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.
June 12, 2012
Couple Reach Across Financial Divide
Meet Shannan Schmitt, 40: She cannot resist $200 Via Spiga pumps, hickory hardwood floors, or the fancy soaps and gourmet goodies at the farmers market where she likes shopping with her toddler son.
Meet her husband, Randy Nauman, 36. His penny-pinching ways are dictated by the numbers and his bachelor’s degree in finance. Her Internet shopping drives him to distraction.
“Opposites attract,” said their financial coach, Kelley Long.
Married five years, the Cincinnati couple’s willingness to discuss their finances publicly, for this article, is rare. But their marital discord over money is not: A recent survey found that the typical American couple argues about money three times a week, and past academic research has found that the more couples argue about money the greater is their risk of divorce.
Nauman said money “is the biggest issue,” and he worries it may be severe enough to jeopardize their marriage. “It leads into other stressful situations and arguments that don’t need to happen,” he said.
But Long, who owns KCL Financial Coaching in Chicago (formerly Cincinnati), said Schmitt and Nauman are like other couples who marry at a later age. “It’s harder to combine your finances if you’ve already had a chance to establish your financial habits” before getting married, she said.Learn More
June 7, 2012
Enough to Make You Dizzy
Some of Michael Najjar’s images transport people to the precarious heights of the Andes mountain range in Argentina. Others focus attention on the severe cliffs over which a mountain can slide.
Using photographs taken during his climb to the summit of Mount Aconcagua, Najjar used the computer to manipulate the images of surrounding mountain ranges to track the paths of the world’s stock market indexes over the past three decades.
Inspired by his ongoing interest in technology, he attempted to evoke the impact of algorithmic trading on stocks and options trading, which carves out some market peaks and valleys. “I wanted to do something extremely physical to rematerialize what has become invisible,” Najjar said in a recent telephone interview from his Berlin studio.
Before Squared Away reveals which photograph the artist himself believes depicts Europe’s precarious financial and economic situation, click here to make your own decision. …Learn More
May 31, 2012
Couples’ Rifts Increase With Age
Newlyweds beware: The longer you are married, the more you will argue about money.
U.S. married couples argue an average of three times per month about their joint finances. But once couples hit their mid-40s, these spats increase to four times per month, according to a telephone survey of a nationally representative sample of 1,005 adults by the American Institute of CPAs.
“The stakes are higher” for older couples with more money in savings, said Kelley Long, a member of the Institute’s financial literacy commission. She said middle-aged couples also argue fiercely about steep financial obligations, such as how to pay for the children’s college.
What does all this emotional “baggage” have to do with newlywed bliss? …
May 17, 2012
Americans Put Cold Cash on Ice
More than one in four Americans revealed that they put their “mad money” in the freezer.
The freezer strategy was more popular than socks and mattresses, according to a Marist College survey last month of more than 1,000 people.
More people with college degrees chose the freezer than did non-college graduates. But the second most popular hiding place – socks at 19 percent – was particularly popular in the Northeast where people own a lot of socks. Third was the proverbial mattress, and more men than women went this route. Wisely, 17 percent knew of “no good place” in the house to hide their mad money.
Several years ago, I put my credit card in a plastic deli container, filled it with water, and froze it. Just once, I was thinking, it’d be nice to get an American Express bill that didn’t break the $500 barrier. (My barrier is higher now.)
I didn’t admit this to anyone at the time, but maybe it’s alright to talk about our quirky financial habits. Apparently, many of us have them.
Unfortunately, Marist did not ask how much this mad money amounts to. Presumably we’re not talking about thousands. Are we? Squared Away readers, where do you put your mad money, if you have any?Learn More
May 15, 2012
Financial Perils of the Single Woman
Being a single woman is serious stuff – financially that is.
One website recently published a humorous list of the advantages of being a single woman today. “You don’t have to be worried about not getting a special gift from Him on your special day because there is no Him.” Or: “There is no argument about where or when to go on vacation.” Toilet seats were also mentioned.
This may not amuse 30-something women with serious concerns about whether they’ll marry and have children. But face it: single women of all ages have more difficult money issues than their married friends. When two incomes are coming into the household, a couple shares the rent or mortgage. Fixed expenses can add up over a single woman’s life or during long bouts after, say, divorce.
“Single women are far more at risk,” said Wendy Weiss, a former financial adviser who writes a blog on her website, Hot Flash Financial. “If we make 77 cents on every dollar [men earn], men have 23 percent more discretionary income, and that’s usually the amount we advisers recommend you put away,” she said. Women also live longer and need more money to get through retirement, she said.
Prior to retirement, the rule of thumb is that single people need well more than half, possibly as much as 70 percent, of a childless couple’s combined income to afford the same lifestyle. It is higher for the poor (whose fixed expenses consume more of their total income) and for single mothers (for obvious reasons). …Learn More