July 24, 2012
Little Thought Put Into Retirement Date
When to make the break and apply for Social Security benefits is one of the biggest financial decisions an individual will make. But new research suggests that people may put more thought into buying a car or a mattress.
The goal of a new research study was to determine how people make this critical decision and how to possibly influence them to delay claiming – delaying is often the best thing financially for retirees, since doing so increases their monthly benefits.
But what’s striking is a basic finding of the research. Individual decisions about the timing of an application to start up Social Security benefits depend simply on the order in which the person thinks about the benefits of his actions: those who first think about the advantages of claiming early – before they consider the advantages of claiming at a later age – prefer to claim early, and vice versa. That’s it!
This finding, which comes out of the Columbia Business School’s Center for Decision Sciences, complements one survey that found that close to half of all people contemplate their date of retirement for no more than 12 months. …Learn More
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 28, 2012
Edited Volume of Research – and More
Resources that may interest Squared Away readers keep coming over the transom. Check out new federal guidelines on what to ask a financial adviser or broker, an edited volume of academic research on financial literacy and behavior, iPhone investment apps, or a summer financial thriller.
On Interviewing Financial Advisers:
Is hiring a financial adviser or broker daunting? How do you know you can trust him or her? These are complex issues, but the U.S. Department of Labor has just released a list of questions that provide a good start to your search. And click here for more such questions, based on research by Boston University law professor Tamar Frankel.
On Financial Behavior Research:
Douglas Lamdin, an economics professor at the University of Maryland Baltimore County, compiled an edited volume of research papers about financial education and behavior, “Consumer Knowledge and Financial Decisions.” The table of contents sorts issues by age groups, starting with “Cognitive Development and Children’s Understanding of Personal Finance” and ending with “Financial Preparedness for Long-Term care Needs in Old Age.” …Learn More
June 26, 2012
Employers Try New 401(k) Strategy
Employees apathetic about their 401(k)s are not saving enough. Some employers are bringing in reinforcements to push, cajole, or entice them.
Employers and employees share the blame for the low rate of retirement savings nationwide, consultants say, but the common practice of employers handing their new workers a 401(k) sign-up form and investment materials from the mutual fund manager clearly isn’t working. A few employers are trying a different tack.
One such initiative, by the Foundation for Financial Wellness in Colorado, trains and certifies CPAs, estate planning attorneys and financial advisers to educate its clients’ employees. NASA was the foundation’s first client, and they now include hospitals, city governments, oil companies, unions and churches, said Brent Hines, founder.
The foundation’s educators “are unbiased and don’t have a dog in the fight,” Hines said. “We’re not the 401(k) provider, and we don’t have the bias of wanting to put more money into your 401(k) or invest in a product.”
Separately, a program to educate credit union employees is expanding from four pilot states to an additional six and Washington, DC. And the American Nurses Association recently teamed up with a non-profit to train 10 nurses in five initial states to run workshops; to date, more than 700 nurses have gone through the financial workshops.Learn More
June 19, 2012
Is 62 Dead (as a Retirement Age)?
Life expectancy rises. Wages stagnate. Retirement accounts shrink. Guaranteed monthly pensions are an endangered species.
The average U.S. age for men retiring from work has gradually increased to 64. Yet age 62 continues to be held out as the popular standard, perhaps because that’s Americans’ marker for Social Security eligibility.
Is retirement at age 62 destined be a casualty of dovetailing medical, financial, economic and even political trends? Many baby boomers are already postponing retirement into their mid- or even late 60s. One study found that claiming Social Security at 62 is becoming less popular, a trend that is expected to continue despite the hardships of the Great Recession.
“I don’t think it’s dead, but its health has eroded,” Chuck Miller, a Chicago communications consultant who specializes in retirement, said about age-62 retirement in this country.
Wisconsin’s failed recall election for Governor Scott Walker suggested growing U.S. voters’ disdain for generous pensions and early retirement ages, even as Europeans protest government proposals to raise public employees’ retirement ages. Rhode Island has already raised its employee retirement age to 67, from 62 previously. And voters in San Jose just approved measures to scale back public worker pensions that included an increase in the retirement age.
Squared Away readers, where do you stand? Have you or will you retire at age 62? Tell us about your situation or your theories!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.
May 29, 2012
Boomers May Stop Work Because They Can
Baby boomers who’ve left the labor force in their pre-retirement years are in better financial shape than they once were.
The wealth of non-working Americans between ages 55 and 61 increased from $83,000 in 1992 to $98,000 in 2008, according to new research from the Urban Institute in Washington. (Comparisons are in constant dollars.)
Potential explanations for this trend range from greater U.S. inequality that launched more boomers into the top wealth tier to a rise in the numbers of married men who don’t work – but have wives who do.
Barbara Butrica, a senior research associate at the Urban Institute, said her study did not look into the “why” for the emerging group of voluntary non-workers who are approaching traditional retirement ages, married and single men in particular. One possibility, she said, is that “they are leaving the labor force because they can afford to.” …Learn More