December 13, 2012
Financial Planners Diversify: Four Types
Brokers, registered investment advisers, fee-only, commission-based, dual license – the labels for financial planners can be intimidating.
In a consumer-friendly article, the Retirement Income Journal (RIA) in November identified four adviser types, based on what they do for their clients.
Most advisers still fall into the traditional Technician category. But the rise of other types – Strategist, Behaviorist, and Life Coach – partly reflects a profession rocked by the 2008 financial crisis. The number of advisers nationwide fell 3 percent last year, according to Cerulli Associates in Boston.
“[T]he combined impact of the financial crisis, boomer retirement, the advent of behavioral economics and fee compression is forcing more advisers to evolve,” RIA explained.
The following is an adaptation of RIA’s article, which was based on a presentation to the University of Pennsylvania’s Wharton School of business by fee-only advisers Paula Hogan in Milwaukee and Rick Miller in Boston.
The new year is around the corner, and perhaps you’ll want to hire a planner. But which of the following four types suits you? …Learn More
December 11, 2012
Black Families Struggle to Build Wealth
It is extremely difficult for black Americans to accumulate wealth they can pass on to their children.
Getting to the heart of this concern is new research by the Urban Institute. The Washington think tank found that while blacks excel at converting the gifts and inheritances they receive into even more wealth, the size and frequency of these bequests are much smaller than for whites, perpetuating a wealth gap that has existed since emancipation.
“In the news, you hear about the racial income gap, but the racial wealth gap is so much larger, and it’s not improving,” said Signe-Mary McKernan, a senior fellow at the Urban Institute and co-author of the new study. Smaller inheritances and gifts in African-American families “are hindering their opportunity and wealth accumulation,” she said, about her findings.
Median wealth for black families is $18,181 – white family wealth is $122,927, and Hispanic wealth is $33,619.
But the real question is, why is white wealth seven times larger than black wealth? The researchers found that blacks are five times less likely to receive family bequests than are whites, and their inheritances are $5,013 smaller.
McKernan’s research employed standard statistical methods by holding factors such as income and education constant in order to highlight the racial aspect of differences in wealth.
But Lester Spence, a political science professor at Johns Hopkins University who sometimes conducts statistical analysis in his research, said such analysis fails to fully capture the significant impact of factors such as the social and cultural barriers facing black Americans. …Learn More
December 6, 2012
Readers’ Picks for 2012
Squared Away readers’ favorite articles during the year reflect America’s biggest financial challenges: paying for college and retirement.
The following are the Top 10, according to an online analysis of blog articles with the most unique visits by readers. A link to each article is embedded in the last word of each headline:
It Pays More Than Ever to Delay
The Long-Term Care Insurance Gamble
Boomer Moms, Here’s a Radical Idea
For Many Elderly, Little Left at Life’s End
Why Baby Boomers Can’t Retire …Learn More
December 4, 2012
Long-Term Care Policies Unpacked
The typical, elderly couple spends about $260,000 on health care and long-term care services during retirement – for the unlucky ones, the amount can be double. No wonder sales of long-term care policies this year will increase nearly 10 percent, according to the American Association for Long Term Care Insurance. At the same time, major insurers are pulling out of the market in droves, and premiums are surging due to higher demand by aging baby boomers, record-low interest rates, and rising medical costs.
To help navigate this increasingly treacherous market, Squared Away interviewed Larry Minnix Jr., chief executive of LeadingAge, a non-profit consumer organization in Washington.
Q: Is there anyone for whom long-term care insurance does not make sense?
A: Not many. I’ve seen too much of the consequences for too many age groups and too many families – long-term care just needs to be insured for. A majority of the American public is going to face the need for some kind of long-term care in their family. The only people it doesn’t make sense for are poor people – they have Medicaid coverage, mostly for nursing homes. And for people who are independently wealthy, if they face a problem of disabling conditions they can pay for it themselves. You find out at age 75 you have Parkinson’s or Alzheimer’s, but it’s too late to insure for it. Think about it like fire insurance. I don’t want my house to burn down, and very few houses do. But if mine burns down, I do have insurance.
Q: The Wall Street Journal reported that GenWorth Financial next year will charge 40 percent more to women who buy individual policies. Why?
A: Among the major carriers, private long-term care insurers have either limited what they’re doing or backed out of the market entirely. You’d have to get GenWorth’s actuarial people [to explain], but let me venture a guess. I’ve had private long-term care insurance for 12 to 15 years, but my wife couldn’t get it. She’s got some kind of flaw in the gene pool, and she was denied coverage. She may be the bigger risk, because I’m more likely to stroke out and die, but she’s more likely to live with two to three conditions for a long period of time.
Q: Your wife wasn’t healthy enough to get coverage? …
November 8, 2012
Women’s Pay Gap Explained
Lower pay for women came up – where else! – in the foreign policy debate between President Obama and Governor Romney. It affects women’s living standards, single mothers’ ability to care for their children, and everyone’s retirement – husbands and wives.
To understand why women earn 77 cents for every dollar earned by men, Squared Away interviewed Francine Blau of Cornell University, one of the nation’s top authorities on the matter. A new collection of her academic work, “Gender, Inequality, and Wages,” was published in September.
Q: How has the pay gap changed over the years?
Blau: For a very long time, the gender-pay ratio, which is women’s pay divided by men’s pay, was around 60 percent – in the 1950s, 1960s and 1970s. Around the 1980s, female wages started to rise relative to male wages. In 1990, the ratio was 72 percent – that was quite a change, from 60 to 72 in 10 years. We continued to progress but it is less dramatic. In 2000, it was 73 percent. Now it’s 77 percent – that’s the figure that came up in the debate.
Q: Why do women earn less?
Blau: There are two broad sets of factors: the first is human capital and the factors that contribute to productivity and the second is discrimination in the labor market. Women have traditionally been less well qualified than men. The biggest reason here is the experience gap between men and women. Traditionally, women moved in and out of the labor force, and that lowered their wages relative to men.
But when we do elaborate studies – my recent study with Lawrence Kahn in 2006, for example – we find that when we take all those productivity factors into account we can’t fully explain the pay gap. The unexplained portion is fairly substantial and is possibly due to discrimination, though it could be various types of unmeasured factors. So in the 1998 data used in our 2006 article, women were making 20 percent less than men per hour. When we take human capital into account, that figure falls to 19 percent. When we add controls for occupation and industry – men and women tend to be in different occupations and industries – we can get a pay gap of 9 percent. This unexplained gap of 9 percent is potentially due to discrimination in the workplace. …Learn More
November 6, 2012
Dicey Retirement: The Long Ride Down
No one really needs confirmation of how tough the Great Recession was. But the Center for Retirement Research at Boston College has quantified the decline – and it’s brutal.
Investment losses and falling home prices placed 53 percent of U.S. households in danger of a decline in their standard of living after they quit working and retire, reports the Center, which funds this blog. That’s up sharply from 45 percent in 2004, prior to the financial boom, which created a strong – albeit fleeting – increase in Americans’ wealth.
The longer-term erosion in Americans’ retirement prospects is even more troubling and reflects deeper issues. The Great Recession just hammered the point home.
In 1989, just under one-third of Americans faced such dicey retirement prospects. The steady erosion since then coincides with the near-extinction of traditional employer pensions that guaranteed retirees a fixed level of income. It turns out that the DIY system that replaced them, a system reliant on Americans’ ability to save in their 401(k)s, is not working.
Older baby boomer households with 401(k)s have just $120,000 saved for retirement, according to the Center. That’s not even enough to pay estimated medical costs not covered by Medicare. Retirement savings for all older boomer households is a paltry $42,000 – that means a lot of people have no savings…Learn More
October 23, 2012
401(k)s “Top” Financial Priority. Really.
A large majority of people in a survey released last week identified saving for retirement as their top financial priority. If that’s the case, then why aren’t Americans saving enough?
Stuart Ritter, senior financial planner for T. Rowe Price, the mutual fund company that conducted the survey, has some theories about that. Squared Away is also interested in what readers have to say and encourages comments in the space provided at the end of this article.
But first the survey: about 72 percent of Americans identified saving for retirement as “their top financial goal,” with 42 percent saying that a contribution of at least 15 percent of their pay is “ideal.”
Yet 68 percent said they are saving 10 percent or less, which Ritter called “not very much.” The average contribution is about 8 percent of pay, according to Fidelity Investments, which tracks client contributions to the 401(k)s it manages.
The Internal Revenue Service last week increased the limit on contributions to 401(k) and 403(b) retirement plans from $16,500, to $17,000. The so-called “catch-up” contribution available to people who are age 50 or over remains unchanged at $5,500.
The question is: why do Americans give short shrift to their 401(k)s, even as people become increasingly aware that their dependence on them for retirement income grows? Ritter offered a few theories in a telephone interview last week:
- The financial industry is partially to blame. “We have done a really good job of conveying to people how important saving for retirement is,” he said, “but what we haven’t done as good a job of is telling them how much to save.”
Employers may also share blame. Further confusing the issue, the savings rate depends on when the employee starts saving – the percent of pay is lower for those who start in their 20s than for someone who waits until they’re 45. …