June 27, 2019
Widows: Manage Your Grief, Finances
Kathleen Rehl’s husband died in February 2007, two months after his cancer diagnosis. She has taken on the mission of helping other widows process their grief, while they slowly assume the new financial responsibilities of widowhood. Rehl, who is 72, is a former financial planner, speaker, and author of “Moving Forward on Your Own: A Financial Guidebook for Widows.” She explains the three stages of widowhood – and advises women to take each stage at their own pace.
Question: Why focus on widows?
Rehl: After a husband dies, and whether it’s unexpected or a long-lingering death, there is a numb period. Some widows refer to it as “my jello brain” or “my widow’s brain.” It’s a result of how the body processes grief. The broken heart syndrome is actually real. After a death, the immune system is compromised, and chronic inflammation can happen. It’s hard to sleep at night and there can be digestive difficulties. Memory can be short, attention spans weakened, and thinking downright difficult. You’ve got this grief, and yet the widow might think, “What do I have to do?” The best thing she can do initially is nothing.
Q: Why nothing?
Rehl: I talk about the three stages of widowhood: grief, growth, grace. At first, she’s so vulnerable that if she’s making irrevocable decisions immediately, they may not be in her best interest. The only immediate things she might need to do are file for benefits like Social Security and life insurance and make sure the bills are still being paid. All widows need to take care of these essential financial matters. But major decisions should be delayed. I knew one widow whose son said, “Move in with us.” That would’ve been a really bad decision, because she didn’t get along with the daughter-in-law, and it would’ve introduced another type of grief – loss of place, loss of friends. Then her son got a job in Silicon Valley and moved away.
Or a widow deposits her life insurance in the bank, and a helpful teller says, “I think Fred in our wealth management department down the hall can see you because you need to do something with your money.” Fred sells her a financial product she doesn’t understand, and two or three months later, when she’s coming out of her grief, she thinks, “What did I buy?” One widow came to me who had locked her money into a deferred annuity that wasn’t going to pay out for years, and she needed the money now.
Q: With most women working today, aren’t they better equipped than previous generations of widows to handle the finances? …Learn More
June 25, 2019
Moms Help Jobless Sons and Daughters
“Families often serve as the first line of defense against adverse events,” a RAND study starts out.
In this case, the researchers are talking about a mother who protects her unemployed adult child by providing financial assistance, a request that’s not easy for a mother to resist.
RAND researchers Kathryn Edwards and Jeffrey Wenger find that women of all ages are very likely to help out and “significantly alter their behavior” when a son or daughter loses a job.
How much mothers’ sacrifices affect their standard of living are beyond the scope of this study. But although unemployment is at historic lows today, when a child does lose a job, a mother who provides assistance is potentially exposing herself and her husband to financial problems down the road.
The types of the assistance the women in the study provided varied for different groups. The youngest group, working-age mothers between 35 and 62, were the most willing to help an unemployed child, though women of all ages did to some extent.
Mothers employed full-time, and in some cases their partners or husbands, worked more to earn additional money, an option largely closed off to the retired women. Another way working mothers adjusted was to reduce their contributions to employer retirement funds. All of the women also cut their own food budgets for a year or more.
This study is a conservative take on their assistance, because it doesn’t include an indirect, but often costly, source of support that is an obvious solution for unemployed offspring: moving back home. Moving back in will, at minimum, increase their parents’ utility and grocery bills. …Learn More
June 20, 2019
Index Fund Rise Coincides with 401k Suits
Employee lawsuits against their 401(k) retirement plans are grinding through the legal system, with mixed success. Many employers are beating them back, but there have also been some big-money settlements.
More 401(k) lawsuits were filed in 2016 and 2017 than during the 2008 financial crisis, and the steady drumbeat of litigation could be affecting how workers save and invest. For one thing, the suits have coincided with a dramatic increase in equity index funds, according to a report by the Center for Retirement Research. Last year, nearly one out of three U.S. stock funds were index funds, double the share 10 years ago.
Some see this change as positive. Many retirement experts believe that the best investment option for an inexperienced 401(k) investor is an index fund, which automatically tracks a specific stock market index, such as the S&P500. Federal law requires employers to invest 401(k)s for the “sole benefit” of their workers, and index funds usually charge lower fees and carry less risk of underperforming the market than actively managed funds – two issues at the heart of the lawsuits.
To avoid litigation – and to comply with recent regulatory changes – employers are also becoming more transparent about the fees their workers pay to the 401(k) plan record keeper and to the investment manager. This transparency may have had a beneficial effect: lower mutual fund fees, which translate to more money in workers’ accounts when they retire. The average fund fee is about one-half of 1 percent, down from three-fourths of 1 percent in 2009, according to Morningstar.
In short, these lawsuits appear to be changing how people invest and how much they pay in fees for their 401(k)s. …Learn More
June 18, 2019
Vignettes Improve Social Security Savvy
There’s an informal rule in journalism: put too many numbers in an article, and readers will drop like flies. A similar phenomenon might also be at work when someone looks at a Social Security statement filled with numbers.
The statement, which is intended to help workers plan for retirement, shows the size of the monthly benefit check increasing incrementally as the claiming age increases. Yet many people still choose to claim their benefits soon after becoming eligible at 62, which means smaller Social Security checks, possibly for decades.
In a recent experiment, a friendlier approach proved effective in helping people process this information: tell a story. Researchers at the Center for Economic and Social Research at the University of Southern California created a fictional 3-minute video of a 62-year-old man talking with a financial adviser about retirement. The researchers showed it to workers between 50 and 60 years old.
Here’s one exchange in the video:
Adviser: [Social Security has] a tradeoff: you can decide to claim earlier. In that case, you would have a lower monthly benefit, but you’d get to enjoy these benefits for a longer period.
Worker: So if I claim sooner, I get less money per month? …Learn More
June 13, 2019
Adult Foster Care a Solution in Oregon
Nursing homes are usually at the bottom of people’s list of places for their parents. A workable and little-known alternative is available in many states: adult foster care.
This PBS video about Oregon’s program features a suburban Portland woman, Carmel Durano, who provides 24-hour care in her home for five elderly people, including her mother. Durano has been a good solution for Steve Larrence’s 99-year-old mother. He feels comfortable with Durano and lives in the same neighborhood, so he can walk over anytime to talk to his mother.
“You don’t feel like you’re in an institution. You feel like you’re living with a family,” Larrence said in the video.
Durano is part of a network of more than 1,500 adult foster care programs in Oregon. Many of them care for more than one senior. Durano, a Filipina immigrant, got involved 30 years ago, because she had three young boys at the time and wanted to stay home for them.
Foster care is much cheaper than nursing homes. And, like nursing homes, state Medicaid programs often pay for the at-home caregivers. But though adult foster care is not immune to cases of abuse, Paula Carder, an expert on aging and dementia at Portland State University, said the Oregon program generally delivers “a high level of care.”
State regulations require caregivers to be certified annually, pass background screenings, and submit to surprise home safety checks and interviews with the adults in their care.
This may be at least a partial solution to the growing problem of an aging population. …Learn More
June 11, 2019
Self-employed Lose Some Social Security
Self-employed and gig workers who fail to report all of their earnings to the federal government will pay a price: a smaller monthly Social Security check when they retire.
Gauging the magnitude of this problem is tricky since the IRS doesn’t know how much is not being reported by a group of workers not easily identified in the available data. As a first step, new research derived estimates of the unpaid self-employment taxes that result from the under-reporting, using a combination of U.S. Census data on the workers’ incomes and past studies on the prevalence of the problem.
Specifically, the researchers found that more than 3 million self-employed people – construction contractors, small business owners, and other independent contractors – did not disclose some or all of their earnings to the IRS in 2014. This under-reporting translated to unpaid self-employment taxes of $3.9 billion to Social Security and another $900 million to Medicare.
An additional 2.3 million Americans sell goods and services on platforms like Airbnb, Lyft, and Etsy every month. A large share of these gig workers are not reporting all of their income either. Their under-reporting resulted in an estimated non-payment of $2 billion to Social Security and $500 million to Medicare in 2014.
In fact, the estimates are conservative, and the true level of the missing payroll taxes is probably larger, said the study’s authors, a tax expert at American University and a private policy consultant.
Independent contractors are most likely to be baby boomers over 55, while Generation Xers are more common on the online platforms. Self-employed people fail to disclose earnings for a couple of reasons: they are confused about the tax law or they want to increase their disposable income. But responsibility also falls on the platform companies that process payments for their workers and sellers, the researchers said, because the companies are not required to file 1099 earnings forms with the IRS for a majority of their workers.
Whatever the reasons for the underreporting, self-employed workers will one day get less from Social Security. This study raises an obvious question for future research: how much less? …Learn More
June 6, 2019
Class of 2019: Low Rent Key to Survival
The first and arguably most important decision a new graduate will make is how much to pay for rent.
If it’s too high, the rent – on top of those annoying student loans – will push out other priorities necessary to prevent financial trouble down the road.
Rick Epple, a certified financial planner in Minnesota’s Twin Cities area, counsels his daughter’s friends and clients’ children entering the labor force to keep their rent at around 20 percent of their income.
“Nobody ever talks about what they should spend,” he said. He worries about young adults who pay a third of their income – the standard recommendation – for an apartment. If the rent blows a hole in the budget, paying student loans every month and on time becomes a much bigger challenge.
A paycheck, Epple said, “just goes quick.”
A manageable rental payment also leaves room to prepare for the inevitable unexpected expense – and, yes, retirement. …Learn More