Impulse purchases – new spring clothes or an expensive dinner out – can create a rush. But a few minutes of pleasure can blow a hole in the budget for a month. If it’s chronic, it can eat into savings for a down payment or retirement.
The reason for these rash decisions is obvious: see it, want it. But for people who want to better understand – and prevent – their impulse buys and remain on budget, FinCapDev, which is hosting an online competition for a financial literacy app, recently posted a reading list of three research papers that explain why we can’t resist buying stuff.
One study has confirmed that store browsers actually are vulnerable to impulsive purchases, because the act of browsing through a store’s merchandise produces positive feelings. “It is a state of high energy, full concentration, and pleasant engagement,” researchers wrote in a 1998 paper that is probably relevant to online browsing. Can you relate? …
As I sat in an orthopedist’s office last week watching the doctor poke and prod my mother’s legs – an irritated nerve may be causing her severe pain – this thought struck me: long-term care is often an unspoken topic but one of enormous magnitude.
I’ve always taken for granted that my active mother, who plays a killer game of bridge, wouldn’t need much medical attention for another 15 years. I have evidence of this, I’d convince myself: her mother lived to age 92 and some uncles lived even longer. The pain makes it difficult for my mother to walk her dog, though she gamely hobbles through her day and even insists on league bowling on Wednesdays.
It’s so much easier to shove aside worries about long-term care for the elderly – our own or our parents’ – than it is to contemplate the financial and deeply emotional issues required to care for an aging parent. The video below tells a true story about what happens when the requirements of care slam us hard, as they often do.
Violet Garcia is a single mother of Filipino descent living in Kodiak, Alaska, which is situated on an enormous island south of Anchorage. The public school worker cares for her elderly mother, who can’t be left alone. Garcia aspires to send her middle son away to college soon, but that will create a problem on Sundays, when he takes care of his grandmother so his mother can run errands. …
Repeated loud warnings by financial advisers fail to reverse the human tendency to panic when the market plunges and to rush in after it’s gone up.
Withdrawals from 401(k)s and IRAs surged between 2001 and 2003 after high-tech stocks declined, but the money went back in in 2005 through 2007 after the S&P500 index had soared nearly 27 percent in 2003 and 9 percent in 2004, according to new research by Thomas Bridges, a graduate student in economics, and Professor Frank Stafford, for the University of Michigan Retirement Research Center.
“They think I have $500,000, and if I don’t take it out now it’s going to be $50,000. It’s a panic mentality,” said Stafford, who was surprised by what they found.
Withdrawals increased again after the2008-2009 market collapse pummeled investors stock portfolios. The Michigan researchers found they withdrew their retirement savings for a variety of reasons, but primarily to pay mortgages and medical bills and also to make major home repairs.
His take on these grim findings: “These are the guys from Main Street trying to figure out Wall Street, and they can’t do it.”Learn More
At tax time, many Americans think, often fleetingly, about spending less and socking away more for retirement.
Until April 15, the IRS permits people who do not have a pension plan at work to deduct up to $6,000 for money placed in an IRA; taxpayers who do have an employer pension can also receive the IRA deduction if their earnings fall under the IRS’ income limits.
The tough question that trips people up is: How much will I need?
The easy way to think about this is in terms of the income necessary to maintain your current standard of living after the paychecks stop coming in. Click here for a tool that estimates both how much you’ll need and how much you’ll have if you continue on your current path.
The calculator, created by the Center for Retirement Research, which supports this blog, was designed for people over 50 and on the retirement runway. Younger people can also get a ballpark idea of how they’re doing using the calculator. Or click here for the percent of your wages to put into a tax-deferred retirement fund.
This is a beta website with a few kinks, and it works smoothly only on the Safari and Google Chrome browsers. But the results are sound and backed by academic research. Here’s how to read the results. …Learn More
Mutual fund investors poured some $17 billion into domestic equity funds in January, reversing 2012’s trend, according to the Investment Company Institute (ICI), an industry trade group.
But it’s too early to declare that fund investors have fully recovered from the 2008 market collapse, even as the bullish S&P500 stock market index flirts with its 1,565 all-time high reached on October 9, 2007.
Fund investors surveyed by ICI still remain less willing than they were prior to the big bust to take what the survey questionnaire calls “above-average or substantial risks” in their investments.
This trend cuts across most age groups, from 40-somethings to retirees. The exception is the under-35 crowd: 26 percent identified themselves as being in these higher-risk categories, slightly more than the 24 percent who did back in 2007.
But boomers nearing retirement and current retirees burned in the 2008 market collapse keep paring back their risk profiles. Older investors are moving “from capital appreciation to capital preservation,” said Shelly Antoniewicz, an ICI senior economist. Even 35-49 year olds, who still have two to three decades of investing ahead of them, are not quite back to where they were earlier in the decade when they were more willing to take risks in the stock market.
“What we have seen historically is that there is a relationship between stock market performance and inflows into equity funds. When the stock market goes up, we tend to get larger inflows into equity funds,” she said. “What we’ve noticed in the past two to four years is this historical relationship has gotten weaker.” …Learn More
“The average person has no idea” how much fees and expenses sap from their investments, said Ted Leber, a retiree who was a staffer with the Chief of Naval Operations and a financial adviser to service members.
The career Navy man said he was a failure after retiring to become an adviser, because he kept steering clients to low-fee mutual funds that replicate index returns, such as the S&P 500 or NASDAQ tech-stocks. The index funds helped his clients but not his firm’s profits.
Squared Away interviewed Leber after he emailed a nifty fee calculator, which was put online as a public service by AHC Advisors Inc.’s president, Craig Larsen, in St. Charles, Illinois.
Larsen and Leber join a growing number of academics, financial planners, and investors balking at the high fees middle-income investors pay for mutual funds that are actively managed by stock pickers. Fees are “costly for the average employee” and “can take a substantial toll on their retirement,” according to a study by the Center for Retirement Research at Boston College, which supports this blog.
Test the employee calculator yourself. First, look at the conservative assumptions Squared Away used to calculate fees on three portfolios, as shown in the above chart…Learn More
Reflecting the sea change in lifestyles for the over-65 set, the share of their total income that America’s elderly earn from working has almost doubled over the past two decades.
That’s a central conclusion of research by the Brooking Institution’s Barry Bosworth and Kathleen Burke, who compared the 1990 and 2010 sources of income for the nation’s age 65-plus population in a paper funded by the Retirement Research Consortium, which supports this blog.
Some things haven’t changed. The share of the elderly’s income that comes from Social Security, employer pensions and – for the poor – government aid such as welfare has hardly budged over the past two decades.
But the earnings the elderly derive from employment soared from 18 percent of their total income in 1990 to 31 percent currently. The primary reason is that more Americans are working longer and delaying retirement, a multifaceted response to better health, more education and – at least for some – growing financial insecurity. …Learn More