Posts Tagged "saving"

race to the finish

Americans With Small 401ks Worry

This blog has spilled plenty of ink over the problem of so many workers having inadequate retirement savings.

One theory is that they don’t understand the urgency. But a new survey makes clear that they not only are fully aware of the problem but are very worried about it.

The vast majority of the 1,000-plus baby boomers and Generation-Xers who conceded to being behind on their saving wish they could save more – Allianz, which conducted the survey, calls them “chasers.”

These chasers recognize that if they don’t make adjustments, it’ll be too late to repair their finances. Two out of three fear the worst: they’ll run out of money at some point in old age and will be forced to eke out a living on their Social Security checks alone.

Their fears are warranted. The typical boomer household approaching retirement who has a 401(k) has saved just $135,000 in its 401(k) and any IRAs combined. At retirement, this amount equates to only about $600 in monthly income

Half of the workers put the blame on a single culprit: “too many other expenses right now.”

This sentiment dovetails with mounting evidence that many workers are overwhelmed by the increasing costs of health insurance, college, and housing, which are far outpacing their pay raises. Low-paid workers are especially hard hit, according to 2017 research. If they save at all, they set aside only 3 percent of their paychecks – half of what top-paid people are able to save. …Learn More

paid off logo

Game Show Pays Off Student Loans

The student loan problem has gotten under our collective skin – so much so that a new game show revolves around it.

“Paid Off,” on TruTV, promises to pay off a share of the winning contestant’s student debt – 20 percent, 50 percent, or 100 percent – depending on how many answers he or she gets right in the final round of questioning.

“Paid Off” is as inane as any television game show. The format is more “Family Feud” than “Jeopardy,” with softball questions designed to spark as much faux competition as possible among the former students who compete. One example: name the most romantic date costing under $10: picnic, walk, Netflix movie, etc.

The show’s host, Michael Torpey, who also plays a corrections officer in “Orange is the New Black,” explains in the first episode of “Paid Off” that he created it because he and his wife struggled with student loans. He was only able to pay them off because he landed a long-shot acting job for a television commercial.

Torpey says his goal is to help debt-laden students “achieve their dreams by paying off their student loans.”  He’s right that college debt is, indeed, standing between many Millennials and the adult milestones of buying a house, saving some money, or getting married.

The average amount of debt owed by college graduates increased again last year, to more than $39,000, according to Student Loan Hero

Unfortunately, the weekly show won’t make a dent in this growing problem. …
Learn More

Abstract financial concept illustration

Work v. Save Options Quantified

One of Americans’ biggest financial challenges is proper planning to ensure that their standard of living doesn’t drop after they retire and the regular paychecks stop.

A new study has practical implications for baby boomers in urgent need of improving their retirement finances: working a few additional years carries a lot more financial punch than a last-ditch effort to save some extra money in a 401(k).

This point is made dramatically in a simple example in the study: if a head of household who is 10 years away from retiring increases his 401(k) contributions from 6 percent to 7 percent of pay (with a 3 percent employer match) for the next decade, he would get no more benefit than if he instead had decided to work just one additional month before retiring.

Table showing how long to delay retirement in order to match a 1% increase in savings rate by age

Of course, this estimate should be taken only as illustrative.  To get their retirement finances into shape, many people should plan to work several more years than is typical today. Baby boomers tend to leave the labor force in their early- to mid-60s, even though more than four out of 10 boomers are on a path to a lower retirement standard of living. …Learn More

401k Savers Make Little Progress

Despite the mounting pressures on Americans of all ages to save for retirement, our saving habits haven’t changed in 10 years.

The combined employer and employee contributions to 401(k)s consistently hover around 10 percent of workers’ pay, according to “How America Saves 2018,” an annual report by Vanguard, which administers thousands of employer 401(k)s and other defined contribution plans.

Retirement account balances aren’t going up either. The typical participant’s 401(k) balance is no larger than it was in 2007, even though accounts grew 7 percent last year, to $26,000, thanks to a strong stock market. The balances, when adjusted for inflation, are slightly smaller.

The growing adoption of 401(k) plans that automatically enroll their workers is having both negative and positive influences on the account balances.  Employers tend to set employees’ contributions in these plans at a low 3 percent of their pay.  This has had a depressing effect on balances, but it has been offset somewhat in recent years by a modification to auto-enrollment plans: more employers are automatically increasing their workers’ contribution rates periodically.

Baby boomers with a few short years left to save are particularly under pressure to increase their savings. The typical boomer has accumulated only $71,000 in his current employer’s retirement account, according to Vanguard. Total account balances are generally larger, however – though still often inadequate – because many baby boomers have rolled over savings from past employer 401(k)s into their personal IRA accounts.

Overall, the situation for all workers hasn’t really changed and neither has Vanguard’s message to future retirees.

“Going forward, we need to reach for higher contribution rates for more individuals,” Jean Young, senior research analyst says in the company’s video above. …Learn More

airplane

Readers Like a Travel Twist on Finances

Two of our readers’ favorite articles so far this year connected difficult bread and butter issues – personal finance and retirement – with a far more pleasant topic: travel.

The most popular blog profiled a Houston couple scouting locations for a dream retirement home in South America, which has a lower cost of living.  Another well-read blog was about Liz Patterson, a young carpenter in Colorado who built a $7,000 tiny house on a flat-bed trailer to radically reduce her expenses – so she could travel more.

The downsizing efforts of 27-year-old Patterson inspired several older readers to post comments to the blog about their own downsizing. “From children’s cribs and toys in the attic, to collectible things from my parents’ 70-year marriage!” Elaine wrote. “Purging has been heart wrenching and frustrating and long overdue!”

The following articles attracted the most interest from our readers in the first six months of 2018. Topics ranged from 401(k)s, income taxes, and Americans’ uneven participation in the stock market to geriatric care managers. Each headline includes a link to the blog. …Learn More

stick family

Kids Figure into Retirement Plans

The grocery shopping for five is over, the family cell phone plan has been canceled, and the college tuition has been paid one last time.

So what’s next?

Newly minted empty nesters, having poured a couple hundred thousand dollars into raising each child, respond to their financial liberation in one of two ways. Some start saving more for their golden years. The others keep spending at that elevated level – but this time on themselves.

This personal decision, made at the critical juncture in the pre-retirement years, will have consequences for retirement – save more and things could turn out pretty well, or keep spending and jeopardize financial security in old age.

In the aggregate, at least some older households are taking the second approach. An analysis by the Center for Retirement Research at Boston College, finds that having children translates to “a moderate increase” in the risk that their standard of living will fall after they retire.

The researchers looked at the financial implications of kids from two angles. First, they used household data to estimate the sacrifices parents make – in the form of lower income – while they are raising children. Then they looked ahead to their retirement finances.

Compared with childless couples, parents in their 30s and 40s have about 3 percent less income for each additional child – some of this loss occurs when mothers work part-time temporarily or take time out for childbearing and childrearing. The income gap between parents and childless couples closes when parents reach their 50s and the kids start leaving the roost.

Less income over a lifetime translates to less wealth: parenthood reduces wealth by about 4 percent per child for workers ages 30-59.

The effects of children persist even after the transition from work to retirement. …Learn More

paddleboarder

1 in 4 Can’t Afford a Summer Vacation

What a drag. One in four Americans said they can’t afford to take a vacation this summer.

The 3.8 percent unemployment rate is at its lowest since 2000, when the high-technology industry was going gangbusters. Despite the economy’s current strength, the cost of a vacation puts it out of reach for millions of people.

The average family of four spends about $4,000 on vacation, Bankrate said. Air fares don’t seem to be the issue – they are lower now than they were five years ago. But families living on a limited budget are more likely to drive, and the price of gasoline has shot up 25 percent over the past year, to around $2.90 per gallon.

Many people are shortchanging themselves on vacations, because they are “living paycheck to paycheck,” analyst Greg McBride said in a recent Bankrate blog.

Indeed, workers paid on an hourly basis can’t seem to get ahead. Their wage increases, adjusted for inflation, have been flat over the past year. Further, one in four U.S. households couldn’t come up with $2,000 even in an emergency, according to one widely cited study a few years ago. A summer vacation is probably out of the question for them.

Everyone needs a little time off to decompress and relax. Yes, it would be great to go on a deluxe fishing trip to Canada or cycle around Tuscany for two weeks, but there are more affordable ways to enjoy a few days off. A “staycation” is better than nothing. And the cost of a trip can be kept under $500 – one in four people do it, Bankrate said.

But cost isn’t the only reason people skip their vacation – family and work obligations also get in the way. A majority of workers, according to Bankrate, aren’t even using all of their paid vacation days.Learn More

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