January 6, 2015
Fewer Need Long-term Care Insurance
Years of confinement to a nursing home is everyone’s worst fear for old age.
With a semi-private room now costing about $81,000 annually, the prospect of a lengthy stay is also a popular reason for buying a long-term care insurance policy to cover it.
Undercutting this rationale is a new study led by senior economist Anthony Webb of the Center for Retirement Research, which sponsors this blog. He finds that U.S. nursing home stays are relatively short: 11 months for the typical single man and 17 months for a single woman. There’s some unpleasant news in the study, too, because the risk that an older person may one day need nursing home care is 44 percent for men and 58 percent for women.
The significance is that nursing home stays are higher-probability, lower-cost events than previously thought, which reduces the appeal of purchasing long-term care insurance. This finding helps to explain why so few older Americans – 13 percent – buy the coverage to protect their financial assets from potentially being drained by nursing home bills. …Learn More
December 16, 2014
Evaluating a Pension Buyout Offer
Like many baby boomers, I’ve received an offer from a former employer that’s meant to entice: “The Company is offering you a limited-time opportunity to receive this benefit now, rather than waiting until you otherwise become eligible to receive payments from the Plan.”
My 17-year employment as a Boston Globe reporter entitles me to a $1,762 monthly pension for life, starting at age 65. I’m 57 now. But a few weeks ago, the company put two alternatives on the table: take a smaller pension that starts now or trade my pension for a lump sum of $170,000 in cash. The deadline for accepting the new offer: the day after Christmas.
The New York Times Co., which used to own the Globe, has no doubt made this offer to employees for the same reason most companies do: to reduce burdensome pension liabilities and create financial certainty. But what’s in it for me? And how should other boomers think about similar offers coming over the transom?
My first thought was this: I’m working now and don’t want or need a pension right away. This money is for my retirement. I view my decision as choosing between the remaining two options: my original pension at 65 or the new lump sum offer.
A senior economist here at the Center for Retirement Research, Anthony Webb, helped me compare these two options: …Learn More
December 2, 2014
Curbing Debt: It’s Not What You Know
The biggest financial hurdle facing workers with low incomes is just that: inadequate income to meet their daily needs.
Low-income households are further tripped up by their greater tendency to borrow at high interest rates – rates they are the least able to afford in the first place.
Some academic research blames this on poor financial literacy. But a new study out of Northern Ireland examines two separate aspects of financial literacy and finds the problem is not a lack of knowledge but rather an absence of money management skills.
Among “financially vulnerable” people, the study concluded, “money management skills are important determinants of consumer debt behavior” and “numeracy has almost no role to play.”
The study involved researchers conducting one-hour, face-to-face interviews in low-income neighborhoods in Belfast. They interviewed 499 people whose average gross earnings were the equivalent of $567 per week or less. …Learn More
November 25, 2014
Alzheimer’s: a Financial Plan Revamped
Ken Sullivan and Michelle Palomera with their daughters Leah (left) and Abby.
Ken Sullivan’s diagnosis of Alzheimer’s disease at age 47 unleashed a torrent of feelings: shock, isolation, fear. It’s probably why he lost his demanding job at a large financial company.
The diagnosis was also emotionally devastating for his wife, Michelle Palomera.
But for both of them, it was a rude awakening to the myriad financial preparations required for Alzheimer’s. Even though both are financial professionals, they had no idea how complex it would be to revise their existing financial plan, how hard it would be to find professionals with the specific legal and financial expertise to help them, or how long this project would take – 17 months and counting.
“This disease has so many layers and aspects to it,” Palomera said.
The risk to an older individual of getting Alzheimer’s is only 10 percent – and early-onset like Sullivan’s is even rarer. But when there is a diagnosis, one issue is the lack of a centralized system for managing care and coordinating the myriad professionals and organizations involved. These range from the medical people who diagnose and treat an Alzheimer’s victim to health insurers, attorneys, social workers, disability and long-term care providers, and the real estate agent who may be needed if a victim or the family decides they can’t remain in their home.
Sullivan and Palomera had always shared their family’s financial duties. But Sullivan’s new struggles with details and spreadsheets left these tasks entirely on Palomera’s shoulders – all while juggling her job as a managing director for a financial company. “If something were to happen to me, I have to be really air tight on having everything squared away so the trustee – someone – can manage the situation for our daughters and Ken,” she said.
After Sullivan’s June 8, 2013 diagnosis, the couple called family to gently break the news. Their next calls were to a disability attorney and a financial planner. They’ve since gone through four estate attorneys to find one who could answer their questions and suggest the best options for themselves and daughters Leah, 9, and Abby, 11.Learn More
November 13, 2014
Trusting Souls Want Financial Advice
Here’s a conundrum: Americans struggle to save for retirement or reduce their credit card spending. But only about one out of three seeks help with financial issues.
So what lies at the heart of our decisions about whether and when to seek help? Trust.
In the video below, Angela Hung, director of the RAND Center for Financial and Economic Decision Making, describes research showing that people who trust financial institutions – the markets, financial services companies, brokers – are also more likely to ask for advice from a financial adviser or similar professional.
Further, Hung’s research found that people who trust the industry are also “more likely to be satisfied with their financial service provider.” Watch the video for Hung’s explanation of an interesting experiment that explores the circumstances under which people follow the advice once it’s given to them.
November 4, 2014
5 Signs of Financial Impairment
In a videotaped experiment testing her financial cognition, an elderly woman must prepare three utility bills for mailing. She’s seated at a table holding the bills, along with three filled-out checks, and three envelopes – each with one utility’s name on it. After considerable effort and confusion – checks paired with the wrong bills; bills placed into the wrong envelopes and taken back out – she finally finishes her task.
New difficulty carrying out simple financial tasks or understanding financial concepts that were once familiar can be warning signs of cognitive impairment due to aging, early stage Alzheimer’s or other causes, said Daniel Marson, a neurology professor and director of the Alzheimer’s Disease Center at the University of Alabama, Birmingham.
Financial skills are “the canary in the coal mine from a functional standpoint,” he said. “When you are seeing new problems in the checkbook or arithmetic errors, those are signs of an emerging disability.”
Driving, for example, may not be affected as much early on, because it relies more heavily on motor memory. “You don’t have to think about making a right turn or signaling,” he said.
The chances of having Alzheimer’s disease are slim for most older Americans; only one in nine do. Forgetting to pay a bill is more often just a sign of a bad day, and the inability to balance a checkbook or understand investments is not a warning sign if the person was never able to do so. To gauge whether the cognitive ability of a loved one or client may be in decline, the benchmark should be what he or she was able to do financially in the past – and whether that’s changed over time.
At a recent symposium, “Financial Planning in the Shadows of Dementia,” Marson provided five financial warning signs, developed from his clinical work and research as a neuropsychologist. The warning signs are: …Learn More
October 30, 2014
Strange Influences on Financial Decisions
It would be nice to think that careful financial planning is behind the critical decision of when to start collecting Social Security benefits.
But psychological traits – perhaps impatience or one’s fear of losing money – can also affect whether an individual claims his benefits right at age 62 or waits a few years to increase his monthly income from Social Security. A new study reveals another powerful influence that can jeopardize financial security: how a person’s dollar benefits might appear on the printed Social Security statement.
Business professors Suzanne Shu at UCLA and John Payne and Namika Sagara at Duke University tested this on people over age 40, controlling for psychological influences on the research subjects, such as their impatience, loss aversion, and expectations of how long they’ll live.
In the first experiment, some people were shown tables presenting their monthly Social Security benefits for each claiming age from 62 to 70 – this layout highlights the significant benefit increases that come with each year of delay.
A second set of subjects saw more complex tables displaying their total potential benefits accumulated over their entire time in retirement, which depends on both the age they first claimed and on how long they’ll live. This presentation emphasized a different aspect of the decision: the later someone claims and the longer he lives, the more money he’ll receive over many years. Die young, however, and the accumulated benefits are higher for those claiming at 62.
The experiment’s outcome was significant. The cumulative tables “make people want to claim earlier” – six months earlier than people shown the tables with monthly benefits – Shu said during a recent presentation. …Learn More