funds that millions of state and local government workers and retirees rely on. The bottom line, according to these studies, is that while some funds are in poor condition, many more are managing.

The following are short descriptions of the Center’s recent reports, with links to the full reports:

  • The big picture is updated in the new brief, “The Funding of State and Local Pensions: 2015-2020.” Eight years after the financial crisis, new data have confirmed that pension plan funding stabilized in 2015.  And despite poor stock market performance last year, plan funding improved slightly in 2015 under traditional accounting methods. On the other hand, funding is slightly lower under new accounting rules that require the plans’ financial statements to value their investment portfolios at market values.
     
    The appendix in this brief provides funded levels for 160 individual plans in the Center’s public pension database.
  • “Are Counties Major Players in Public Pension Plans?” The answer in this report is no, with the exceptions of California, Maryland and Virginia, where counties account for about 15 percent of pension assets.
  • FigureWhile retiree health plans are quickly disappearing at private employers, they remain prevalent in the public sector. These plans are not fully funded, and their unfunded liabilities are relatively large – equivalent to 28 percent of all liabilities for unfunded public pension plans – according to a March report, “How Big a Burden Are State and Local OPEB Benefits?”
  • New accounting rules, known as GASB 68, require city pension funds that are joint participants in plans administered by their state, to transfer their net unfunded liabilities from the state’s to the local government’s books. …

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Friends at dinner

Behavior

5 Ways Millennials Mess Up With Money

The harsh reality is that you aren’t earning as much money as you think you are, and you don’t have as much to spend as you think you do – so it’s easy to let spending get out of control.

Gallup chartAndrea Woroch, only 34 years old herself, delivers some tough love to those who’ve already developed poor spending habits. A personal finance expert for the Millennial generation, Woroch said a perilous time is between the cash-strapped period right after college and the time when the steady, but modest, paychecks start flowing.

Early on, she explained, the attitude was “Okay, let me go to happy hour on this day because I can get $1 tacos and a beer. Now it’s okay to spend $20 for dinner. But that adds up, and they end up spending even more.”

Millennials polled by Gallup said they prefer saving to spending.  But Woroch, in an interview, provided five harsh observations about the obstacles to saving that she’s observed among young adults – including her husband, when they started dating:

  • You eat out all the time. Rightly, socializing is a big part of life. Eating out is also part of a larger trend: in March, consumer spending on dining out surpassed grocery store sales for the first time. Woroch advises that “spending money at the grocery store will help you spend less on food and leave room in your budget to put towards your savings goals.” …

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Image of a chewed pencil

Behavior

Work Absenteeism Tied to Money Stress

Most of us know how distracting and stressful it is when our credit card balance creeps up or there’s a gap between a bill’s due date and when our paycheck gets deposited.

But financial stress can also create serious problems at work like absenteeism, problems that can turn around and compound the financial problems.

More than one in four employees who said they deal with “financial stress” admit that it interferes with how well they do their jobs, says a new survey of 5,000-plus workers by the consulting firm Willis Towers Watson.

It also increases absenteeism. The study found that workers stressed about their finances are absent from work 3.5 days per year, on average – nearly double the absenteeism of people who are not stressed. And when the worriers are at work, they are “highly distracted” – this distraction can gobble up 12 additional days per year, interfering with how well they do their jobs, the survey found.

The workers expressed broader concerns than their unpaid bills, too, said Steve Nyce, a senior Willis Towers Watson economist. Many are very concerned about their long-term financial future and retirement. …Learn More

Social Security Statement Header

Field Work

Could Social Security Statement Do More?

Two out of three working Americans grade their retirement readiness at no better than a “C.”

So how about using the Social Security Statement that lands in their mailboxes, grabbing their attention, to spur them to action?

The statement is already valued by millions of Americans. A survey funded by the U.S. Social Security Administration (SSA) found that people who received statements were “dramatically” more knowledgeable about their basic pension benefits than people who had already retired when SSA started mailing them out in the mid-1990s.

Social Security is the nation’s most important source of retirement income, and the information in the statements is essential to most workers’ retirement planning. Mailed out before every fifth birthday – 25, 30, 35, etc. – and annually at age 60, the statement provides estimates of each worker’s future benefits at three different claiming ages: 62, when they have access to their smallest monthly benefit; the “full retirement age”; and 70, when workers receive their highest monthly benefit. It clearly lays out how much workers can increase their monthly retirement income by delaying when they start collecting their benefits. …Learn More

Photo of construction demolition

Field Work

How Melanie Paid Off Her Student Debt

Sitting at her computer in the oversized studio apartment she shares with her boyfriend in Portland, Oregon, Melanie Lockert received confirmation on Dec. 10 that her ordeal was over: $81,000 in college and graduate school loans were finally paid off.

She had two reactions. The first was an existential panic. “Who am I without debt?” the 31-year-old asked herself. Then a grin spread across her face. “I started dancing and screaming in my apartment. It was such an amazing moment, and I felt incredibly happy to be done with this,” she said.

Recent college graduates might despair that their day of liberation is far away or might never come. But Lockert’s single-minded focus on demolishing her debt, particularly by accelerating her payments recently, provides a roadmap – and some hard lessons – for those facing a seemingly endless string of monthly payments.

Melanie Lockert

Lockert’s path followed a zigzag pattern, which she documented in a Dear Debt blog that she started writing in 2013. Being debt-free was not her first priority when she packed up her undergraduate loans and moved from California to New York in 2010 to attend graduate school – a decision that would more than triple her total student debt. Paying off her loans required a lot of patience and sacrifice, some risk-taking, and brutal self-honesty. She concluded that she couldn’t accomplish her financial goal if she pursued a career in the field she had studied in college. … Learn More

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