July 2, 2013
Readers Call Gen-X to Action
A recent blog article, “Retirement Tougher for Boomer Children,” did not elicit much sympathy for Generation X.
Many readers who commented expressed a sentiment something like this: Yes, things are tougher for young adults. So deal with it.
Members of Generation X, as well as Millennials, are largely on their own with their 401(k)s, in contrast to their parents and grandparents who may’ve had a guaranteed pension at work. But the evidence indicates young adults are not preparing for retirement: well over half of 30- and 40-somethings are on financial path to a lower standard of living once they retire, according to an analysis cited in the article.
They need to find “the discipline to save for retirement through all the means available,” said a Squared Away reader named Paul. …Learn More
June 27, 2013
62YO Men File Social Security; Wives Pay
My father was never more in love with my mother than on the day he died in 2004, days before their 50th anniversary.
But he made one bad financial decision that she lives with today: he started up his Social Security benefits at age 62.
He felt he needed the money sooner than later. He had an inadequate pension from his first career, as an Air Force flyboy, and none from his Rust Belt business that went bust. But waiting to claim his Social Security would’ve increased the size of his check – and, after he died at 70, the money that’s still deposited into my mother’s bank account every month.
This happens to a significant share of couples, because almost 40 percent of all Americans claim their benefits the same year they turn 62. But a husband who waits until age 65 can increase his widowed wife’s future benefits by up to $170 a month, according to new research by Alice Henriques, an economist with the Federal Reserve Board in Washington.
What’s interesting about this study of nearly 14,000 older couples is that she teased out how much the husband’s decision was determined by the filing date’s impact on his own benefits, versus the financial impact on his wife’s spousal and, later, her survivor benefits. Similar research in the past had examined the impact of a filing date on their combined benefits during all their years of retirement.
Henriques was able to show that the husbands, when they made their decisions, took into account the impact on themselves of the claiming date they selected. But they showed virtually “no response to the large incentives” of having the ability to provide their widowed wives with more income in the future, she said. …Learn More
June 25, 2013
401(k)s Stall, Post-Auto Enrollment
Seven years after Congress encouraged employers to automatically enroll their workers in the company 401(k), the retirement fix has run out of steam.
Corporate America rushed in to adopt the feature in their 401(k) plans after the Pension Protection Act (PPA) made auto enrollment more attractive by giving employers that used it a safe harbor from non-discrimination rules governing their benefits.
Immediately after the PPA provision became effective in December 2007, employee participation in 401(k)s increased. But since that initial bump, it’s been virtually flat for years.
In 2008, participation increased to 73 percent of all employees in workplaces that offered 401(k)s, up from 68 percent in 2007, according to Vanguard Group Inc.’s new “America Saves 2013” report, which provides a decade of participation rates for its large data base of clients.
Fast forward to 2011: participation was 74 percent. It has barely budged. (Last year, participation was 68 percent, but Vanguard said past experience indicates this figure will rise to roughly the same level when all of its clients turn in their data). …Learn More
June 20, 2013
Older Patients Tell Doctors, “Charge It!”
New research has uncovered one reason for the alarming rise in credit card use among older Americans: medical bills.
When people age 50 or older experience “health shocks” – newly diagnosed medical conditions – their credit card balances rise, according to research published in the Journal of Consumer Affairs. The worse the medical condition, the more they charge.
A mild, new medical problem, for example, adds $230 to credit card bills – that’s a 6.3 percent increase on a starting balance of $3,654. If the new condition is severe, balances increase by $339, or 9.3 percent.
Separately, the researchers looked at the effect of out-of-pocket medical costs, such as copayments for doctor visits and prescriptions not covered by private insurance or Medicare. For each $100 that those costs increase, about $4.50 winds up on the cards, according to Hyungsoo Kim at the University of Kentucky, WonAh Yoon at the Samsung Life Retirement Research Center in Seoul, Korea, and Karen Zurlo at Rutgers University.
Their findings shed new light on why more older Americans, who have the greatest medical needs, are becoming reliant on credit cards with their high interest rates. …Learn More
June 13, 2013
Retirement Tougher for Boomer Children
The financial media (including this blog) inundate baby boomers with articles cajoling, coddling, and counseling them about their every retirement concern.
But members of the Me Generation might want to focus on their children: retirement is likely to be an even greater financial challenge for Generation X, now in their 30s and 40s.
Economists at the Center for Retirement Research, which supports this blog, recently produced this striking prediction: three out of five Americans in their 30s and well over half of those in their 40s are at risk of experiencing a decline in their standard of living after they retire.
This compares with 44 percent of baby boomers.
The reasons for Generation X’s poorer prospects are due to long-term trends like the rise of 401(k)s and less generous Social Security benefits for future generations. …Learn More
June 6, 2013
Nobel Winners Are Unsure Investors
Medal for the Sveriges Riksbank Prize in Economic Sciences. © ® the Nobel Foundation
A Los Angeles Times reporter once called up several Nobel laureates in economics to ask how they invest their retirement savings.
One of the economists was Daniel Kahneman, a 2002 Nobel Prize winner who would become more famous after writing “Thinking, Fast and Slow” about the difference between fast, intuitive decision-making and slow, deliberative thinking. Kahneman admitted to the reporter that he does not think fast or slow about his retirement savings – he just doesn’t think about it.
Kahneman’s confession in the 2005 article seems even more relevant in today’s 401(k) world. Americans are realizing the investment decisions imposed on them by their employers may be too complex for mere mortals. For example, three out of four U.S. workers in a 2011 Prudential survey said they find 401(k) investing confusing.
Readers might take comfort in learning that even some of the world’s great mathematical minds have admitted to wrestling with the same issues they do: How do I invest my 401(k)? Should I take some risk? How about international stocks?
Here are the Nobel laureates remarks, excerpted from the article, “Experts Are at a Loss on Investing,” by Peter Gosselin, formerly of The Los Angeles Times:
Harry M. Markowitz, 1990 Nobel Prize:
Harry M. Markowitz won the Nobel Prize in economics as the father of “modern portfolio theory,” the idea that people shouldn’t put all of their eggs in one basket, but should diversify their investments.
However, when it came to his own retirement investments, Markowitz practiced only a rudimentary version of what he preached. He split most of his money down the middle, put half in a stock fund and the other half in a conservative, low-interest investment. …Learn More
May 30, 2013
Layoffs After 50 Cause Severe Losses
For the average older worker who loses his job, his income a decade later is 15 percent lower than if he had escaped the layoff.
It gets worse: His pension wealth is worth 20 percent less, and his financial assets are 30 percent smaller.
The enormous financial hit delivered to older workers who experienced a layoff sometime during the 1990s was reported recently by researchers at the Center for Retirement Research, which supports this blog. First, the researchers pinpointed all workers in the data set who were over age 50 and lost a job between 1992 and 2000. They then examined their financial outcomes – earnings and assets – a decade later and compared them with outcomes for those who avoided layoffs during that time.
If the financial fallout during the 1990s was that dramatic for unemployed older workers, it will be even worse for many of the 3.2 million jobless baby boomers at the peak of the Great Recession, the longest downturn in post-war U.S. history.
The Great Recession hit just as members of the biggest demographic bulge ever were either hitting retirement age or lining up on the runway. Record numbers of them sustained severe hits to their financial security, because the jobless rate for older workers reached record highs.
The research suggests that the recession’s effects may last into old age for many boomers. One key reason for their grim prospects is that older workers have more difficulty snaring new jobs than do young adults. Many boomers never found employment and are being forced to retire grudgingly, simply because they lack options. …Learn More