July 18, 2017
Mid-sized Employer Meets Big 401(k) Goal
Thomas Automotive Family’s service department in Bedford, Pennsylvania.
When Peggy Zembower became the human resources director for Thomas Automotive Family about four years ago, she was dismayed that some long-time employees had never increased their retirement saving above the measly 1 percent of pay they’d started at.
One big issue was that the lowest-paid workers at the auto dealership – like low-wage workers everywhere – felt they couldn’t afford to save in the 401(k). A lack of knowledge about investing and a reluctance to give up control of their money seemed to frighten others out of saving, which meant forfeiting their employer’s matching contribution.
“It bothered me when I saw employees who’d been here five years and up and saw what small amounts they were investing,” she said. “Many lower-paid employees saved little or nothing.”
With her boss’ blessing, Zembower got to work.
Thomas Automotive is a mid-sized company with 280 full-time and part-time workers. Their earnings run the gamut, from employees in the service department earning $11 per hour (or about $23,000 per year) to car salespeople earning as much as $100,000, and Thomas Automotive’s owner, who has four dealerships in Pennsylvania and one in Maryland.
By doing the things retirement experts recommend, Zembower increased participation to 87 percent of employees, up from 53 percent. She did this by instituting automatic enrollment in the 401(k) at 4 percent of workers’ pay and auto-escalation, over time, of the amount saved. (Employees have the right to pull out or to maintain past contribution levels.) These techniques are far more common at large companies.
She goes further, re-enrolling all non-participating employees each April 1st, which requires them to revisit their decision before opting out of the retirement savings plan again. “We have a few employees who feel we don’t have the right to do this,” she said, “but we do.”
One gets the impression when interviewing Zembower that it is not what she’s done to make the 401(k) plan work better. It’s how she’s done it, with her gentle insistence that saving for retirement is best for the workers. Sometimes this means she’ll ask a worker to wipe off his greasy hands and look with her at the retirement calculator placed front and center on the employee page of the company website. …Learn More
July 11, 2017
Retirement Calculators: 3 Good Options
The Internet offers many free calculators to baby boomers wanting to get a better handle on whether their retirement finances are on track.
The operative words here are “on track,” because each calculator has strengths and weaknesses. Calculators aren’t capable of providing a bullet-proof analysis of the complex factors and future unknowns that will determine whether someone has done the planning and saving required to ensure a financially secure retirement.
With that caveat, Squared Away found three calculators, listed below, that do a good job. They met our criteria of being reliable, free, and easy to use. Many other calculators were quickly eliminated, because they were indecipherable or created issues on the first try.
Most important, each calculator selected covered the assumptions crucial to an accurate analysis. All ask such obvious questions as how much an older worker and spouse (or single person) have saved, their portfolio’s returns, and estimates of their Social Security and pension income. The first calculator below asks how much money the user wants to leave to his children, and all three include the user’s home equity, a major resource that most retirees are loath to tap but are under increasing financial pressure to consider. Also, the first two ask more detailed questions – and are more time-consuming – than the third, which is the best option if you want just a rough estimate of where you stand.
Finally, this blog’s writer tested each calculator and compared the results with her personal adviser’s customized analysis. Each time, the outcomes were in the same ballpark as the adviser’s. A fourth good option is to use the calculator provided by the financial company managing your employer’s 401(k) – most of the major providers offer them. …Learn More
July 6, 2017
IRAs Fall Short of Original Goal
Nearly 8 trillion dollars sits in Individual Retirement Accounts, or IRAs. This is nearly half of all the value held in the U.S. retirement system, which also includes employer pension funds and 401(k)s.
A big reason IRAs were created in 1974 under the Employer Retirement Income Security Act (ERISA) was to give individuals not covered by retirement plans at work an opportunity to save in their own tax-deferred accounts.
So, are IRAs helping these workers?
IRAs “have drifted very far from their original intent” of helping those who need them most, researchers for the Center for Retirement Research conclude in a new study.
Who is eligible to receive tax benefits for saving in an IRA has morphed over the years since ERISA’s passage, but the original description is still relevant to millions of Americans: about half of U.S. private-sector workers today do not have a tax-exempt retirement plan at work. Low-income workers are even less likely to have one.
To determine who benefits from IRAs today, the researchers first tracked down the source of the trillions of dollars held in IRAs. Only 13 percent of the money that flowed into IRAs in 2014 was from people putting new savings into these accounts. The rest was from rollovers of funds accumulated in employer 401(k)s, which usually occur when a worker retires or changes job. (ERISA did delineate rollovers as a second purpose of IRAs.) …Learn More
June 29, 2017
Mutual Fund Fees: Here’s What Matters
Investors will probably see good news in Morningstar Inc.’s annual report showing that the fees charged by actively managed mutual funds continue to come down.
The truth is that focusing on fees alone misses the point. What matters is a fund’s after-fee return. There are always fund managers who excel at picking stocks and can deliver strong after-fee returns to investors year after year, justifying the high fees required to pay them. The early years of Fidelity’s Magellan fund is the classic example.
The trick is finding that clever manager, which requires a combination of luck and the skill and inclination to compare numerous investment options. One thing making this task a little easier is the mutual fund industry practice of reporting returns, net of fees. But the research shows that stock funds that consistently outperform their benchmarks are few and far between – and finding them would be particularly challenging for 401(k) investors who already struggle with basic decisions.
Morningstar’s fee report indicates investors might be getting the message. In 2015 and 2016, they pulled a total of $627 billion out of the group of actively managed funds charging the highest fees. During the same two years, they funneled $429 billion of new money into lower-fee index funds.
Yes, active funds’ average fee (called the expense ratio, in a prospectus) declined last year to 0.75 percent – or three-quarters of 1 percent – from 0.78 percent in 2015. This continued a downward trend: fees averaged 1 percent in the early 2000s.
But compare this with 0.17 percent for index funds. In contrast to actively managed funds, passive index funds aren’t set up to beat a market benchmark: their goal is to simply mimic the performance of a specific market index, whether it’s the Standard & Poor’s 500 or a Bloomberg Barclay’s bond index. …Learn More
June 27, 2017
Top 10 Blogs Explore Weighty Issues
Millennials’ reliance on their parents, retirement finances, and long-term care – Squared Away readers had some serious topics on their minds during the first half of the year.
Here are the 10 most popular blogs, ranked by the number of page views each received between January and June:
- Retiree Benefits: Tale of 2 Cities (and States)
- Get Dental Work Before You Retire
- Long-Term Care Insurance Goes Uptown
- Long-Term Care on a Boxed Wine Budget
- The Benefits of Late-Career Job Changes
- Retirees Don’t Touch Home Equity
- People Lack Emergency Funds, Tap 401(k)s
- Managing Money with Cognitive Decline
- Why Parents’ Home is the Millennial Crib
- Our Stubborn State of Financial Illiteracy …
June 15, 2017
Pre-Retirement Financial Review is a Must
My husband has taught high school biology for 30 years in Boston and works hard for his students. But he’s nearly 64 and it’s time to think about retiring.
Can we afford it? When we retire, will we eventually run through our savings? Is retirement scary – or what?
Questions like these are also probably haunting millions of baby boomers in the middle of the night. One out of three boomers in a recent Transamerica survey said they are not confident they will have enough income to retire “comfortably” and another third concede that they are only “somewhat confident.”
To find the answer for ourselves, my husband and I hired a financial adviser. It was the best thing we could’ve done. The point of this blog is to encourage other boomers to take stock of their imminent retirement, whether it’s around the corner or still a decade away.
We’d been kicking around retirement scenarios inside our marriage bubble. My husband has not fixed a retirement date in his head but is talking about the next one to three years. To be conservative, we posed this simple question to our adviser: can Garret retire in 2018?
Garret Virchick and Kim Blanton
Her answer was in the half-inch packet, which she delivered to our front door. We sat around our dining room table as she walked us through her quantitative analysis of our financial profile.
Many financial advisers like to talk about how they’ll manage a baby boomer client’s investments. In truth, simple index funds do the trick for us. Our adviser, Wendy Weiss of Weiss Financial Advisors in Cambridge, Mass., used to be an investment adviser for large financial firms, but spent very little time on our investments. The most important thing for baby boomers who, like us, are not wealthy is knowing how much income will come in the door every single month to pay the bills in retirement.
“It’s more important for my clients to find out how to use that 401(k) in retirement than it is for me to try to manage the investments for you,” she said. …Learn More
June 13, 2017
Social Security’s Legacy to Ex-Wives, Kids
Social Security Administration poster, 1956
Many women are fuzzy on how Social Security benefits for widows work and even more unclear about the program’s spousal benefits.
I know two of these women. Their situations nicely illustrate how this federal program promotes the well-being of older women and families.
One is my divorced aunt. She was surprised to learn, after my uncle died a few years ago, that her widow’s – or survivor’s – benefit, based on his decades of work as a housing developer, would be double the spousal benefit she’d received while he was alive. Divorced spouses are eligible for the same spousal and survivor’s benefits as still-married spouses, though only if the marriage lasted more than 10 years.
For a more complex experience involving Social Security’s child, spousal and survivor benefits, consider a friend of mine, who married an older man with whom she adopted two baby girls from China.
The couple divorced after 12 years, but John remained a loving older father. He showered his little girls with attention and, as they grew up, spoiled them with shopping excursions to the mall. But one of his best gifts came after he retired: Social Security benefits that provided financial security to his daughters and their mother.
John, like many older men, had difficulty finding steady work, but earlier in his career, he’d been a well-paid executive. On the strength of this earnings history, John signed up for his Social Security pension when he reached his full retirement age. His initial benefit was $2,209. In addition to this benefit, $828 per month went to each of his daughters, who were in elementary and middle school at the time.
Under Social Security’s rules, benefits go to children under age 16 when a parent is collecting a Social Security pension. This continues until the child reaches age 18 (or 19, if they’re still in high school). Each child’s benefit is precisely half of the parent’s pension, but John’s daughters received less than half because they bumped up against Social Security’s family maximum.
When John died a year ago, at age 73, his Social Security legacy continued. …Learn More