August 7, 2013
Poor Insurance Advice in India
Prior research has established that agents tend to sell the financial product that will pay them the highest commission. A new study on India’s life insurance market advances the ball by focusing on the quality of one high-commission product agents recommend and concludes that it’s wrong for the client.
The researchers sent trained auditors into the field posing as customers seeking insurance and then analyzed the advice they received. The auditors’ meetings with agents revolved around life insurance, specifically two types of policies: term and whole life.
In a term policy, the individual pays a premium to ensure a set dollar amount goes to a surviving wife or children if the customer dies. Like term policies, whole life policies also cover the risk of death, but insurers charge a higher premium to provide an additional service: the extra premium is invested on behalf of the client, who accumulates a cash balance that he can later redeem.
The researchers said term insurance is much more valuable, if customers in India take what they save on its lower premium and invest in the government’s savings certificates, earning a higher return than they would get from the insurance company.
Yet the researchers found that just 5 percent of the customer-auditors were advised to only buy term policies when that’s what best suited their needs. …Learn More
July 11, 2013
Retiree Paralysis: Can I Spend My Money?
Financial planner J. David Lewis can rattle off stories in his Tennessee drawl about trying to persuade clients to spend their retirement savings – now that they’re retired.
One couple wouldn’t tap into a $100,000 account dedicated to the travel they always dreamed they’d do after they stopped working. It took another retired couple well into their 70s before they’d spend a bit of their ample savings on a car – their first new car ever, in fact.
What are they afraid of? “That something is going to take it all away from you, or you’re going to run out,” said Lewis, president of Resource Advisory Services in Knoxville. Spending money “is a big bridge to cross” for retirees.
But there’s another explanation for their paralysis: the decision about how much to spend, and how fast to spend it, is one of the most complex financial decisions an individual will make. It requires people who were lucky enough or diligent enough to save to suddenly juggle complex math and countless variables, some of them unknowable:
- How long will I live?
- How much money do I need?
- Where’s the stock market going? …
June 25, 2013
401(k)s Stall, Post-Auto Enrollment
Seven years after Congress encouraged employers to automatically enroll their workers in the company 401(k), the retirement fix has run out of steam.
Corporate America rushed in to adopt the feature in their 401(k) plans after the Pension Protection Act (PPA) made auto enrollment more attractive by giving employers that used it a safe harbor from non-discrimination rules governing their benefits.
Immediately after the PPA provision became effective in December 2007, employee participation in 401(k)s increased. But since that initial bump, it’s been virtually flat for years.
In 2008, participation increased to 73 percent of all employees in workplaces that offered 401(k)s, up from 68 percent in 2007, according to Vanguard Group Inc.’s new “America Saves 2013” report, which provides a decade of participation rates for its large data base of clients.
Fast forward to 2011: participation was 74 percent. It has barely budged. (Last year, participation was 68 percent, but Vanguard said past experience indicates this figure will rise to roughly the same level when all of its clients turn in their data). …Learn More
June 13, 2013
Retirement Tougher for Boomer Children
The financial media (including this blog) inundate baby boomers with articles cajoling, coddling, and counseling them about their every retirement concern.
But members of the Me Generation might want to focus on their children: retirement is likely to be an even greater financial challenge for Generation X, now in their 30s and 40s.
Economists at the Center for Retirement Research, which supports this blog, recently produced this striking prediction: three out of five Americans in their 30s and well over half of those in their 40s are at risk of experiencing a decline in their standard of living after they retire.
This compares with 44 percent of baby boomers.
The reasons for Generation X’s poorer prospects are due to long-term trends like the rise of 401(k)s and less generous Social Security benefits for future generations. …Learn More
May 23, 2013
Student Loans = No House, No New Car
Here’s what Will Flannigan, 26, would rather do with the $401.58 he pays on his student loans every month.
• Buy a house: the mortgage payment on a house he looked at was the same as his rent, but renovating or fixing anything would be unaffordable.
• Replace his 2006 Ford Focus – it’s red but he calls it a “lemon.”
• Buy new clothes – thrift shops are standard.
• Eat dinner out at someplace other than a fast food restaurant.
Flannigan is getting married in August – to a woman who pays about $250 per month for her college loans.
Three out of four people now paying off student debt – whether graduates or their parents – are just like Flannigan: they’re delaying important life goals in order to make their payments, according to a new survey by Harris Interactive sponsored by the American Institute of CPAs (AICPA). About 40 percent also said they have delayed saving for retirement or buying a car, to name just two deferred goals.
This survey, which was random and based on telephone interviews, illustrates the reason behind the growing concern among financial advisers, 20- and 30-somethings, and their parents that paying for a college education has become a burden with financial implications for years, even decades.
“It’s indentured servitude – that’s what it is,” said Flannigan, a Kent State graduate (2010), whose loan payments equal one-quarter of his salary as the online editor of Farm and Dairy, in Salem, Ohio, near Youngstown. Payoff horizon for his $62,000 loans: more than 25 years, according to his loan documents, he said….Learn More
May 14, 2013
Getting What You Need for Retirement
You can’t always get what you want. But if you try sometimes you just might find you get what you need.
Rolling Stones, 1969.
There is nothing better that most people can do to get what they’ll need in retirement than delaying when they start collecting Social Security.
The recent PBS documentary, “The Retirement Gamble,” sounded the alarm for many viewers who may be ill-prepared for the financial challenge of a long life – and not much retirement savings in the bank.
To address this growing issue, financial advisers often emphasize retirement-survival strategies to their baby boomer clients. These strategies revolve around the complexities of figuring out how much to save, how to invest, or the best way to spend one’s 401(k) assets post-retirement.
But the real problem facing most Americans is that they have meager balances in their 401(k)s – or none at all.
Putting off when one claims Social Security “is the best deal in town,” concluded an analysis by Steven Sass, program director at the Center for Retirement Research, which supports this blog. …Learn More
May 9, 2013
How Good Is Your 401(k)?
When Sanofi froze its defined benefit pension plan last year, the top brass wanted to make sure its 401(k) was seen as a worthy replacement by the company’s 24,000 U.S. employees and retirees.
Sanofi has succeeded, judging by Plan Sponsor magazine’s designation of the U.S. division of the French pharmaceutical giant as 2013 “Plan Sponsor of the Year.”
In corporate America, 401(k) plans are now the norm: in 2012, only 11 of Fortune magazine’s 100 largest companies still offered a traditional defined benefit pension, according to the consulting firm Towers Watson. But Sanofi U.S. had strong motivation for designing a 401(k) that is generous compared with typical 401(k)s.
The company has “highly technical, highly specialized, highly skilled [employees] that we have to recruit for and retain,” said Richard Johnson, senior director of benefits. “We wanted to ensure our employees had adequate retirement income.”
Squared Away recently interviewed Sanofi executives about their plan’s details, shown below, which readers can compare with 401(k) plans in their own workplaces. We hope you’ll post a comment on Facebook and let us know how, or whether, yours stacks up.
Here how Sanofi compares with other 401(k)s: