July 17, 2014
College 529 Plans: a Video Primer
In this video, the president of a Boston-area community bank explains the fundamentals of 529 college savings plans, which most state governments offer.
Bob Mahoney recently put both of his daughters through college with money he’d saved in 529 plans. While it can be difficult for many parents to scrape together the money, he said 529 plans provide some hedge in the future against the ever-rising cost of a college education.
Mahoney suggested starting small and contributing, say, $1,000 or $5,000 each year and also asking grandparents to put money into the 529, in lieu of giving toys and other gifts.
As he explains in the video, the advantage is that 529 plans are free of federal and often state taxes on the investment returns earned while the future student is growing up.
One disadvantage is that they require parents to make difficult decisions about how to invest the money they’re saving. Mahoney’s advice is to avoid high-flying stocks and to approach 529s as one would approach 401(k) investing. And, like 401(k)s, low-fee funds also make sense for 529 plans. …Learn More
July 15, 2014
Target Date Funds Keep Growing
The number of employers offering target date funds as an option in their 401(k) plans, and the number of workers using these funds, continue to increase.
In 2013, 86 percent of all employer plans offered target date funds (TDFs) – double the share of plans offering them in 2006 – according to Vanguard’s annual report on defined-contribution plans, “How America Saves 2014,” released in June.
Vanguard data also support TDFs’ growing popularity among employees: more than half of plan participants now have some or all of their retirement accounts in TDFs, compared with just one in 10 in 2006.
TDFs eliminate the need for employees to wade in and make complex investment decisions about choosing and updating their asset allocations. A TDF initially invests largely in stocks, but the portfolio becomes more conservative and the allocation to stocks declines as the individual approaches the targeted retirement date he selected. …Learn More
July 3, 2014
Financial Savvy Means More 401k Returns
Financial knowledge is critical to one’s retirement security, finds a new study showing that 401(k) plan participants who scored higher on a test of their financial knowledge earned an additional 1.3 percentage points of investment returns annually on their retirement accounts.
Over a 30-year working life, that higher rate of return would add 25 percent to total savings at retirement.
Readers can take the quiz by clicking here; answers appear at the end of this blog post. …Learn More
June 5, 2014
Test Yourself for Dementia
Dementia is a critical personal finance issue when so much is at stake in managing, investing, and spending one’s lifetime savings. But one study found that, in the vast majority of older couples, the person in charge of managing the household finances continues to do so after dementia sets in.
Dementia can be difficult to perceive in oneself or a spouse or parent, because changes are usually so gradual, psychologists say.
Individuals can now get a rough assessment of their own or a loved one’s cognitive abilities with a test posted on the website of Ohio State University’s Wexner Medical Center in Columbus. Spokeswoman Elaine Scahill said more than 900,000 people have downloaded the test since it went online in mid-January as a public service.
The test, appropriately named SAGE – for Self-Administered Gerocognitive Exam – is similar to others used by mental health professionals as an initial screen; another one is the Montreal Cognitive Assessment. …
June 3, 2014
Long-Term Care: Winging It
Americans have a very good chance of entering a long-term care facility. New research at the Center for Retirement Research, which sponsors this blog, finds that 44 percent of older men and 58 percent of older women will likely enter such a facility for at least a short stay.
Only 29 percent of adults age 40 and over, however, are “extremely” or “very” confident they’ll have enough resources to pay for such care, or for other types of care they may need in old age, according to a survey by the Associated Press-NORC Center for Public Affairs Research, an independent survey organization based at the University of Chicago.
The AP-NORC poll also revealed that people are poorly informed about how much care will cost if they need it.
They tend to underestimate how much nursing homes cost (about $6,900 a month) and overestimate the cost of a part-time aide coming to their home to help with personal care such as cooking or bathing (about $1,150 a month); their estimates about the cost of assisted living facilities (about $3,400 a month) were either too high or too low.
An additional complication, according to Jennifer Benz, NORC’s senior research scientist, is that “people don’t understand how the financing of long-term care works in the U.S.” The distinct roles of Medicare and Medicaid, in particular, caused great confusion. …Learn More
May 29, 2014
More Plan Funerals Than Plan Elder Care
More adults are planning their funerals than are making arrangements for care in their final years of life.
That’s among the revealing findings about how Americans grapple with the inevitabilities of old age in an annual survey about U.S. attitudes toward long-term care. More than 1,400 adults were surveyed in March and April by the Associated Press-NORC Center for Public Affairs Research. (NORC is a social science research organization affiliated with the University of Chicago.)
“Experts believe that, like any other long-term financial planning, long-term care planning is the kind of thing you should get started with as soon as possible,” said Jennifer Benz, a senior research scientist for AP-NORC. But for many people, “it’s not even on their radar,” she said.
Nearly two out of three adults over age 40 said they have discussed funeral plans with family or others they trust, and more than half have also created a so-called advanced directive specifying how they would like their medical care to be handled if they become incapacitated.
While death and mortal illness are on people’s minds, there’s scant thinking about their long-term care arrangements. More than two-thirds reported they have done “little or no planning” for how they’ll be cared for in old age. …Learn More
May 13, 2014
Spending Cut When Job Threats Rise
A new study provides important insights into American workers’ household budgets.
The study found that when workers sensed a growing likelihood they might lose their jobs, they quickly pared their spending on a large and diverse basket of discretionary consumer goods. These included both standard purchases and big-ticket items, from gardening supplies and vacations to cars and dishwashers.
The analysis was based on a survey of some 2,500 workers who were asked about their spending patterns and also asked to estimate their own chances of becoming unemployed over the coming year. The survey was conducted between 2009 and 2013, when the U.S. jobless rate at one point approached 10 percent. …Learn More