April 9, 2019
Retirement Saving – Latinos Get an App
Amid a growing awareness that many Americans aren’t properly prepared for retirement, various efforts have ramped up to push the non-savers to save.
A notable initiative is occurring in state government. California, Illinois, and Oregon have started IRA savings programs that require private employers to offer the state-sponsored IRAs to workers if the company doesn’t already have a 401(k).
Cell phone apps are also popping up to make saving easier. One such app – Finhabits – is being marketed directly to Latinos, who financial experts say are particularly unprepared for retirement. Two out of three Latino workers aren’t saving in a retirement plan, often because they work in low-wage restaurant and hotel jobs that don’t offer one.
The Finhabits app offers both traditional and Roth IRAs, which can also be set up online. The IRA regularly deducts an amount, designated by the customer, from his bank account and invests the money in low-cost exchange-traded index funds managed by Vanguard or BlackRock.
Carlos A. Garcia created the app – in English and Spanish – to confront a barrier to saving that he experienced in his own family as a child growing up in the border towns of El Paso, Texas, and Juarez, Mexico. Saving “is not part of [Latino] culture,” he said. “Everybody’s working so hard. But you never talk about retirement.”
He carried this sentiment into his first job at Merrill Lynch after college graduation. He turned down the 401(k) option, because “I had no clue what a 401(k) was.”
This blog doesn’t recommend financial products, and Finhabits has advantages and disadvantages over competing apps. The app’s management fee is slightly higher than some, according to expert reviews. Nevertheless, Finhabits follows sound principles, such as investing in low-cost index funds. The Washington state government chose Finhabits as one of its vendors to provide a retirement plan through the state’s Retirement Marketplace for small businesses. …Learn More
February 5, 2019
Oregon’s IRA Gets Workers to Save
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
January 31, 2019
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