Posts Tagged "manage money"

Pre-Retirement Financial Review is a Must

My husband has taught high school biology for 30 years in Boston and works hard for his students. But he’s nearly 64 and it’s time to think about retiring.

Can we afford it? When we retire, will we eventually run through our savings? Is retirement scary – or what?

Questions like these are also probably haunting millions of baby boomers in the middle of the night. One out of three boomers in a recent Transamerica survey said they are not confident they will have enough income to retire “comfortably” and another third concede that they are only “somewhat confident.”

To find the answer for ourselves, my husband and I hired a financial adviser. It was the best thing we could’ve done. The point of this blog is to encourage other boomers to take stock of their imminent retirement, whether it’s around the corner or still a decade away.

We’d been kicking around retirement scenarios inside our marriage bubble. My husband has not fixed a retirement date in his head but is talking about the next one to three years. To be conservative, we posed this simple question to our adviser: can Garret retire in 2018?

Garret Virchick and Kim Blanton

Her answer was in the half-inch packet, which she delivered to our front door. We sat around our dining room table as she walked us through her quantitative analysis of our financial profile.

Many financial advisers like to talk about how they’ll manage a baby boomer client’s investments. In truth, simple index funds do the trick for us. Our adviser, Wendy Weiss of Weiss Financial Advisors in Cambridge, Mass., used to be an investment adviser for large financial firms, but spent very little time on our investments. The most important thing for baby boomers who, like us, are not wealthy is knowing how much income will come in the door every single month to pay the bills in retirement.

“It’s more important for my clients to find out how to use that 401(k) in retirement than it is for me to try to manage the investments for you,” she said. …Learn More

Is There a Student Loan Gender Gap?

Now comes the toughest part of borrowing money for college: paying it back.

There is much for this year’s crop of graduates to learn.  For example, the federal government gives you a reprieve after graduation, usually six months, before requiring you to start repaying your debts. But did you know that interest builds up during this “grace period”?  Starting payments right away reduces how much you’ll have to pay back.

Making repayment mistakes or not having a plan can also be very costly.  Click here for some tips to avoid these mistakes.

Here’s another issue: women borrow slightly more money for undergraduate degrees than do men but earn less after college and seem to have more difficulty paying back their loans.

In 2012, women borrowed $21,000 for an undergraduate degree, on average, compared with about $19,500 for men, according to a new study by the American Association of University Women (AAUW).

Men are able to pay their debt back faster too. During the first four years after graduation, men pay off 38 percent of their outstanding college debt. Women pay about 31 percent. Women graduates with student debt are also more likely to report more difficulty making their rent payments, AAWU’s survey found.

Many questions remain unanswered. What explains the differences? Also, the study doesn’t control for how much young adult men and women earn in their jobs. Nor does it sort out the implication of different payoffs for the different types of degrees that men and women choose.  Careers in software engineering or nursing are more likely to justify hefty loans than degrees in film or women’s studies with uncertain career paths.

This study raises interesting issues, which future research will hopefully address.

In the meantime, women, it’s something to think about. Learn More

Yellowstone

At 62, You’re a ‘Senior’ at National Parks

Wolf pups are born in late spring and early summer in Denali National Park in Alaska.

Wolf pups are born in late spring and early summer in Denali National Park in Alaska.

No better time than retirement to take in our national parks at the leisurely pace they deserve.

At age 62, Americans can purchase a $10 park pass that is a life-time ticket to the magnificence of Glacier National Park, bison calves grazing with their mothers at Yellowstone, or peregrine falcons nesting at Acadia. But get the pass soon, though, because AARP reports the price will increase to $80.

Many people don’t learn the pass exists until they visit a national park where a ranger might or might not offer one.  The passes, which are issued by the National Park Service, include free access to the holder, a spouse and others riding in their car. The pass sometimes includes discounts of 50 percent at camping facilities.

It’s possible to purchase the life passes online for $20. The Park Service advises travelers planning a trip to contact a park in advance to make sure the $10 passes are available for purchase at that specific location.

While it’s generally not wise to claim your Social Security at 62, it’d be silly not to take advantage of this federal benefit.Learn More

Paying Medical Bills is a Herculean Task

Hercules sculpture, Florence, Italy.

Hercules sculpture, Florence, Italy.

Medical bills are leaving “a lasting imprint on families’ balance sheets,” JP Morgan Chase concludes from its recent analysis of the anonymous checking and credit card account activity of some 250,000 bank customers.

With little available cash on hand, 53 percent of these families prepare to pay large, one-time medical expenses by waiting for an uptick in their income. Nevertheless, a year after the bill is paid, they are still struggling to patch the hole blown in their household budgets, according to the report, “Coping with Costs: Big Data on Expense Volatility and Medical Payments.”

The 2013-2015 account data show that family incomes tend to be 4 percent higher, on average, in the month a medical bill is paid. This doesn’t mean that people suddenly become Uber drivers or work more overtime hours. What is probably going on, the bank said, is that people “have delayed either receipt of medical treatment or payment of their medical bill until they were able to pay” – when the extra income arrives.

Tax refunds are one clear source of this income for paying large one-time medical bills. These payments were the most frequent around tax time, JP Morgan’s customer data show. But the $163 average increase in monthly income, mostly from tax returns, was small relative to the average $2,000 medical bill.

The damage done to family finances was apparent even a year after such bills were paid.  Credit card balances, which had been reduced prior to paying the medical bill, rose for at least a year following a payment. Meanwhile, spending on non-medical purchases, as well as the amount of cash on hand, decline in the aftermath as the families struggle to repair their household finances.

This dry but compelling report is a window into the Herculean feat of paying medical bills for some families.  It helps to explain why two out of three Republicans and Democrats in a Kaiser Family Foundation poll said that lowering their health care costs should be a top priority for any reform.

To read the full J.P. Morgan report, click here.Learn More

Growing tree

Women Get a Bigger Social Security Bump

The magic number is 35.

That’s how many years of earnings the U.S. Social Security Administration (SSA) uses to calculate every worker’s pension benefit.  But 35 years can be a tall order for the many boomer women who took time off or cut back on their hours to raise their children.  Nearly half of 62-year-old working women today didn’t make any money for at least one year in their earnings history on record with SSA.

But this also means they have more to gain financially than men from working longer, because each additional year of work substitutes for a zero- or low-earning year during motherhood in the benefit calculation, according to research by Matt Rutledge and John Lindner at the Center for Retirement Research, which sponsors this blog.

Beefing up one’s earnings record is actually one of the two ways that working longer raises monthly benefits.  The other, more familiar way is a benefit increase from delaying collecting Social Security.

Delaying claiming compresses the time period over which workers will receive benefits.  The resulting increase when they finally do start is known as Social Security’s “actuarial adjustment.”  Take the most extreme example: both men and women who begin their Social Security at age 70 receive 76 percent more per month from this adjustment than they would’ve gotten had they started at 62.

But it is women who generally gain much more from additional years in the labor force.

By working to 70, rather than retiring at 62, the average woman can increase her monthly Social Security check by 12 percent, the researchers found.  Adding this to the standard actuarial adjustment produces an 88-percent increase, from roughly $1,112 per month at 62 to $2,090 at age 70.

The earnings bump that 62-year-old men get from working to 70 is half as big – about 6 percent – because men typically already have had more years of higher earnings during their working lives.

A woman doesn’t have to work all the way to 70 either to benefit. Any period of delay will increase monthly benefits – and that will help. …Learn More

The Picture of Investment Diversity

Most people see multicolored chaos in the chart below, which is a visual representation of the returns each year to various types of investments.

Morningstar Inc.’s director of quantitative research, Timothy Strauts, sees something else: the need for a diverse portfolio.
Callan table excerpt

Strauts, like most investment professionals, knows the Callan Periodic Table of Investment Returns. It has been around for 20 years and was just updated with 2016’s returns. Here’s how to read it. A colored square is assigned to each type of stock- and bond-market index. For example, the Bloomberg Barclay’s Aggregate (Agg) bond index is bright green, and the Standard & Poor’s 500 stock index is khaki green – the boxes also give each index’s return for each year. …Learn More

hispanic workers

Hispanic Retirees: Low Saving, Long Life

Just one in three native-born and immigrant Hispanics working in this country has a retirement plan through their employers. If they do have one, three out of four save money in their plans, which is somewhat less than their coworkers.

One reason for the first abysmal statistic is that many Hispanics and Latinos, recent immigrants in particular, hold down part-time restaurant or hotel jobs at very low wages. But even among Hispanics working full-time, access to an employer savings plan is still much lower (44 percent) than it is for their white and black counterparts (more than 60 percent).

Low rates of saving are compounded by the fact that elderly Hispanics and Latinos will need more money over their longer-than-average retirements.  A 65-year-old Hispanic man can expect to live 16 months longer than a white, non-Hispanic man in this country, and Hispanic women live 11 months longer. [One theory is that less healthy immigrants are more likely to return to their home countries, so the U.S. immigrant population that remains is healthier.]

“Longevity is a big issue, but there is little awareness of this” in the Hispanic population, said retirement consultant Manuel Carvallo, a Chilean immigrant to the United States. …Learn More

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