Economists like to joke about free lunches. The subtext is that there’s a cost to everything.
A free lunch is also literally how high-pressure financial companies sometimes lure older Americans into a room to hear their investment pitches. The FINRA Investor Education Foundation says some 6 million older Americans have attended seminars in return for a free lunch. Every year, my mother’s retirement community outside of Orlando hosts a handful of these seminars, which are presented by financial firms, insurance companies, and even funeral homes.
FINRA warns that they can pressure seniors into making “unsuitable, even fraudulent investments.” The above FINRA video explains what’s behind the free-lunch presentations and proposes some questions that people can ask to determine the legitimacy of what’s being sold.
But it’s probably better to do what my mom does: find something fun to do instead.Learn More
The wealth of good financial information available from government, university, and non-profit organizations is an antidote to the television and Internet advertisements selling financial products. Squared Away regularly compiles these resources for our readers’ benefit. This newest installment starts with some that are available in Spanish for the nation’s growing Hispanic population:
The FINRA Investor Education Foundation translated its short video about why people make bad financial decisions into Spanish. “Pensando Dinero: la psicología detrás de nuestras mejores y peores decisiones financieras” – or “Thinking Money” – explores how emotions get in the way of common sense when making decisions about money. Several other FINRA resources also in Spanish include a glossary of online financial publications and a video about financial fraud. (“Pensando Dinero” is based on a documentary produced for public television; a free DVD of the English-language documentary is also available.)
“Thinking Fast and Slow” by Daniel Kahneman was an international bestseller about behavioral economics. To explore another insider’s take on this field, read what one of the field’s founders says about it. Richard Thaler’s latest book, “Misbehaving,” will be published in paperback in May. A New York Times review called it “a sly and somewhat subversive history of his profession.”
In just two years, the housing boom taking place in many parts of the country has added $1 trillion to the value of home equity held by people ages 62 and older, reports the National Reverse Mortgage Lenders Association. For retirees wondering whether it’s appropriate to turn some of their equity into income, the Center for Retirement Research at Boston College, which supports this blog, has produced a booklet on ways retirees can use their home equity, including through reverse mortgages. The online version is free, and a paper version costs a whopping $2.75.
This problem was aggravated, according to a new study, when older workers started claiming their Social Security benefits sooner after the earnings test was lifted in 2000 for those who reach the program’s full retirement age.
The earnings test withholds benefits from older workers earning more than a specified amount – the withheld benefits are returned later, in the form of an increase in monthly Social Security checks. But the earnings test is, nevertheless, often viewed as a tax in the mistaken belief that these benefits are never restored.
Researchers at the U.S. Treasury Department and the University of California at Irvine found that people reacted in one of two ways to lifting the earnings test, both based on the misperception it’s a tax. One response was to work longer – as Congress intended – under the logic that benefits would no longer be unduly “taxed” after workers entered their late 60s. The second and more common response was to claim benefits earlier than one would have prior to the policy change, when workers perceived that delayed claiming was the way to avoid this “tax.”
The earnings test remains in place for beneficiaries younger than the full retirement age – 66 for most boomers. However, the researchers analyzed a broader age range of workers – 62 to 70; even those who haven’t yet reached their full retirement age might change their behavior in anticipation they will soon reach it, and the test will no longer apply to them.
Earlier claiming by men and women, which results in smaller monthly Social Security checks, has fallen especially hard on elderly widows. After a husband dies, the two benefit checks coming into the house are reduced to one. Although widows receive the larger of the couple’s two checks – typically the husband’s – it may not be sufficient to maintain her standard of living. …Learn More
Will you retire when you want to, when you have to, or when you can afford it?
This is crucial, because when Americans retire is more important than it’s ever been to our financial well-being in old age. Yet the research indicates this doesn’t carry enough weight in people’s decisions.
This doesn’t make any sense. The typical combined 401(k)/IRA balance is a slim $111,000 for working households between 55 and 64 years old that have a 401(k). And fewer and fewer retirees have defined benefit pensions, which provide reliable income. More than half of us are at risk of experiencing a decline in our standard of living after we retire, estimate economists at the Center for Retirement Research, which supports this blog.
Yet a recent survey by Fidelity indicated that the majority don’t think about the financial impact of their retirement timing. Retirees and pre-retirees said leisure was a major reason they have retired or would retire – even if they were falling short of their financial goals.
The most powerful route to improving workers’ prospects is to delay retirement, which dramatically increases monthly Social Security benefits and the income that can be withdrawn from a 401(k).
But Mark Zoril, a Minnesota financial planner, said pre-retirees typically do not drill down into their finances, though they have a vague idea of where they’re at. What he often sees is that an important change precipitates the timing of a retirement, whether a friend’s retirement or deteriorating health. …Learn More
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To stay current on our Squared Away blog in 2016, we invite you to join our free email list. You’ll receive just one email each week – with links to the two new posts for that week – when you sign up here. Learn More
Workers are feeling very ambitious these days: one in three plans to retire after age 65. In the 1990s, just one in 10 did.
In reality, though, many older Americans today are retiring before they’d planned, resulting in lower monthly Social Security checks, slimmer 401(k) accounts, and more golden years to pay for.
There’s no shortage of research looking into what derails these plans. But, for the first time, a new study ran a statistical horse race among the various reasons known to impact older workers’ decisions. Health issues finished first in the race, followed by layoffs, and a spouse’s early retirement.
In an ideal world, eliminating these major shocks, along with a few less prevalent shocks that were also analyzed, would reduce the share of older workers retiring earlier than planned, from 37 percent to 27 percent. [The remaining factors that were still unaccounted for in this analysis could be anything from not liking one’s job to financial or health events that went undetected by the survey.] …Learn More