April 11, 2013
Jobless Boomers: How They Survive
Squared Away wrote about three unemployed baby boomers on Tuesday – an arts administrator, a corporate executive, and a social-services professional – who are having to scrounge for income to sustain themselves.
They are among the more than 1.5 million baby boomers caught in that painful limbo between a long and successful career and retirement – very possibly by default. All three want to get back into the labor force but may be forced to retire, because it’s more difficult for them to find employment than it is for younger workers.
While nearly half of unemployed adults between the ages of 25 and 49 were able to find work within seven months during and after the Great Recession, it took more than nine months for half of those over 50 to find a job, according to the Urban Institute, a Washington think tank. Many boomers may never find a job and will eventually retire.
“It’s different than being 35 or 45 and out of work,” said Kevin Milligan, an economics professor at the University of British Columbia. “We don’t necessarily expect these [older] people to go back to work.”
Milligan’s research last year determined that two-thirds or more of jobless Americans between ages 55 and 65 rely on their spouses for income. With only one spouse working, this creates hardships. These older households suddenly are able to save less in their 401(k)s. Milligan found that smaller numbers of boomers are also tapping their employer pensions or Social Security retirement benefits. …Learn More
April 9, 2013
Unemployed Boomers Resist Retirement
Brisk sales of Linda Novak’s crocheted scarves and baby blankets have subsidized the 62-year-old’s Manhattan rent since her 2012 layoff. Boston resident Marcus Queen, 58, receives food stamps while trying to reignite his beloved career: helping city kids get a leg up. Joseph Imperiale, 66, wants to get back into the business world, so he doesn’t have to tap his retirement savings yet.
Nearly three years after the Great Recession officially ended, more than 900,000 baby boomers laid off several months or years ago are still pounding the pavement, unable to find employment in an economy that produced only 88,000 jobs in March. They simply are not ready to retire – financially or emotionally – but they often feel that unemployment is forcing them to do so prematurely.
It takes boomers longer to find employment than it does younger job seekers, creating financial challenges unique to their stage of life. They could begin collecting their Social Security benefits immediately upon becoming eligible, at age 62, but the largely irreversible decision to accept a reduced monthly check would haunt them throughout retirement. They can’t afford to put more money into their savings – in fact, if things get really rough, they may have to raid the 401(k) to pay the bills.
UJA-Federation of New York, a Jewish social services agency, is increasingly seeing older workers “who lost their jobs a while ago and have depleted all their assets, and they realize they’re really in trouble,” said Elisabeth Kostin, the planning manager for the agency’s programs for the unemployed. She added, “If someone becomes unemployed as they’re approaching retirement, their value and worth is also depleted.”
Novak, Queen and Imperiale agreed to share their stories about how they try to keep their spirits up and the doors open. …Learn More
March 7, 2013
Future Retirees Don’t Grasp Health Costs
More than half of baby boomers and Generation Xers do not realize how much they are likely to pay out of their own pockets for medical bills after they retire.
Many “were seriously underestimating the amount of savings they would need to accumulate in order to cover health in retirement,” according to what may be the first comprehensive survey and analysis of what Americans expect to pay – and how far off their estimates are.
The good news is that Medicare pays roughly 60 percent of retirees’ total costs. The bad news is that they have to somehow cover the other 40 percent, which is particularly expensive for those who live longer (read women).
If this new study carries one big message, it is that boomers need to learn more about what will certainly be one of their biggest retirement expenses. For example, by 2020, the range of out-of-pocket spending is expected to vary from $2,453 per year for a typical person with low health care needs to $7,272 for the typical high spender. Boomers also may not be aware that the bite that Medicare premiums take out of their monthly Social Security checks will increase sharply by 2020.
The new analysis of the disparity between future retirees’ expectations and what they’re facing was conducted by law professors Allison Hoffman at the UCLA School of Law and Howell Jackson at the Harvard Law School. …Learn More
February 28, 2013
The IRA Tax Deduction Beckons
At tax time, many Americans think, often fleetingly, about spending less and socking away more for retirement.
Until April 15, the IRS permits people who do not have a pension plan at work to deduct up to $6,000 for money placed in an IRA; taxpayers who do have an employer pension can also receive the IRA deduction if their earnings fall under the IRS’ income limits.
The tough question that trips people up is: How much will I need?
The easy way to think about this is in terms of the income necessary to maintain your current standard of living after the paychecks stop coming in. Click here for a tool that estimates both how much you’ll need and how much you’ll have if you continue on your current path.
The calculator, created by the Center for Retirement Research, which supports this blog, was designed for people over 50 and on the retirement runway. Younger people can also get a ballpark idea of how they’re doing using the calculator. Or click here for the percent of your wages to put into a tax-deferred retirement fund.
This is a beta website with a few kinks, and it works smoothly only on the Safari and Google Chrome browsers. But the results are sound and backed by academic research. Here’s how to read the results. …Learn More
February 19, 2013
Boomers Still Cautious About Stocks
Mutual fund investors poured some $17 billion into domestic equity funds in January, reversing 2012’s trend, according to the Investment Company Institute (ICI), an industry trade group.
But it’s too early to declare that fund investors have fully recovered from the 2008 market collapse, even as the bullish S&P500 stock market index flirts with its 1,565 all-time high reached on October 9, 2007.
Fund investors surveyed by ICI still remain less willing than they were prior to the big bust to take what the survey questionnaire calls “above-average or substantial risks” in their investments.
This trend cuts across most age groups, from 40-somethings to retirees. The exception is the under-35 crowd: 26 percent identified themselves as being in these higher-risk categories, slightly more than the 24 percent who did back in 2007.
But boomers nearing retirement and current retirees burned in the 2008 market collapse keep paring back their risk profiles. Older investors are moving “from capital appreciation to capital preservation,” said Shelly Antoniewicz, an ICI senior economist. Even 35-49 year olds, who still have two to three decades of investing ahead of them, are not quite back to where they were earlier in the decade when they were more willing to take risks in the stock market.
“What we have seen historically is that there is a relationship between stock market performance and inflows into equity funds. When the stock market goes up, we tend to get larger inflows into equity funds,” she said. “What we’ve noticed in the past two to four years is this historical relationship has gotten weaker.” …Learn More
February 7, 2013
Why Minorities Need Social Security More
Source: Social Security Administration
The U.S. population is in the midst of a transition from predominantly white to one in which “minorities” will one day be the majority.
A Social Security Fact Sheet recently published by the Center on Budget and Policy Priorities in Washington throws a fresh perspective on the program, which provides the financial bedrock for most retirees. It shows that the program is even more important to African-Americans and Latinos than it is for white Americans.
Seventy-three years after Ida May Fuller became the first person to receive a Social Security check, on Jan. 31, 1940, Social Security provides more than half of the retirement income received by about two out of three elderly white Americans. But many more – about three out of four – African-American and Latino retirees rely on Social Security for more than half their income.
The obvious reason is that minorities earn lower incomes on average while they are working, according to Kathy Ruffing, a senior fellow at the Center, and that has “hampered their ability to save for retirement.”
Congress intended Social Security to be a progressive program that benefits lower-income individuals more. The Social Security Administration’s (SSA) formula for calculating the monthly check is designed to replace a larger share of the employment income of, say, a maintenance worker who has retired than it does for a retired corporate executive. …Learn More
January 31, 2013
Tally Your Mutual Fund Fees Here
Those mutual fund fees sure add up fast.
“The average person has no idea” how much fees and expenses sap from their investments, said Ted Leber, a retiree who was a staffer with the Chief of Naval Operations and a financial adviser to service members.
The career Navy man said he was a failure after retiring to become an adviser, because he kept steering clients to low-fee mutual funds that replicate index returns, such as the S&P 500 or NASDAQ tech-stocks. The index funds helped his clients but not his firm’s profits.
Squared Away interviewed Leber after he emailed a nifty fee calculator, which was put online as a public service by AHC Advisors Inc.’s president, Craig Larsen, in St. Charles, Illinois.
Larsen and Leber join a growing number of academics, financial planners, and investors balking at the high fees middle-income investors pay for mutual funds that are actively managed by stock pickers. Fees are “costly for the average employee” and “can take a substantial toll on their retirement,” according to a study by the Center for Retirement Research at Boston College, which supports this blog.
Test the employee calculator yourself. First, look at the conservative assumptions Squared Away used to calculate fees on three portfolios, as shown in the above chart…Learn More