February 9, 2016
Could Social Security Statement Do More?
Two out of three working Americans grade their retirement readiness at no better than a “C.”
So how about using the Social Security Statement that lands in their mailboxes, grabbing their attention, to spur them to action?
The statement is already valued by millions of Americans. A survey funded by the U.S. Social Security Administration (SSA) found that people who received statements were “dramatically” more knowledgeable about their basic pension benefits than people who had already retired when SSA started mailing them out in the mid-1990s.
Social Security is the nation’s most important source of retirement income, and the information in the statements is essential to most workers’ retirement planning. Mailed out before every fifth birthday – 25, 30, 35, etc. – and annually at age 60, the statement provides estimates of each worker’s future benefits at three different claiming ages: 62, when they have access to their smallest monthly benefit; the “full retirement age”; and 70, when workers receive their highest monthly benefit. It clearly lays out how much workers can increase their monthly retirement income by delaying when they start collecting their benefits. …Learn More
January 19, 2016
Empty-Nesters Aren’t Saving Enough
Day care, sneakers, cell phones, maybe college – kids are expensive. When they grow up, empty-nesters face a decision about what to do with their extra money.
What they choose is crucial to their retirement security for two reasons – one obvious, and one subtle but very important.
The Center for Retirement Research estimates that about half of U.S. workers might not have enough savings to maintain their standard of living after they retire. So, the obvious thing to do after being freed from child-rearing obligations is to put more money into an employer retirement plan. But 401(k) saving increases only modestly after the kids leave home, according a study by the Center comparing empty-nesters with parents whose kids are still living at home.
The Center’s researchers confirmed this finding using two separate sources of data on married households’ finances. One was a University of Michigan survey of nearly 2,500 households in which the man was over age 50, with financially independent offspring defined as those who are no longer living at home and, if they are college students, have not attended school continuously. The other was U.S. Census data on more than 40,000 adult households of all ages, with independence defined simply as over age 23. …Learn More
January 14, 2016
Policy Reduces Elderly Women’s Incomes
Poverty is the scourge of women in old age.
This problem was aggravated, according to a new study, when older workers started claiming their Social Security benefits sooner after the earnings test was lifted in 2000 for those who reach the program’s full retirement age.
The earnings test withholds benefits from older workers earning more than a specified amount – the withheld benefits are returned later, in the form of an increase in monthly Social Security checks. But the earnings test is, nevertheless, often viewed as a tax in the mistaken belief that these benefits are never restored.
Researchers at the U.S. Treasury Department and the University of California at Irvine found that people reacted in one of two ways to lifting the earnings test, both based on the misperception it’s a tax. One response was to work longer – as Congress intended – under the logic that benefits would no longer be unduly “taxed” after workers entered their late 60s. The second and more common response was to claim benefits earlier than one would have prior to the policy change, when workers perceived that delayed claiming was the way to avoid this “tax.”
The earnings test remains in place for beneficiaries younger than the full retirement age – 66 for most boomers. However, the researchers analyzed a broader age range of workers – 62 to 70; even those who haven’t yet reached their full retirement age might change their behavior in anticipation they will soon reach it, and the test will no longer apply to them.
Earlier claiming by men and women, which results in smaller monthly Social Security checks, has fallen especially hard on elderly widows. After a husband dies, the two benefit checks coming into the house are reduced to one. Although widows receive the larger of the couple’s two checks – typically the husband’s – it may not be sufficient to maintain her standard of living. …Learn More
January 12, 2016
Retirement Just Might Be Boring
Over the long Christmas holiday, I got a sneak preview of what retirement could be like. Frankly, it was a little boring.
I fully appreciate that most workers don’t have the perk provided by my employer, Boston College, which gives us generous time off between Christmas and New Year’s. By cashing in a few unused vacation days prior to Christmas, I was able to string together 16 glorious days off.
It felt like a lifetime.
After cleaning off my desk, running long-neglected errands, reading a book about the sinking of the Lusitania, wrapping gifts, stocking the pantry, going to a holiday party, exercising at the gym, seeing most of the 2015 Oscar contenders at local cinemas, and getting together with friends, I still struggled to fill my days. It’s even more challenging when the winter cold descends.
I’m developing a better understanding of why some people continue working well into their 60s, even 70s. Research covered in our prior blog posts shows that older workers are more likely to delay their retirement if they have more education. That’s because their jobs are often interesting. I’m a good example – blogging usually doesn’t feel like work. This is much different than trying to continue in increasingly difficult physical work, such as waitressing or working on an assembly line.
At age 58, my growing anxiety about retirement is in stark contrast to my husband’s anticipation that his rapidly approaching retirement – he’s 62 – will be nirvana. After three decades pouring his heart and soul into teaching high school biology in inner-city Boston, he relishes the prospect of a stress-free retirement collecting his pension. I’ve encouraged him to think about how he will be spending his winter days in retirement when activity becomes more important than the relaxation he craves in his time off now. …Learn More
January 7, 2016
Financial Fallout from ‘Gray Divorce’
In the 1960s and 1970s, the baby boom generation had a reputation for breaking down societal norms for behavior – and they’re at it again.
Between 1990 and 2010, the rate of individuals over age 50 who become newly divorced in a year doubled to more than 10 people affected per 1,000 married people, according to Susan Brown, a sociologist at Bowling Green State University. Studies by Brown and others are emerging that show this important trend of “gray divorce” is having negative consequences for baby boomers’ financial security in old age.
“Individuals who go through gray divorce are considerably economically disadvantaged, and they are a growing demographic group,” Brown said. She estimates nearly 650,000 people over 50 were involved in divorces in 2010 alone. …Learn More
January 5, 2016
Few Put Finances First When Retiring
Will you retire when you want to, when you have to, or when you can afford it?
This is crucial, because when Americans retire is more important than it’s ever been to our financial well-being in old age. Yet the research indicates this doesn’t carry enough weight in people’s decisions.
This doesn’t make any sense. The typical combined 401(k)/IRA balance is a slim $111,000 for working households between 55 and 64 years old that have a 401(k). And fewer and fewer retirees have defined benefit pensions, which provide reliable income. More than half of us are at risk of experiencing a decline in our standard of living after we retire, estimate economists at the Center for Retirement Research, which supports this blog.
Yet a recent survey by Fidelity indicated that the majority don’t think about the financial impact of their retirement timing. Retirees and pre-retirees said leisure was a major reason they have retired or would retire – even if they were falling short of their financial goals.
The most powerful route to improving workers’ prospects is to delay retirement, which dramatically increases monthly Social Security benefits and the income that can be withdrawn from a 401(k).
But Mark Zoril, a Minnesota financial planner, said pre-retirees typically do not drill down into their finances, though they have a vague idea of where they’re at. What he often sees is that an important change precipitates the timing of a retirement, whether a friend’s retirement or deteriorating health. …Learn More
December 22, 2015
Readers’ Picks in 2015
Squared Away readers should know this ritual by now. We consult Google Analytics to determine the articles with the most reader traffic over the past year.
This blog covers everything from student loans to helping low-income people improve their lot. But this year’s Top 10 was dominated by one topic: retirement.
Readers’ favorites are listed in order of their popularity, with links to each individual blog:
- Navigating Retirement Taxes
- Medicare Primer: Advantage or Medigap?
- Why I Dropped My Financial Adviser
- The Future of Retirement is Now
- Annuities: Useful but Little Understood
- Winging it in Retirement?
- Fewer Need Long-Term Care
- Misconceptions about Social Security
- Late Career Job Changes Reduce Stress
- Mortgage Payoff: Freedom versus the Math
To stay current on our Squared Away blog in 2016, we invite you to join our free email list. You’ll receive just one email each week – with links to the two new posts for that week – when you sign up here. Learn More