March 8, 2018
Retirement – Ripped from the Headlines!
When Squared Away first went live almost seven years ago, few reporters in the mainstream media wrote regularly about retirement. Things have really changed.
The Washington Post recently declared a “new reality of old age in America.” The New York Times and The Boston Globe have regular retirement writers. Even The New Yorker – the go-to read for the aging but still hip – dived in and investigated an abhorrent case involving an abused elderly woman.
Retirement is a hot topic, because some 10,000 boomers have been retiring daily for years – in fact, the media frequently cite this statistic – and an unprecedented number of the boomers who still work are thinking a lot about whether or when to stop.
This blog publishes twice a week, and I don’t have time for the in-depth investigations I did as a Boston Globe reporter. But plenty of newspaper and magazine reporters are exploring retirement issues in great detail.
Here are five of the best articles in recent months:
The New Yorker: “How the Elderly Lose their Rights”:
Metropolitan newspapers often cover local nursing homes charged with elder abuse. This lengthy article is about one government-appointed guardian’s abuse of one elderly woman. This extreme case carries a larger message: how readily some people take advantage of the most vulnerable elderly.
The New York Times: “There’s Community and Consensus. But it’s No Commune.”
Here’s some good news: rather than funnel older people into housing strictly for the elderly, multigenerational “co-housing” developments offer children of the 1960s a place to live, where they can remain engaged with younger people – and society.
The Atlantic: “This is What Life Without Retirement Savings Looks Like”:
Analyses by our research center here at Boston College find that about half of working Americans should have enough money to retire. But the other half of retirees will rely solely on their Social Security. This woman, age 76, had to go to work at a grocery store to supplement her income. …Learn More
November 2, 2017
Report: Healthcare a Middle Class Crisis
The state of the nation’s health care system includes these incredible facts:
- Americans with health insurance who are “under-insured” have more than doubled to 41 million since 2013. They now make up 28 percent of adults.
- Geographic disparities can be stark. Nearly one in three Floridians and Texans is under-insured, compared with one in five in California and New York. Not surprisingly, insurance deductibles are higher in Florida and Texas.
Much has been made of the fact that many Americans can’t afford their deductibles and out-of-pocket costs when purchasing polices under the Affordable Care Act (ACA). The new report by the healthcare advocacy organization, The Commonwealth Fund, indicates that both ACA-insured and employer-insured Americans are frequently stretched to the limit.
Middle-class incomes for a family of four range from about $58,000 to $115,000. The definition of middle-class people who have health insurance but cannot afford it is well-established in the research: their deductibles or other annual out-of-pocket costs exceed 10 percent of their annual household income. (For the poor, the threshold is 5 percent.) …Learn More
October 26, 2017
Gen-X, Millennials: Now is the Time
Generation X and millennials, there is time.
In contrast to baby boomers, who are now mostly too old to rack up appreciable increases in their 401(k)s – though they should try – younger Gen-X and millennials have time and compounding investment returns on their side.
This blog examines how they are faring – millennials, because saving and investing well now poises them for a secure retirement, and Gen-X because this “ignored” generation is sandwiched between the financial demands of parenting and parent care. Their own assessments of their retirement preparedness appeared in a recent report by the nonprofit Transamerica Center for Retirement Studies (TCRS).
“Millennials have heard the word that they need to save for retirement,” TCRS declared in its report summarizing its 2016 online survey of more than 4,000 workers.
Millennials’ ages are up through 37 in this survey. Nearly three out of four who have 401(k)s at work are already saving for retirement. They typically started saving at 22, indicating impressive foresight about retirement dates far in the future. Gen-X, ranging in age from 38 through 51, didn’t get started in earnest until they were 28.
While it’s great that millennials are saving for retirement, women in particular are not saving enough, said Catherine Collinson, president of TCRS. Among workers who participate in their employer’s 401(k) or similar plan, the survey finds that the typical millennial woman contributes only 5 percent to her plan, compared with 10 percent for millennial men.
Millennials aren’t taking advantage of their uniquely long investment time horizon, the survey finds. Retirement experts encourage younger adults to more aggressively invest 401(k)s in the stock market to enjoy decades of the long-term growth and compounding investment returns and potentially ride out the market’s inevitable volatility. Theoretically, if the stock market’s history proves true, equity-investing millennials can build up substantial retirement accounts, accumulating employers’ contributions and their own contributions and investment earnings over time.
But many millennials came of age during the 2008 financial crisis and still seem to be “in a state of shock with their concerns about the stock market,” Collinson said. One in five millennials say they are investing conservatively in bonds, money market funds, and cash.
Baby boomers will be the last generation with substantial access to traditional pensions. Gen-X is the first generation to heavily rely on defined-contribution accounts. …Learn More
October 5, 2017
Many Americans Feel Financial Distress
The unemployment rate is an incredibly low 4.4 percent, and a Federal Reserve survey released last week shows that American households’ net worth is increasing.
Yet all is not well.
One in three Americans say they are suffering financial hardships, and another third report they are making it but aren’t exactly thriving. One in five struggles to cover what is most basic: food, housing and medical care. These new findings, which came out of a report by the federal Consumer Financial Protection Bureau (CFPB), aren’t about economists’ traditional, objective measures of security, income and wealth levels. This is about how people are feeling about their financial state of affairs.
The common, everyday financial distress expressed in the report is one marker of the familiar socioeconomic chasm that persists in this country. The CFPB highlights the most significant – and unsurprising – differences separating the secure from the struggling: education and income levels, the presence of health insurance, and how much of one’s budget is consumed by housing costs. “Access to jobs, benefits, sufficient income, and family resources likely play a major role in a person’s financial well-being,” the CFPB said.
But it’s also more complicated than that. For example, some lower-income people might, despite their challenges, be able to find their comfort level, CFPB said, while not all higher-income people do. One thing the survey can’t get at is the extent to which feelings of financial security or insecurity are being influenced by how Americans are doing relative to co-workers or people in their communities.
The agency used answers to its 2016 survey to assign financial well-being scores, ranging from 0 to 100, to nearly 6,400 participants. The findings are summarized in a new report.
Myriad factors influence how individuals feel, sometimes leading to surprising results in the CFPB report: …Learn More
September 28, 2017
Medicare Advantage Shopping: 10 Rules
Janet Mills is a veteran in the Medicare Advantage marketplace.
At Florida’s SHINE program for 13 years, Mills has provided unbiased counseling to thousands of seniors trying to make difficult choices about their Medicare coverage. Now an area coordinator, she also fields questions from volunteer counselors at SHINE – the Serving the Health Insurance Needs of Elders program – in Pinellas and Pasco counties, which include St. Petersburg and Clearwater.
It can be difficult for retirees with multiple Medicare Advantage options to distinguish one plan’s benefits from another plan’s and pull the right one off the shelf. But based on her experience, Mills said, the decision retirees make during open enrollment for Medicare Advantage plans is crucial to controlling their health care costs. One in three Medicare beneficiaries is now enrolled in an Advantage plan, according to the Henry J. Kaiser Family Foundation. Their growing appeal centers on premiums that are lower than Medigap premiums. But retirees in Advantage plans also face the potential for up to $6,700 in out-of-pocket costs annually, the legal maximum allowed in the plans. The out-of-pocket U.S. average is $5,219, according to Kaiser.
“You really don’t want to sleep through the annual enrollment period,” Mills said.
Here are her pearls of wisdom for those preparing to launch into their comparison shopping for Medicare Advantage plans, which go on sale Oct. 15: …
September 26, 2017
Help Navigating the College Debt Jungle
A new report laying out loan data per student at more than 1,000 U.S. colleges can be useful to parents and future students.
From the California Institute of Technology and the California Institute of the Arts to the Massachusetts Institute of Technology and Bridgewater State University (also in Massachusetts) – data on debt levels for the 2016 graduating class at public and non-profit institutions are contained in a newly released report by the Institute for College Access & Success (TICAS).
TICAS has put together a handy interactive map summarizing the data. An individual college’s data can be found by clicking the state where it’s located and scrolling through the colleges in that state. Not all colleges are presented, because very few for-profit colleges report their students’ debt data.
Diane Cheng, associate research director of TICAS, walked through the most important things to look for when considering where to attend. But the bottom line is, “When students see colleges where a large share of students borrow, and they take out a lot of debt, that can be a red flag,” she said.
It’s virtually impossible to generalize about how much a prospective student will have to borrow, because every student has a unique combination of academic accomplishment and socioeconomic status. Also factoring into borrowing is each college’s sticker price and unique tuition policy. Tuition at public colleges is also affected by state funding, which remains 16 percent lower than before the recession, Cheng said.
She recommends starting with the following four indicators in the map:
- Average dollars of debt after graduation: Click on a specific state or states on the map where the teenager is looking at colleges. Scroll through the colleges displayed for each state.
What to look for in the data: Compare the average dollar debt level per student for each of the colleges your teenager is considering. If eight colleges are in the mix, compare average debt for all eight. Parents might even want to make a spreadsheet comparing average debt levels and the other data below for each institution of interest. …
September 21, 2017
The 411 on Roth vs Regular 401ks
Traditional 401(k) or Roth 401(k)?
Workers usually don’t know the difference. Yet employers increasingly are asking them to choose. Nearly two-thirds of private-sector employers with Vanguard plans today offer both a traditional and a Roth 401(k) in their employee benefits. Just four years ago, fewer than half did.
For tips on navigating the traditional-vs-Roth decision, we interviewed two members of the American Institute of CPAs: Monica Sonnier is an investment adviser in the Salt Lake City, Utah, area; and Sean Stein Smith is an assistant professor in the economics and business department at Lehman College in New York.
The difference in the two types of plans is the timing of federal income taxes:
- In a traditional 401(k), a worker who contributes to his or her account will see taxable income reduced by the dollar amount of the contribution. For example, contributing 6 percent of a $30,000 annual salary ($1,800 per year) means the worker pays federal income taxes on just $28,200. The taxes will be paid decades later, when the IRS will require the retiree to pay income taxes on the amounts withdrawn from the traditional 401(k).
- In a Roth, a worker pays income taxes on his or her full $30,000 salary, as usual. The 6 percent is an after-tax contribution that does not reduce the tax bill. The benefit will come decades later, because a Roth does not require the retiree to pay income taxes when the savings – including the Roth account’s investment earnings – are withdrawn.
If a retiree is taxed at the same rate as he was taxed as a worker, there is no difference in the after-tax retirement income the two 401(k) plans provide. However, traditional 401(k)s have generally been viewed as more advantageous, because people typically have lower incomes – and lower tax rates – in retirement than when they were working.
But things might also be changing. Over the long-term, increasing federal deficits due to increased spending pressures from popular programs to support aging baby boomers are expected to push up individual income tax rates. When that occurs, many retirees might be better off with a Roth so they won’t be taxed when they withdraw their savings.
Of course, each individual’s or couple’s tax situation is unique. Given all these caveats, here are the accountants’ rules of thumb for deciding between a traditional and Roth 401(k): …Learn More