January 31, 2013
Tally Your Mutual Fund Fees Here
“The average person has no idea” how much fees and expenses sap from their investments, said Ted Leber, a retiree who was a staffer with the Chief of Naval Operations and a financial adviser to service members.
The career Navy man said he was a failure after retiring to become an adviser, because he kept steering clients to low-fee mutual funds that replicate index returns, such as the S&P 500 or NASDAQ tech-stocks. The index funds helped his clients but not his firm’s profits.
Larsen and Leber join a growing number of academics, financial planners, and investors balking at the high fees middle-income investors pay for mutual funds that are actively managed by stock pickers. Fees are “costly for the average employee” and “can take a substantial toll on their retirement,” according to a study by the Center for Retirement Research at Boston College, which supports this blog.
January 29, 2013
Working Over 70: Still the Exception
For Vita Needle Company’s elderly employees, work is the essence of the fulfillment they feel in their lives.
Howard Ring, a 78-year-old engineer – like many of his coworkers – initially went back to work after retiring, because he needed more money. And Vita Needle would hire him.
“What I found there was more than just a job,” he says. In this video, Ring and his elderly coworkers talked about what they derive from work during an October panel discussion at the Newton (Mass.) Free Library.
Is Vita Needle a window into the future? Will growing ranks of retired but still-vigorous boomers return to work after a couple of years, when they grow bored with golf or bridge?
Returning to work – or remaining employed – has proved extremely difficult in the wake of the 2008-2009 stock and housing market collapses. More late-career workers lost their jobs in the Great Recession than in previous downturns, and their jobless spells lasted longer, according to a forthcoming study by the Center for Retirement Research, which funds this blog. Now that the economy is growing, it isn’t generating enough jobs for the elderly who do want to work, the study found.
January 24, 2013
Boomers Delay Retirement, Earn More
Reflecting the sea change in lifestyles for the over-65 set, the share of their total income that America’s elderly earn from working has almost doubled over the past two decades.
That’s a central conclusion of research by the Brooking Institution’s Barry Bosworth and Kathleen Burke, who compared the 1990 and 2010 sources of income for the nation’s age 65-plus population in a paper funded by the Retirement Research Consortium, which supports this blog.
Some things haven’t changed. The share of the elderly’s income that comes from Social Security, employer pensions and – for the poor – government aid such as welfare has hardly budged over the past two decades.
But the earnings the elderly derive from employment soared from 18 percent of their total income in 1990 to 31 percent currently. The primary reason is that more Americans are working longer and delaying retirement, a multifaceted response to better health, more education and – at least for some – growing financial insecurity. …Learn More
January 22, 2013
Olen Explains ‘Pound Foolish’
New York journalist Helaine Olen lit up Twitter last week with her new book, “Pound Foolish: Exposing the Dark Side of the Personal Finance Industry.” She has attracted high praise – from The Economist, The New York Times, and others – and a few critics, in the online community and at Business Week: “Financial professionals,” Business Week wrote, “are not responsible for knitting the safety net, though Olen makes it sound as though they are.”
Squared Away asked Olen to explain her thinking behind the book.
Squared Away: Let’s get this out of the way. What do you have against financial planners?
Olen: I don’t have anything against all financial advisers, but a lot of people are selling themselves as experts in things they are not expert in. I believe that their commissions are almost inherently conflicted. I also believe that the minute you start selling things as, “I can protect you. I can do better than…,” you’re getting into dangerous territory, because it’s simply not true.”
Are there situations in which financial planning services are useful?
I would never want anyone to think I don’t believe a good, non-conflicted financial planner or coach isn’t useful. They are, very much so. I think very few of us actually see ourselves honestly, and we could all use an objective eye looking over things like our money and investing strategies at least occasionally. But consumers need to know how their chosen advisers are compensated and if that method of compensation can influence their recommendations and strategies.
You say, “No amount of savvy or money management can fully protect” people from a punishing economy that pummels wages and erodes high-quality employment. Are average individuals blamed for troubles that are larger than they are?
Olen: I absolutely think this sort of sentiment – the idea that we will all be okay if only we learn proper money management – is an excuse to blame people for their troubles. Since the late 1970s, a massive inequality issue has opened up. We have very little class mobility in our country. We know that our net worth plunged by 40 percent in 2007-2010. To turn around and tell people that their issues are all their fault is naïve at best and it’s an outright lie at worst. …Learn More
January 17, 2013
401(k)s Bleeding Cash
HelloWallet’s survey landed with a thud in the media this week: one in four U.S. households with a 401k or IRA raided it to cover necessities.
The vast majority of raids are cash withdrawals, not loans – $60 billion in cash in 2010. These grim statistics throw weight behind those who argue we are watching a retirement crisis unfold in slow motion. The pressures on saving are aggravated by stubbornly high long-term unemployment: layoffs explain why 8 percent pulled out cash. But the Great Recession isn’t the only culprit.
Wages, adjusted for inflation, have declined over the past decade, health costs have soared, and consumers remain heavily dependent on their credit cards. In this environment, no wonder saving is often viewed as a luxury.
The 2010 data reveal behavior at a time individuals were still smarting from Wall Street’s financial crisis. But back in 2004, the average 401k balance for all boomers age 55 to 64 was only $45,000 – it was only slightly lower by 2010.
To put that $60 billion in perspective, it is about half the amount U.S. employers put into 401(k) plans on their employees’ behalf that year.
Click “Learn More” to see more data on the cash withdrawals. Readers, what do you think is driving them higher?Learn More
January 15, 2013
401(k) Mutual Funds Mediocre
A spate of research in recent months shows that the mutual funds offered in employer 401(k)s have fairly unremarkable – though not disastrous – investment performance.
As with any academic study worth its salt, the various authors’ findings are complex and loaded with critical twists, turns, and footnotes. Descriptions of three research papers on 401(k) plan returns can be found by clicking “Learn More” below. But here’s the gist:
- So-called Target Date Funds – investments are based on each employee’s planned retirement age – perform better than investments guided by financial advisers hired by one Oregon employer to advise its workers. TDFs also outdo employees who go it alone.
- When the 401(k) plan’s trustee is also a mutual fund management company, it’s more reluctant to remove its own, poorly performing funds from the plans’ smorgasbord of funds.
- Employers select mutual funds that outperform a portfolio of randomly selected funds but underperform passive indexes.
There’s a common thread in many of these studies: the extra fees that investors pay for advice or the stock pickers who manage their mutual fund often don’t translate to better returns… Learn More
January 10, 2013
“Damn Right, I’ve Got the Blues”
This blues lyric by Buddy Guy probably sums up your reaction to news that debt can make you depressed.
But what’s also true is that one’s reaction to debt hinges on what type of debt the person has – and not all debt is depressing. Further, people approaching their retirement years and those with less education who are in debt are more likely to get the blues, according to new research.
Lawrence Berger, an associate professor of social work at the University of Wisconsin in Madison, determined that a 10-percent increase in the dollar amount of an individual’s debt increases his or her depressive symptoms by 14 percent.
To be clear, having debt does not lead to full-blown clinical depression. But it does trigger the garden variety blues that most people experience. Symptoms vary from losing one’s appetite or being unable to shake the blues to feeling lonely…Learn More