February 28, 2017
In the Dark about Retirement?
There’s new evidence to remind us that nothing much changes: we are still baffled by our DIY retirement system.
And no wonder!
First, saving must start at a young age, when retirement is an abstraction. Saving is further stymied by two big questions: how much to save and how to invest it? It’s also smart to anticipate how one’s compensation arc might affect Social Security – taking into account, for example, that women withdraw temporarily from the labor force to have children and that earnings can decline when workers hit their 50s. As we fly past middle age and retirement appears on the horizon, it’s a little late to figure this retirement thing out. And there’s no plan for long-term care when we’re very old.
The evidence: Start with Merrill Lynch’s new survey in which 81 percent of Americans do not know how much money they’ll need in retirement. This makes it very difficult to know how much to deduct from one’s paycheck for retirement savings. Employers, frankly, could do more to help us figure this out. (Some answers appear at the end of this blog.)
Being in the dark now about how much to save is a cousin of being afraid of running out of money later, in retirement. More than 70 percent of accountants say this fear of running out is their clients’ top concern – followed by whether they can maintain their current lifestyle and afford medical care in retirement – according to the American Institute of Certified Public Accountants.
Our inclination to avoid difficult issues does not go away with age. Yes, we’ve gotten wiser, but advanced old age means death, and who wants to think about that?
The upshot: seven in 10 adults have not planned for their own long-term care needs in the future, Northwestern Mutual reports. Even among a smaller group who anticipate having to take care of an elderly parent, one in three of them “have taken no steps to plan” for their own care.
“You would think that would prompt them to action,” said Kamilah Williams-Kemp, Northwestern’s vice president of long-term care. And while the constant barrage of news and statistics is making Americans more aware of their rising longevity, Williams-Kemp said, caregivers are often more interested in talking about their emotional and physical challenges and the rewards of caregiving than about its substantial financial toll.
There is a “disconnect between general awareness and prompting people to take action,” she said.
The potential for dementia or diminished capacity late in life isn’t on our radar either, the survey of CPAs found: the vast majority of people either choose to ignore the issue, wait and react to it, or are confused.
Squared Away exists in part to educate people about retirement essentials, based on facts and high-quality research. The following blogs might help you:
How Much for the 401(k)? Depends. …Learn More
February 21, 2017
A Bigger Bite Out of Social Security
Most retirees didn’t notice the $5 cost-of-living increase in the average Social Security check. That’s because the Part B Medicare premium deducted from their checks went up nearly as much (from $104.90 in 2016 to an average $109 this year).
Beyond premium hikes, the bigger issue for retirees are the additional out-of-pocket costs they must pay as part of their Part B coverage for doctor visits and outpatient care. When rapidly rising copayments are added to the basic premium, they together consumed more than 15 percent of the average Social Security benefit last year. That is more than double the percentage in 1980, and it’s expected to exceed 17 percent by 2030, according to the Centers for Medicare and Medicaid (CMS).
The CMS estimates were made prior to the announcements of 2017’s final COLA and Part B increases. But the trend of eroding benefits was confirmed by Juliette Cubanski, associate director of Medicare policy for the Henry J. Kaiser Family Foundation. …Learn More
February 9, 2017
Retiree Benefits: Tale of 2 Cities (States)
Some of the workers and retirees around the country who count on having a government pension surely get nervous when they see headlines about the most troubled state and local plans – in places like Illinois, New Jersey, Connecticut, Chicago, and Detroit.
A broader perspective on retirement benefits, however, shows that the results are more mixed. A study by the Center for Retirement Research, which sponsors this blog, estimated long-term costs for pensions, retiree health benefits, and general debt service as a share of revenues for the 50 states, 178 counties, and 173 cities.
The findings are summarized below:
- Many states’ combined costs – pensions, other post-employment benefits (OPEBS) such as health insurance, and payments on all government bonds – appear manageable.
- More worrisome are the eight states with the highest combined costs: Illinois, New Jersey, Connecticut, Hawaii, Kentucky, Massachusetts, Rhode Island, and Delaware. [States with high pension burdens also tend to have high costs for retiree health benefits].
Counties: …Learn More
February 2, 2017
Managing Money with Cognitive Decline
Despite the normal cognitive challenges that people in their 70s and 80s inevitably face, most are sharp enough to be in charge of their financial affairs or oversee them.
But the significant minority of seniors who do have trouble is explored in a new summary of the research by Anek Belbase and Geoffrey Sanzenbacher at the Center for Retirement Research, which supports this blog.
One such group is people learning for the first time how to carry out financial tasks. Widows, not surprisingly, are often required to negotiate this financial learning curve, which gets steeper as a senior’s ability to process new information erodes. With guidance from a family member or professional, however, the novices can usually figure things out.
Seniors with mild cognitive impairment might also develop problems. Mild impairment becomes fairly common by the time people reach their 70s, affecting their financial judgment and potentially their ability to manage their affairs in ways that promote their best interests. Among those with mild impairment, 82 percent can independently handle the various financial tasks they face, such as paying bills, managing bank accounts, and maintaining good credit. This compares with 95 percent of unimpaired seniors.
Another danger facing seniors with mild cognitive impairment is their vulnerability to fraud. They are usually aware they’re slipping, yet they may remain confident about their ability to handle their financial affairs. …Learn More
January 24, 2017
The Late-1950s Boomers: Hit by Divorce
It’s old news that the many baby boomers who did not get married and stay married are worse off financially than those who did. Unfortunately, the financial damage to one segment of this generation has broken new ground.
Only 44 percent of “middle boomers” – those born in the late 1950s – have remained married to their original spouses, down from 52 percent of their parents’ generation. Middle boomers are also far more likely to have lived with partners without marrying, remained single all their lives, or even to have divorced twice.
The heart of a study is determining which of middle boomers’ choices were most likely to have led to financial distress when they reached their pre-retirement years.
About 11 percent of middle boomers had negative net worth by the time they were in their early 50s – more than double the share for the generation born during the Great Depression when they reached this age. Negative net worth means that middle boomers’ mortgages and other debts exceed the value of their assets; in this study, assets included everything from retirement plans and taxable bank accounts to primary and vacation homes.
To understand why, the researchers culled marital histories from a survey of older Americans. They found that four lifestyles are most strongly linked to middle boomers’ negative net worth: never marrying, going through one divorce and becoming single again, separating from a second marriage, and divorcing from a second marriage.
In all of these situations, the individuals were about three times more likely to have negative net worth than were the continually married middle boomers. The study controlled for age, gender, race, education, health, household income, and the number of offspring.
Middle boomers are the “least prepared for retirement” out of four groups studied, the researchers concluded, and their choices around marriage have been important contributing factors.Learn More
January 24, 2017
Can Work Enhance Seniors’ Social Lives?
Maintaining a network of family, friends, or even golfing buddies is critical to cognitive and physical health in old age, research has shown.
What wasn’t known is how work affects the social lives of older people. Does work foster social ties or limit the time one has to socialize?
A new study by Eleonora Patacchini at Cornell University and Gary Engelhardt at Syracuse University finds that those who continue to work have larger social networks.
They analyzed responses to the following question by more than 1,300 survey participants in the National Social Life, Health and Aging Project. The participants were ages 57 to 85 in 2005 and answered the following question then and again in 2010:
“Most people discuss things that are important to them with others. For example, these may include good or bad things that happen to you, problems you are having, or important concerns you may have. Looking back over the last 12 months, who are the people with whom you most often discussed things that were important to you?” …Learn More
January 19, 2017
People Lack Emergency Funds, Tap 401ks
When between 45 percent and 60 percent of Americans don’t have enough money for retirement, encouraging saving is a national priority.
A related issue is preserving the funds once they’re set aside.
A survey released last month by Transamerica indicates that workers frequently resort to hardship withdrawals and loans from their 401(k)s, because they lack the cash required in emergencies. The survey bolsters the argument made by some retirement experts and employers that until workers’ cash-flow problems are addressed, many will continue to view retirement funds as their best option in an emergency.
More than one in four U.S. workers in the survey said they have taken premature withdrawals from their 401(k) or IRA retirement funds. Catherine Collinson, president of the Transamerica Center for Retirement Studies, connected this “alarmingly high share” to a shortage of cash: 21 percent of workers reported having less than $1,000 saved for emergencies and another 14 percent have saved just $1,000 to $5,000. …Learn More