September 13, 2012
It Pays More Than Ever To Delay
Single people can receive tens of thousands more from Social Security over many years of retirement and couples can receive nearly $125,000 more by waiting until their late 60s to sign up.
The most common age for starting up Social Security is 62, when individuals first become eligible, even though monthly benefit checks would rise sharply if they’d wait. But it’s becoming increasingly worthwhile financially to hold out, according to economist Sita Nataraj Slavov of the American Enterprise Institute, who presented her research findings at the Retirement Research Conference in Washington last month.
This contradicts the conventional wisdom that no matter when people file, they’re going to essentially receive the same total amount over their entire retirement. The trade-off has always been between filing early and receiving a smaller check for a longer period of time, or filing later and receiving a bigger check for fewer years. Financially, it’s a wash.
But an economic fluke has changed all that: historically low interest rates. Slavov and co-author John Shoven, a Stanford University economist, have determined that, increasingly, there’s a payoff to holding out in this unusual rate environment. (More later on how that works.)
“There’s real money at stake here. This is not a trivial amount for most people,” Slavov said in a telephone interview. “What we’re trying to communicate is, it’d be good to think more about what you’re giving up when you claim early.”
At Squared Away’s request, Slavov calculated the present values for retirees who file for Social Security at the age at which they would maximize their benefits – she did so for the average single man, single woman, and two-earner couple. The payoff is largest for married couples who delay filing for benefits: …Learn More
August 30, 2012
What You May Have Missed
A few articles Squared Away readers might’ve missed while they were on vacation are listed below.
A link to each article appears at the end of these summer headlines:
Couple Reach Across Financial Divide
Little Thought Put Into Retirement Date
How Can Debt Enhance Self-Esteem?
Progress Stalls for Young Adults
Free Financial Advice Goes Online
10 Student Loan Prevention Strategies
To support our blog, readers may want to sign up for our unobtrusive alerts – just one per week – by clicking here. And there’s always Facebook and Twitter!
August 9, 2012
Social Security Advice That Harms Wives
Most financial advisers give troubling advice to married couples about when to claim their Social Security benefits, advice that can substantially reduce the wife’s income during retirement.
Social Security rules generally make it more beneficial for the higher-earning spouse – usually the husband – to delay signing up for his benefits well past age 62. By delaying, he boosts the size of his monthly Social Security check, automatically increasing his wife’s “survivor benefit” after he dies. This holds true for most couples, whether the wife works or not.
A new survey of U.S. financial advisers provided them with hypothetical couples’ situations and asked how they would advise them on when to start receiving Social Security. For the couple in excellent or average health, only 20 percent recommended “that the man delay claiming as long as possible.” This advice leaves most widows with a substantially smaller monthly benefit for years or even decades.
The survey’s finding demonstrates “the lack of understanding of both the benefits of delaying and the compounding factor it can have on the spouse,” said Lisa Schneider, research director for Greenwald & Associates, a private research firm that conducted the study with researchers at the University of Pennsylvania. …Learn More
July 19, 2012
Discovery: Dopamine as ‘Risk Avoider’
Famously known as the brain’s “feel-good chemical,” dopamine is no longer associated only with thrilling activities: it can have the opposite effect.
Past research has linked dopamine to risk-taking – it can explain the thrill of sky-diving or venturing out on the Grand Canyon’s glass-bottom walkway. But new research on the brain has uncovered dopamine’s role in the tendency of people to avoid risks. The new findings, by Harvard Medical School researcher Michael Treadway and colleagues at Vanderbilt University, have implications for all types of human behavior – including whether we’re willing to take financial risks.
Different people exhibit “different appetites for a certain amount of risk and how they experience risk and how gun shy they are,” Treadway said. This may depend on where the effects of dopamine take place in the brain.
That’s a dopamine molecule. We typically talk about financial behavior and psychology or use terms like motivation and decision making. The truth may be hard to grasp, but it all comes down to gooey chemical interactions in our gray matter. … Learn More
July 17, 2012
Free Financial Advice Goes Online
The summer slowdown might be a good opportunity for some readers to jump start a long-overdue review of their personal finances.
This summer and fall, the National Association of Personal Financial Advisors is throwing out a lifeline. NAPFA selects members from its national roster of fee-only advisers to give free financial advice online. In mid-June, advisers in Vermont, North Carolina, and Georgia answered questions from participants.
NAPFA’s next session is this Thursday, July 19, with three more sessions scheduled for August, September, and October. Click here to find out how to participate.
Another free resource is a new website with a comprehensive program to help individuals put together a financial plan. Developed by the Financial Security Project, an initiative of Boston College’s Center for Retirement Research, which sponsors this blog, the website has tools based on solid academic research. Personal financial information entered into the website is confidential.
To read a prior blog post about the site, click here. Since it’s still operating as a beta test site, users are welcome to send in their comments for how to improve it.
July 5, 2012
Public Perplexed About Annuities
Sales of annuities are slow, because most retirees simply don’t know how to assess their value, new research concludes.
Many of the nation’s top retirement experts agree that annuities are the best solution for retirees struggling with the best way to invest and spend a lifetime of savings.
Annuities have a singular benefit: they guarantee monthly income, no matter how long the retiree lives – something a savings account can’t always do. This constant, pre-determined stream of income has the added advantage of preventing financial mistakes as the elderly lose cognitive capacity, according to Harvard economist David Laibson. Smart Money magazine has dubbed annuities “dementia insurance.”
Yet sales of fixed and variable annuities have been largely flat over the past decade. This “annuity puzzle” has befuddled the academy for years.
Research by the Financial Literacy Center, a joint effort by George Washington University, the Wharton School, and the Rand Corporation, concluded that most people avoid annuities – they “stick to the status quo” – because they don’t understand how they work.
“How can they make these decisions if they don’t understand what a good decision is?” said a Rand senior economist and one of the paper’s co-authors, Arie Kapteyn. “We have to do something about the fact that people have to make these decisions” about managing their retirement wealth. … Learn More
June 14, 2012
Progress Stalls for Young Adults
The promise of America is progress, but that progress stalled for the youngest generation: U.S. workers under age 45 earned dramatically less than workers who were that same age a decade ago, the Federal Reserve Board’s latest survey shows.
For Americans 35 through 44, the median household income – the income that falls in the middle of all earners – was $53,900 in 2010. That’s 14 percent less income than in 2001 when households in the 35-44 age bracket were earning $63,000, according to the Fed’s Survey of Consumer Finances released Monday. For young adults in the under-35 age bracket, median income fell to $35,100 in 2010, from $40,900 for that group in 2001.
The median income also declined, by nearly 9 percent, for Americans in their peak earning years, 45 through 54, to $61,000 in 2010 from $66,800 in 2001. [Incomes for all years are in current dollars.]
The sharp decline in real incomes, especially for young adults, occurred in a decade bracketed by the high-tech bubble of early 2000 and the jobless recovery of 2010 from the financial crisis. Without further analysis, it’s difficult to pinpoint precise explanations for the patterns. But the reasons vary depending on the age bracket being analyzed.
For the youngest workers, incomes may be lower if many are extending their college educations – high school and college graduates face the lowest level of employment ever recorded.