Posts Tagged "retirement"

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Retiree Paralysis: Can I Spend My Money?

Financial planner J. David Lewis can rattle off stories in his Tennessee drawl about trying to persuade clients to spend their retirement savings – now that they’re retired.

One couple wouldn’t tap into a $100,000 account dedicated to the travel they always dreamed they’d do after they stopped working. It took another retired couple well into their 70s before they’d spend a bit of their ample savings on a car – their first new car ever, in fact.

What are they afraid of? “That something is going to take it all away from you, or you’re going to run out,” said Lewis, president of Resource Advisory Services in Knoxville. Spending money “is a big bridge to cross” for retirees.

But there’s another explanation for their paralysis: the decision about how much to spend, and how fast to spend it, is one of the most complex financial decisions an individual will make. It requires people who were lucky enough or diligent enough to save to suddenly juggle complex math and countless variables, some of them unknowable:

  • How long will I live?
  • How much money do I need?
  • Where’s the stock market going? …

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Aging U.S. Workers: The Fittest Thrive

By the time people reach their mid-60s, two out of three have retired, either voluntarily or because they’re unable to keep or find a job. By age 75, nine out of ten are out of the labor force.

But the minority who do continue working aren’t just survivors – they’re thrivers. Think novelist Toni Morrison, rocker Neil Young, or the older person who still comes into your office every day.

The earnings of U.S. workers in their 60s and 70s are rising faster than earnings for people in their prime working years, according to a new study. Defying the stereotype that they’re marking time, today’s older workers are also just as productive as people in their prime working years.

Driving these trends is education: far more older Americans now have a college degree than they once did.

There’s a “perception that the aged are less healthy, less educated, less up-to-date in their knowledge and more fragile than the young,” but this does “not necessarily describe the people who choose or who are permitted to remain in paid employment at older ages,” Gary Burtless, a senior fellow at the Brookings Institution, concluded in his study.

The experience of age 60-plus workers is becoming increasingly important, because there are more of them in this country than there ever have been – a rising trend that will continue. …Learn More

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

Photo of elderly couples

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

Puzzle pieces: auto enrollment

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

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

Photo of generation: Grandmother, mother, daughter

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