Careers Become Dicey After Age 50

A new study lays out all the difficulties older workers have holding onto a job so they can retire on their own terms – even when the economy is doing well.

Over the past quarter of a century, more than half of the older Americans who had been employed in stable jobs have been pushed or nudged out of employment at some point late in their careers. This could’ve happened due to a layoff, a bad supervisor, difficult or dangerous working conditions, inadequate pay or a missed promotion.

This finding from a Urban Institute study throws into question “the notion that most seasoned workers who are strongly attached to the labor force can remain at work and earn a stable income until they choose to retire,” the researchers said.

The study details the many challenges older workers are dealing with: …Learn More

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Check Out Our Retirement Podcasts

Thousands of baby boomers retire every day and sign up for Social Security. Yet the payroll tax that funds their benefits is being levied on a shrinking share of workers’ aggregate earnings.

You might not know this but inequality and growing U.S. trade with China are among the forces that are behind this trend, Gal Wettstein explains in a new podcast about his research for the Center for Retirement Research (CRR).

This is the latest in a series of podcast interviews in which CRR researchers talk about their work on issues related to work, aging, and retirement. The podcasts are hosted by yours truly.

Others explore how motherhood reduces women’s Social Security benefits, the limited impact of cognitive decline on older workers, and the disparate impact of the same retirement age on different types of workers.

The podcasts – “CRR essentials” – are available in iTunes and online on the Center’s website. …Learn More

Women’s Wealth Gap Exceeds Pay Gap

If the difference in men and women’s pay is a gap, then the wealth difference can only be described as a chasm.

Women earn 80 cents for each dollar a man earns. But a woman has 32 cents of net worth to a man’s dollar.

One byproduct of the #MeToo movement is the fresh light it has put on the age-old women’s issues of unequal professional status and pay.  But Elena Chavez Quezada, senior director of the San Francisco Foundation, explains in this video that wealth – home equity and financial assets minus debts – provides a more accurate picture of financial stability over the long-term.

A 2018 report found that net worth for older women, adjusted for inflation, has actually declined over the past two decades.

“If we are going to build women’s economic security, we have to talk about income and wealth inequality,” said Quezada, whose foundation promotes economic security for women and minorities.

Of course, wealth can’t be separated from pay. Women are able to save less, because they earn less and are more likely to have part-time jobs. A smaller share of them have a retirement plan at work than men, and the typical female worker saves 6 percent of her pay, compared with 10 percent for men, according to the Transamerica Center for Retirement Studies.

Although single women have slightly higher rates of homeownership than single men, if a woman can’t afford as large a down payment as a man, she starts out with less home equity.

Older women of color saw the largest decline in their net worth, according to the 2018 report, which was conducted by the University of Pennsylvania’s School of Social Work and the non-profit Asset Funders Network. …Learn More

Candid photo of Annastasia Salon

Oregon’s IRA Gets Workers to Save

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Luke Huffstutter

Luke Huffstutter felt a great sense of relief when the employees of his Portland hair salon started putting money into a state retirement program designed to make saving easy.

This is much better than the “guilt” he felt over many years of desperate attempts – and not much luck – to convince his stylists and other employees to save on their own. He even brought in a financial adviser once to nudge them.

“I have a responsibility to provide them a path to retirement,” Huffstutter said.

Today, 39 of the Annastasia Salon’s 45 employees have joined some 22,000 others across the state of Oregon who’ve accumulated a total of $10 million for retirement through OregonSaves, a state government program being rolled out over time for residents who don’t have savings plans at work.

Oregon was the first state to introduce this type of program, and California, Connecticut, Illinois, and Maryland are following. New York may be next. Mayor Bill de Blasio is proposing a similar program, because more than half of working New Yorkers lack a retirement savings plan at work.

The absence of a retirement plan is a particular problem at small firms, which often lack the money or staff to set up the 401(k) plans common at major employers. OregonSaves, which is mandatory for employers, provides a very low-cost way to automatically enroll workers and send their payroll deductions to personal IRA accounts.

The main stumbling block appears to be that not everyone is as enthusiastic as Huffstutter. Some employers are taking a very long time – more than six months – to set up the payroll deductions, and others that enrolled are showing lower participation rates than the salon. …Learn More

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How Long Will Retirement Savings Last?

It might be the most consequential issue baby boomers will deal with when they retire: did I save enough?

Vanguard’s free online calculator will estimate that for you, using the same sophisticated technique financial advisers charge hundreds of dollars to provide.

The user-friendly calculator uses 100,000 of what are called Monte Carlo simulations of potential future returns to the financial markets to arrive at the probability that a household’s invested savings will last through the end of retirement. To get to this number, older workers enter their information into the calculator – 401(k) account balance, asset allocation, estimated years in retirement, and annual withdrawals – by moving around a sliding scale for each input.

The financial industry recommends aiming for a probability in the 80 percent range – 95 percent is overdoing it. In the end, however, your comfort level is a personal decision.

An important purpose of the calculator is to demonstrate how changes in the inputs can hurt one’s long-term retirement prospects – or improve them. One obvious example is increasing the annual withdrawal amount, which lowers the probability the money will last. To increase your chances, try a later retirement date.

The calculator is a lot of fun, but it has some limitations.

First, it’s no substitute for a detailed pre-retirement financial review. The other issues are primarily mathematical, and they boil down to the difficulty of predicting the future.

The calculator assumes, for simplicity, that a retiree withdraws the same dollar amount from savings every year to supplement Social Security and any pension income. But Anthony Webb, an economist at the New School for Social Research in New York, said this ignores the most important thing retirees should do to preserve their money: adjust the withdrawals every year, depending on how their investments have performed.

“If you encounter icebergs (bear markets), you should cut your spending” and withdrawals, he said. …Learn More

Trust barometer

Are We Able to Judge Financial Advisers?

Let’s get this out of the way first: the vast majority of financial advisers would not take advantage of you.

But that doesn’t eliminate the problem of discerning whether an individual adviser can be trusted. About 7 percent of U.S. advisers have misconduct records in civil or regulatory proceedings.  If someone draws an unlucky card and picks a bad one, how would they know?

In certain situations, they might not. A new study finds that various things can trip people up and make them trust an adviser who is giving out bad advice. These influences included a good first impression of the adviser. And one way for an adviser to make a good first impression is by initially confirming the client’s own views on investing before introducing poor advice.

The subject of this study – judging the quality of financial advice – is important at a time workers are carrying a heavy load of responsibilities for managing their 401(k) accounts, and the accounts are becoming more critical to their retirement outlook.

The adviser study was conducted by an international group of researchers. Their online experiment was done in Australia, where employers are required to provide workers with a retirement savings and investment plan – Superannuation Accounts – similar to 401(k)s.

Trust is tricky to evaluate, and the researchers put a lot of thought into designing the experiment to minimize flaws in the results. They asked nearly 1,300 Australians to evaluate advice online about four investment topics. Under each topic, one adviser presented good advice, while the other presented bad. The researchers varied the order for presenting the good and bad advice to the participants.

They generally had a good sense of when they were getting good advice. But there were exceptions: …Learn More

Hispanic Retirement Outlook Gets Worse

One thing really stood out in a recent study: the deterioration in Hispanics’ retirement prospects since the 2008-2009 recession.

Retirement security by raceWorkers’ success at saving for retirement is becoming increasingly important to their financial security in old age. This puts Hispanic households at a clear disadvantage: they earn half as much as white households, which makes it that much more challenging to build retirement wealth by buying a house or saving more in their 401(k)s – two-thirds of Hispanic workers don’t even participate in an employer 401(k).

White Americans aren’t exactly in great shape either. Today,
48 percent of them are at risk of experiencing a drop in their standard of living after they retire – this is 6 percentage points higher than before the recession, according to a new study by the Center for Retirement Research. Black Americans are worse off than whites, though their situation hasn’t changed much over the past decade.

But 61 percent of Hispanic workers are at risk – a 10-point jump since the recession – the study found. A big reason is that Hispanic homeowners were hit especially hard by plunging house prices during the mortgage crisis in states like Florida, Nevada, Arizona, and California, where they are heavily concentrated. Their home equity values dropped 41 percent, a result of buying “houses in the wrong place at the wrong time,” the researchers said.

The loss of home equity has a big impact on retirees by reducing the amount they can extract from their properties by purchasing less expensive housing or taking out a reverse mortgage. (The researchers assume that when workers retire, they will use reverse mortgages.) …Learn More

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