October 24, 2017
401(k) Nudges and Course Corrections
Behavioral economist Richard Thaler, winner of the 2017 Nobel Prize for economics, regards his field’s greatest contribution as showing that people are more likely to save if the saving happens automatically.
“I’m all for empowerment and education, but the empirical evidence is that it doesn’t work,” he said in a 2015 Wall Street Journal interview. “That’s why I say make it easy.”
To make saving for retirement easier, employers have increasingly turned to automated 401(k)s. Automation has taken two basic forms. The first, automatically enrolling each employee, is pervasive and has had notable success in increasing participation in retirement savings plans. The second form, automatically increasing the amount employees save – a concept originated by Thaler and economist Shlomo Benartzi – is catching on. It’s hoped that the second will correct a problem created by the first.
Last year, 45 percent of Vanguard’s client base used auto-enrollment plans, according to its “How America Saves 2017” report. Historically, employees were asked to enroll in their employer’s 401(k). Today, more employers are – as Thaler would say – “nudging” workers by automatic enrolling them, usually when they are hired. Although they then have the freedom to opt out, inertia tends to keep them in the plans.
Participation in all types of 401(k)s has roughly increased in lock-step with the spread of auto-enrollment. Last year, 79 percent of workers participated in Vanguard-administered plans, up from 68 percent a decade ago, when a new federal pension law made auto-enrollment more appealing to employers.
The irony, however, is that while auto-enrollment encourages more people to save, Vanguard partly blamed a 2016 drop in employee contributions on their popularity. The average employee contribution in all types of 401(k) plans declined from 6.9 percent in 2015 of pay to 6.2 last year, well below the 7.3 percent rate prior to the Great Recession, according to Vanguard. …
October 3, 2017
Older Americans Handling Work Demands
Older workers face fewer headwinds and better working conditions than their younger co-workers, according to the first analysis of a new survey of 3,900 blue- and white-collar workers between ages 25 and 71.
The U.S. workplace overall is “very physically and emotionally taxing,” according to the study – that’s why they call it “work.” Two out of three workers of all ages reported in the 2015 survey that they are often required to move at high speeds under tight deadlines, feeling intense pressure to accomplish too much in too little time.
But after people pass the age of 50, things get a little easier. Older workers report having more flexible work schedules, more predictable hours, fewer scheduling changes, less stress, and greater ease in arranging time off to take care of personal matters, the analysis found.
Their workplace situation isn’t all rosy. Larger shares of older workers feel under-employed or have unsupportive bosses – this held true whether they had college degrees or not.
The analysis of the new American Working Conditions Survey (AWCS), by researchers led by Nicole Maestas at Harvard Medical School and recently published in an e-book, is an introduction to what will inevitably be more research using this new, publicly available data. The AWCS might, for example, provide new fodder for studying the factors that influence older Americans to continue working or to retire.
The new study found some striking differences between older and younger workers – and among different groups of older workers: …Learn More
August 10, 2017
Beach Reads for and about Old Folks
Who wants to spend their beach vacation reading about growing older? These recommendations just might surprise you.
“The Accomplished Guest” by Ann Beattie
Ann Beattie’s 1983 book of short stories, “The Burning House,” explored the drift, emotional detachment, and cynicism of boomers, whose worldview was darkened by Watergate. That book made Beattie’s reputation, and she has been prolific ever since, including regular appearances in The New Yorker. Her 2017 short story volume, “The Accomplished Guest,” is, for now, a bookend to “The Burning House” (Beattie is only 69 and no doubt has more books in her). While baby boom skepticism remains a central theme, her characters have developed a little heart and sentimentality over the years. I particularly liked “Company,” about an older couple entertaining newlyweds at their Maine summer house (one advantage of getting older). All night, Henry ruminates about his death. But as this glorious summer evening draws to a close, he finds reason to celebrate his friendship with the much younger Jackson. Jackson is still decades away from facing his own mortality, but tonight, they are “just two men – you know, any two men – passing time on the back porch.”
“Can’t We Talk About Something More Pleasant?” by Roz Chast
For months, I ignored raving recommendations about Roz Chast’s book on how she navigated her parents’ old age. I should not have. This book by the long-time New Yorker cartoonist is a poignant, laugh-out-loud funny examination of the guilt, love, memories, regrets, anger, and tenderness that churn inside adult children carrying their parents through the final stages of their lives. …Learn More
May 11, 2017
Get Paid What You’re Worth
“No one will ever pay you what you’re worth,” Casey Brown says in the Ted video above.
An employee’s value is also highest when unemployment is as low as it is now – 4.4 percent in April – and employers are scrambling to fill jobs.
Why would an employer pay more than it has to? With unions all but extinct, the burden falls on individuals to ensure they’re paid fairly or well. Low unemployment provides workers with more leverage to get what we deserve. Unfortunately, many of us are not good at negotiating how much we earn. Or we avoid it entirely, because we’re uncomfortable with talking money – especially women.
Women “say things like, ‘I don’t like to sing my own praises,’ ” Brown notes.
One time-honored way to test the waters is to get an offer for a job you might like that pays more than your current position. If your current employer values you, they’ll increase your pay to keep you. It can be a risky strategy. In our free-wheeling labor “market,” however, it’s also the best way to learn what you’re worth, because there is only general information about compensation for different types of jobs.
In fact, management researcher David Burkus argues that the U.S. compensation system is built around secrecy. “Keeping salaries secret leads to information asymmetry … [and] an employer can use that secrecy to save a lot of money,” he says in another Ted video. Translation: a lack of information makes it easier to under-pay you.
Unions know this. Historically, unions posted compensation in the different job tiers in each industry so workers would know what they were entitled to.
In place of unions, Elaine Varelas, recruiter for Keystone Partners in Boston, suggested other places to get this critical information: glassdoor.com, job recruiters, LinkedIn contacts, and even human resources executives at friends’ firms who might provide you with salary ranges.
“People owe it to themselves to do their homework and stop hiding under the discomfort,” Varelas says.
So get out there and learn something that will definitely be interesting – and possibly lucrative! Learn More
May 2, 2017
Online Goblins Want Your Money
No longer simply a convenience for shoppers, the internet has come into its own: it is now an ingenious tool for squeezing money out of our wallets.
This realization first struck me last year while helping my brother and his wife in Chicago with a flight to visit our mom in Orlando. The reason I was on the case is that he’s a bit of a technophobe. But it turned out that his technical skills weren’t the issue – the airline’s website was the issue.
To flyers’ chagrin, most airlines are now a la carte operations, charging separate fees for everything from baggage to potato chips. This makes it difficult to compare fares online – one way we might wind up paying more. But things went wildly astray for my brother when he clicked on one airline’s website icon to pay his and his wife’s baggage fees a few days before flying.
He was hurled off to a webpage beseeching him to join some type of $200 promotional program that included “free” baggage. The same thing happened when I tried the next day. It took all of my online ingenuity to figure out how to avoid the promotion and pay only their $30 per bag fees. I wondered whether other flyers had been sucked into paying for this promotion.
These website diversions are different from what has become routine: advertisements popping up that try to get you to take the plunge and buy the consumer product you were researching online yesterday. It’s difficult to ascertain which diversions are cynical marketing ploys and which ones are innocent technical glitches. But all of them have the potential to be costly to unwary consumers.
During a brunch on Easter Sunday, two friends confirmed my concerns that this isn’t just an issue for older people – one of my friends who complained about online trickery is 95 years old but the other is a tech-savvy college freshman.
All web crawlers are familiar with offers of free subscription trials. These are also dangerous. …Learn More
February 28, 2017
In the Dark about Retirement?
There’s new evidence to remind us that nothing much changes: we are still baffled by our DIY retirement system.
And no wonder!
First, saving must start at a young age, when retirement is an abstraction. Saving is further stymied by two big questions: how much to save and how to invest it? It’s also smart to anticipate how one’s compensation arc might affect Social Security – taking into account, for example, that women withdraw temporarily from the labor force to have children and that earnings can decline when workers hit their 50s. As we fly past middle age and retirement appears on the horizon, it’s a little late to figure this retirement thing out. And there’s no plan for long-term care when we’re very old.
The evidence: Start with Merrill Lynch’s new survey in which 81 percent of Americans do not know how much money they’ll need in retirement. This makes it very difficult to know how much to deduct from one’s paycheck for retirement savings. Employers, frankly, could do more to help us figure this out. (Some answers appear at the end of this blog.)
Being in the dark now about how much to save is a cousin of being afraid of running out of money later, in retirement. More than 70 percent of accountants say this fear of running out is their clients’ top concern – followed by whether they can maintain their current lifestyle and afford medical care in retirement – according to the American Institute of Certified Public Accountants.
Our inclination to avoid difficult issues does not go away with age. Yes, we’ve gotten wiser, but advanced old age means death, and who wants to think about that?
The upshot: seven in 10 adults have not planned for their own long-term care needs in the future, Northwestern Mutual reports. Even among a smaller group who anticipate having to take care of an elderly parent, one in three of them “have taken no steps to plan” for their own care.
“You would think that would prompt them to action,” said Kamilah Williams-Kemp, Northwestern’s vice president of long-term care. And while the constant barrage of news and statistics is making Americans more aware of their rising longevity, Williams-Kemp said, caregivers are often more interested in talking about their emotional and physical challenges and the rewards of caregiving than about its substantial financial toll.
There is a “disconnect between general awareness and prompting people to take action,” she said.
The potential for dementia or diminished capacity late in life isn’t on our radar either, the survey of CPAs found: the vast majority of people either choose to ignore the issue, wait and react to it, or are confused.
Squared Away exists in part to educate people about retirement essentials, based on facts and high-quality research. The following blogs might help you:
How Much for the 401(k)? Depends. …Learn More
February 7, 2017
Wrong People Seek Financial Info, Help
Most of the 1,000 people who took the financial well-being quiz posted here last year felt content with their situations. Their well-being score averaged 16.4 out of 20 points possible on the quiz.
This happy response completely conflicts with a statistically more reliable survey showing that three out of four Americans report feeling “financially stressed.” Our quiz makes no claim of representing the adult U.S. population and was taken by a hodgepodge of regular readers, Twitter followers and Facebook friends.
So why are Squared Away loyalists so content with their finances?
The blog is “attracting people who are in the action phase. I’m guessing they’re motivated and ready to move,” said Brad Klontz, a financial psychologist in Hawaii – he is both a certified financial planner and trained psychologist.
But the flip side of this is that those who do not seek out financial information and advice – and don’t take blog quizzes – are often “in total denial, and you’re probably not going to catch them,” he said.
Indeed, Klontz’s research has identified avoiding dealing with difficult money issues as among the unconscious behaviors that ensnare people who are in poor financial health, measured by being overloaded with debt or not saving for retirement.
For the avoiders, the psychology is that they know their behavior hurts them but feel it’s due to a character defect – “lazy, crazy, or stupid” – he said. “Shame keeps you stuck. If I’m such a terrible person, why should I try? I’m not going to ask anyone for help.”
When people with money problems recognize the psychological underpinnings, he said, it can lead to changes that can end the pain.
The question for personal finance bloggers and financial advisers remains: how do we reach the people who can’t be reached? …Learn More