November 14, 2013
Will Millennials Be Ready to Retire?
As he logged on to his online 401(k) retirement account, Jordan Tirone, a 25-year-old insurance underwriter, explained the mental accounting behind his 5 percent contribution.
He pays $300 a month to live with his mother so he can pay off student loans. Nevertheless, a regular paycheck from his Hartford, Conn., employer is finally giving him some financial stability. “I’m feeling like I’m gaining some traction,” he said.
Spontaneously, he clicks his mouse and increases his contribution to 6 percent of his salary.
Although it can be difficult to focus on a retirement that is still 40 years away, many young adults like Tirone try very hard to save. But are they doing enough? A lot of evidence suggests they’re not, either because they can’t afford to, refuse to, or don’t know what to do.
Adults in their 20s and early 30s, in a recent survey of 401(k) participants by Brightwork Partners LLC, predicted they would have to rely on their personal savings for half of their income in retirement.
Their 401(k) contributions don’t square with their expectations. Data on retirement plans administered by Fidelity Investments show that adults in their late 20s contribute 5.9 percent to their 401(k)s; by their early 30s, that increases to 6.5 percent.
But a typical 25-year-old who wants to retire at age 67 should contribute anywhere from 10 percent to 12 percent of his pay, according to various estimates. … Learn More
October 8, 2013
Got a 401k? A Guide for New Retirees
Upon retiring, you suddenly have access to a chunk of money that’s been accumulating in your 401(k). It’s easy to make a move that incurs unfamiliar tax consequences or otherwise jeopardizes your hard-earned savings.
Based on interviews with financial planners, as well as experts at the Center for Retirement Research, which funds this blog, Squared Away assembled the following check list for imminent and new retirees:
- At least one year before retiring, collect information from:
- Social Security – how does your monthly check vary, depending on the filing age you select, and how can you and your spouse determine the best strategy for getting the benefits you’ll need?
- Your employer – is an annuity an option in your 401(k) plan, or how much can you expect to receive per month from a defined benefit pension?
- A fee-only planner or other financial resources – what are your priorities and options; how much retirement income do you need; do your Social Security, 401(k) savings, and employer pensions generate enough income, and with how much risk; should you delay Social Security to increase your total monthly income; and should you purchase an annuity to cover your fixed expenses?
“Make sure before you stop working that you’re financially prepared to do so,” said John Spoto, owner of Sentry Financial Planning in Andover, Mass., near Boston. …
October 1, 2013
There are now two reasons to postpone retirement.
The financial reason has been covered repeatedly in this blog: working longer increases a retiree’s savings and monthly Social Security income, while shortening the number of retirement years that their savings will have to fund.
If that doesn’t convince you, here’s the other reason: working longer may prevent dementia.
That’s the conclusion of a study on nearly 430,000 French retirees. After analyzing their health and insurance records, the researcher determined that each additional year an older worker remained in the labor forced further reduced the risk of being diagnosed with various forms of dementia, including Alzheimer’s disease. …Learn More
September 26, 2013
Social Security Claiming and Psychology
It’s common for people to begin collecting their Social Security benefits soon after they turn 62, ignoring the financial planners and retirement experts urging them to postpone and increase the size of their monthly checks.
A new study has uncovered four powerful psychological traits that influence this decision: the individual’s expected longevity, his fear of loss, whether he perceives the Social Security system as fair, and patience.
The study surveyed some 3,000 people, primarily in their 40s and 50s. This is a good age to ask about Social Security, because claiming the benefit is a few years away, “but they’re thinking more about it,” researcher Suzanne Shu said when presenting the findings at an August meeting of the Retirement Research Consortium in Washington.
In an online survey, Shu, who is from the University California at Los Angeles, and John Payne, from Duke University, posed a series of questions designed to understand the psychology of the individuals they were studying. They also asked when they planned to claim their Social Security and then determined which psychological traits were linked to those who said they planned to file early.
Four influences on claiming came out of their preliminary findings:
Fear of loss. People who have a stronger aversion to financial loss also tended to say they would claim earlier. To them, the researchers said, a delay in receiving their benefit checks “looks like a potential loss.” …Learn More
September 24, 2013
Nearly Retired, Lugging a Mortgage
Traditionally, the picture-perfect retirement included a paid-off house. But the Me Generation isn’t sticking to the script.
Snapshots of three generations of U.S. households on the cusp of retirement – people born in the Depression, at the beginning of World War II, and after the war – show that more of the most recent generation, the baby boomers, are still carrying mortgages as they head into their retirement years.
About 40 percent of households who were between the ages of 56 and 61 in 1992 – the Depression-era parents of baby boomers – held mortgages at that age. This share had increased to 48 percent by 2008, as the front wave of baby boomers were reaching their late 50s and early 60s
“The current generation has bought larger, more expensive homes, and they arrive at retirement with more mortgage debt,” concluded George Washington University business professor Annamaria Lusardi, who presented the findings of her study with Olivia Mitchell of the Wharton School during an August meeting of the Retirement Research Consortium. …Learn More
September 12, 2013
Swedish Retirees Spend More Freely
Americans are known for being reluctant to spend their life savings after they retire. The burning question has always been why.
New research comparing tight-fisted Americans with more free-spending Swedes found that U.S. retirees tend to hold on to their savings, because they face more risk of having to pay high out-of-pocket costs in the future for their medical and long-term care.
U.S. households, by the time they’re in their late 80s, have tapped only about one-third of the net worth they held in their late 60s, according to the study. Swedish households in their late 80s have spent more than three-fourths.
In preliminary findings presented at an August meeting of the Retirement Research Consortium in Washington, researcher Irina Telyukova said her study with Makoto Nakajima found that nearly 70 percent of the difference in the way Swedish and U.S. retirees spend down their financial assets can be explained by differences in their potential future medical costs.
Sweden’s healthcare system reduces the uncertainties for retirees in two ways. Sweden has national health care for everyone. Swedish municipalities are responsible for providing long-term care to the elderly in their communities, limiting a cost that can be enormous for U.S. retirees who need these services. …Learn More
September 10, 2013
Making the Case for Working Longer
Remaining on the job for a few more years may not appeal to many older Americans who long to retire.
But in the above video, a compelling case for working longer is made by Steven Sass, an economist with the Center for Retirement, who also edits this blog.
Sass explains that delaying retirement improves a retiree’s financial security in three critical ways:
- The worker can continue to save money for a few more years and will have more time to earn investment income on his savings.