October 10, 2013
Family Network for Elderly to Dwindle
Husband, wife, grandmother, uncle, elderly friend – we all need a devoted caregiver when we grow old.
But in a not-distant future, according to a new report from the AARP’s Public Policy Institute, the number of family and close friends available to fill this demanding role will decline sharply. It’s unlikely there will be enough of these unpaid caregivers for the multitudes of aging baby boomers.
Today, there are seven Americans between the ages of 45 and 64 for each individual who is at least 80 years old. The baby boomers, largely because there are so many of them, have done a good job of caring for their parents born during the Depression era. One surprising result has been a steady decline in nursing home occupancy rates.
But AARP estimates that the number of folks age 45 to 64 for each individual at least 80 will fall from seven today to six in 2020, four in 2030, and three in 2050. Worse still, not all of them can or will fill the role of caregiver.
“We’re at the demographic sweet spot right now,” said Donald Redfoot, senior strategic policy adviser for the AARP Public Policy Institute. “But as we go forward, all those positive developments over the past 20 years are going to reverse.” …Learn More
October 8, 2013
Got a 401k? A Guide for New Retirees
Upon retiring, you suddenly have access to a chunk of money that’s been accumulating in your 401(k). It’s easy to make a move that incurs unfamiliar tax consequences or otherwise jeopardizes your hard-earned savings.
Based on interviews with financial planners, as well as experts at the Center for Retirement Research, which funds this blog, Squared Away assembled the following check list for imminent and new retirees:
- At least one year before retiring, collect information from:
- Social Security – how does your monthly check vary, depending on the filing age you select, and how can you and your spouse determine the best strategy for getting the benefits you’ll need?
- Your employer – is an annuity an option in your 401(k) plan, or how much can you expect to receive per month from a defined benefit pension?
- A fee-only planner or other financial resources – what are your priorities and options; how much retirement income do you need; do your Social Security, 401(k) savings, and employer pensions generate enough income, and with how much risk; should you delay Social Security to increase your total monthly income; and should you purchase an annuity to cover your fixed expenses?
“Make sure before you stop working that you’re financially prepared to do so,” said John Spoto, owner of Sentry Financial Planning in Andover, Mass., near Boston. …
September 19, 2013
Make-up of Non-Bank Customers Changes
Having cashed her McDonald’s paycheck at a check cashing outlet in Boston’s South End neighborhood, Nicole DeConinck has completed one half of her Friday afternoon ritual.
She will now walk to a nearby pharmacy to purchase a debit card, which she’ll use to make her purchases.
More Americans like DeConinck say they have used non-traditional financial services, such as check cashing, or are getting loans from places like pawn shops, payday lenders, or firms that offer advances on IRS refunds. In 2011, 41 percent had, up from 36 percent in 2009, according to the Federal Deposit Insurance Corp., which insures U.S. commercial banks.
One thing fueling this growth is that non-bank loans, which are ready sources of cash, are reaching new segments of the American public, according to a recent analysis of the FDIC’s data by Gregory Mills and William Monson of the Urban Institute in Washington. Once associated with minorities, immigrants and low-income workers, they found they’re more prevalent among non-Hispanic whites, college graduates, and people who earn more than $50,000.
“It’s a measure of the extent of distress throughout the American economy that more and more individuals regarded as insulated from having to turn to these kinds of borrowed funds are now having to access them,” Mills said. …Learn More
August 29, 2013
Financially Mismatched Couples at Risk
Financial planners say it happens all the time: couples who don’t see eye to eye on money matters often break up or divorce.
One reason they run into trouble is that a financial mismatch makes it more difficult for them to achieve important goals, said financial adviser Bonnie Sewell of Leesburg, Virginia.
“They’re working against the tide. People who pick like-minded partners get there faster,” said Sewell, who’s written a book about money and divorce.
Her contention is backed up by the preliminary results of a study of more than 30,000 married and cohabiting couples between 1999 and 2012 by Federal Reserve Board researchers Jane Dokko and Geng Li. Their study compared the partners’ individual credit scores to gauge their financial compatibility and found that the larger the disparity between the two of them, the higher the incidence of break-ups.
The authors said credit scores are a proxy for financial behavior and also can measure trustworthiness. The link between poor financial matches and household dissolution, they wrote in their paper, was “quite strong.”
To prevent unhappy endings, Sewell, the financial planner, has three suggestions for new couples: …Learn More
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