Posts Tagged "spending"

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

squeeze

Book Review: the Middle-class Squeeze

book coverMarketplace recently estimated that a family’s common expenses have increased 30 percent since the 1990s. This was based on the inflation-adjusted prices for 11 necessities and small luxuries, from food, housing, college, and medical care to movie tickets and air fare.

On the income side of the household ledger, one well-known study estimates that the lifetime, inflation-adjusted income of a typical 60-year-old man today is substantially less than it was for a man who turned 60 back in 2002. Women, who have benefitted from getting more education, are earning more, but they started out at much lower pay levels and still trail men.

These trends – rising expenses and shrinking paychecks – get to the essence of the middle-class struggle described in Alissa Quart’s new book, “Squeezed: Why Our Families Can’t Afford America.”

Putting faces to the numbers, she had no trouble finding workers who feel they are losing their tentative grip on the middle class. Her focus is the 51 percent of U.S. households earning between $40,000 and $125,000.

That’s not to say that Americans’ quality of life hasn’t improved in some ways. Consider the dramatic increase in the square footage of U.S. houses over the past 30 years or the enormous strides in medical technology. In today’s strengthening economy, the Federal Reserve Board reports that a majority of adults say they are doing okay or even living comfortably, and they are feeling more optimistic. Yet this doesn’t entirely square with another of the Fed’s findings: a large majority of adults would not be able to cover an unexpected $400 expense without selling something or borrowing money. …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

ATM machine

Retirees Get a 401k Withdrawal Headache

Different people, different strategies.

Myra Hindus and Jewell Jackson

Myra Hindus of Boston, semi-retired at 68, had her financial adviser estimate the 401(k) withdrawals necessary to support her $4,500 monthly budget, which the adviser also prescribed. But Hindus isn’t fully at ease about her finances, despite the professional advice, a paid-off mortgage, and a good bit more savings than most people have.

“It’s a bunch of guesswork,” said the former diversity administrator and consultant to major universities who hedges her bets by teaching college social work courses.

What overwhelms her are the many unknowns that will determine whether her money lasts as long as she does. What if her adviser is wrong? Or what if she lives well into her 90s – like her mother did? She’s also uncertain of the impact of her younger partner’s coming retirement, which isn’t sorted out yet.

“No one knows when you’re going to die so you can’t base it on that. We’re all in the stock market, and we don’t know what will happen to that,” she said.

Brian Jarvis and Connie O’Brien of Beavercreek, Ohio, also have advantages most baby boomers don’t: small pensions from their former employer, Northrop Grumman, and a mortgage paid off with their private-sector salaries. But they got lucky too. The odds that their withdrawal strategy would succeed improved a few months after they retired, in 2010, when President Obama signed the Affordable Care Act.  The couple, who are too young for Medicare, no longer had to buy expensive private health insurance – access to the government health exchange drastically reduced the expense. …Learn More

Video: Kids Say the Darndest Things

The children in this video have a delightful take on our cultural attitudes and mores about money – what it is, what it can do, and whether to share it.

The interviewer borrowed the format Art Linkletter used when asking kids questions on his Emmy Award-winning television show, “Art Linkletter’s House Party,” which aired between 1952 and 1969 – as boomers and their parents will remember.

The new video about kids and money is posted on the American Financial Services Association Education Foundation’s website.  The foundation’s mission is to educate people about responsible money management, starting with young children and teenagers.

The adorable factor makes this 6-minute video fly by.Learn More

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