July 11, 2017

Retirement Calculators: 3 Good Options

The Internet offers many free calculators to baby boomers wanting to get a better handle on whether their retirement finances are on track.

The operative words here are “on track,” because each calculator has strengths and weaknesses.  Calculators aren’t capable of providing a bullet-proof analysis of the complex factors and future unknowns that will determine whether someone has done the planning and saving required to ensure a financially secure retirement.

With that caveat, Squared Away found three calculators, listed below, that do a good job. They met our criteria of being reliable, free, and easy to use.  Many other calculators were quickly eliminated, because they were indecipherable or created issues on the first try.

Most important, each calculator selected covered the assumptions crucial to an accurate analysis. All ask such obvious questions as how much an older worker and spouse (or single person) have saved, their portfolio’s returns, and estimates of their Social Security and pension income.  The first calculator below asks how much money the user wants to leave to his children, and all three include the user’s home equity, a major resource that most retirees are loath to tap but are under increasing financial pressure to consider. Also, the first two ask more detailed questions – and are more time-consuming – than the third, which is the best option if you want just a rough estimate of where you stand.

Finally, this blog’s writer tested each calculator and compared the results with her personal adviser’s customized analysis. Each time, the outcomes were in the same ballpark as the adviser’s.  A fourth good option is to use the calculator provided by the financial company managing your employer’s 401(k) – most of the major providers offer them. …Learn More

June 29, 2017

Mutual Fund Fees: Here’s What Matters

Investors will probably see good news in Morningstar Inc.’s annual report showing that the fees charged by actively managed mutual funds continue to come down.

The truth is that focusing on fees alone misses the point. What matters is a fund’s after-fee return. There are always fund managers who excel at picking stocks and can deliver strong after-fee returns to investors year after year, justifying the high fees required to pay them. The early years of Fidelity’s Magellan fund is the classic example.

The trick is finding that clever manager, which requires a combination of luck and the skill and inclination to compare numerous investment options. One thing making this task a little easier is the mutual fund industry practice of reporting returns, net of fees. But the research shows that stock funds that consistently outperform their benchmarks are few and far between – and finding them would be particularly challenging for 401(k) investors who already struggle with basic decisions.

Morningstar’s fee report indicates investors might be getting the message.  In 2015 and 2016, they pulled a total of $627 billion out of the group of actively managed funds charging the highest fees. During the same two years, they funneled $429 billion of new money into lower-fee index funds.

Yes, active funds’ average fee (called the expense ratio, in a prospectus) declined last year to 0.75 percent – or three-quarters of 1 percent – from 0.78 percent in 2015. This continued a downward trend: fees averaged 1 percent in the early 2000s.

But compare this with 0.17 percent for index funds. In contrast to actively managed funds, passive index funds aren’t set up to beat a market benchmark: their goal is to simply mimic the performance of a specific market index, whether it’s the Standard & Poor’s 500 or a Bloomberg Barclay’s bond index. …Learn More

June 15, 2017

Pre-Retirement Financial Review is a Must

My husband has taught high school biology for 30 years in Boston and works hard for his students. But he’s nearly 64 and it’s time to think about retiring.

Can we afford it? When we retire, will we eventually run through our savings? Is retirement scary – or what?

Questions like these are also probably haunting millions of baby boomers in the middle of the night. One out of three boomers in a recent Transamerica survey said they are not confident they will have enough income to retire “comfortably” and another third concede that they are only “somewhat confident.”

To find the answer for ourselves, my husband and I hired a financial adviser. It was the best thing we could’ve done. The point of this blog is to encourage other boomers to take stock of their imminent retirement, whether it’s around the corner or still a decade away.

We’d been kicking around retirement scenarios inside our marriage bubble. My husband has not fixed a retirement date in his head but is talking about the next one to three years. To be conservative, we posed this simple question to our adviser: can Garret retire in 2018?

Her answer was in the half-inch packet, which she delivered to our front door. We sat around our dining room table as she walked us through her quantitative analysis of our financial profile.

Many financial advisers like to talk about how they’ll manage a baby boomer client’s investments. In truth, simple index funds do the trick for us. Our adviser, Wendy Weiss of Weiss Financial Advisors in Cambridge, Mass., used to be an investment adviser for large financial firms, but spent very little time on our investments. The most important thing for baby boomers who, like us, are not wealthy is knowing how much income will come in the door every single month to pay the bills in retirement.

“It’s more important for my clients to find out how to use that 401(k) in retirement than it is for me to try to manage the investments for you,” she said. …Learn More

June 8, 2017

Is There a Student Loan Gender Gap?

Now comes the toughest part of borrowing money for college: paying it back.

There is much for this year’s crop of graduates to learn.  For example, the federal government gives you a reprieve after graduation, usually six months, before requiring you to start repaying your debts. But did you know that interest builds up during this “grace period”?  Starting payments right away reduces how much you’ll have to pay back.

Making repayment mistakes or not having a plan can also be very costly.  Click here for some tips to avoid these mistakes.

Here’s another issue: women borrow slightly more money for undergraduate degrees than do men but earn less after college and seem to have more difficulty paying back their loans.

In 2012, women borrowed $21,000 for an undergraduate degree, on average, compared with about $19,500 for men, according to a new study by the American Association of University Women (AAUW).

Men are able to pay their debt back faster too. During the first four years after graduation, men pay off 38 percent of their outstanding college debt. Women pay about 31 percent. Women graduates with student debt are also more likely to report more difficulty making their rent payments, AAWU’s survey found.

Many questions remain unanswered. What explains the differences? Also, the study doesn’t control for how much young adult men and women earn in their jobs. Nor does it sort out the implication of different payoffs for the different types of degrees that men and women choose.  Careers in software engineering or nursing are more likely to justify hefty loans than degrees in film or women’s studies with uncertain career paths.

This study raises interesting issues, which future research will hopefully address.

In the meantime, women, it’s something to think about. Learn More

June 1, 2017

At 62, You’re a ‘Senior’ at National Parks

No better time than retirement to take in our national parks at the leisurely pace they deserve.

At age 62, Americans can purchase a $10 park pass that is a life-time ticket to the magnificence of Glacier National Park, bison calves grazing with their mothers at Yellowstone, or peregrine falcons nesting at Acadia. But get the pass soon, though, because AARP reports the price will increase to $80.

Many people don’t learn the pass exists until they visit a national park where a ranger might or might not offer one.  The passes, which are issued by the National Park Service, include free access to the holder, a spouse and others riding in their car. The pass sometimes includes discounts of 50 percent at camping facilities.

It’s possible to purchase the life passes online for $20. The Park Service advises travelers planning a trip to contact a park in advance to make sure the $10 passes are available for purchase at that specific location.

While it’s generally not wise to claim your Social Security at 62, it’d be silly not to take advantage of this federal benefit.Learn More

May 23, 2017

Paying Medical Bills is a Herculean Task

Medical bills are leaving “a lasting imprint on families’ balance sheets,” JP Morgan Chase concludes from its recent analysis of the anonymous checking and credit card account activity of some 250,000 bank customers.

With little available cash on hand, 53 percent of these families prepare to pay large, one-time medical expenses by waiting for an uptick in their income. Nevertheless, a year after the bill is paid, they are still struggling to patch the hole blown in their household budgets, according to the report, “Coping with Costs: Big Data on Expense Volatility and Medical Payments.”

The 2013-2015 account data show that family incomes tend to be 4 percent higher, on average, in the month a medical bill is paid. This doesn’t mean that people suddenly become Uber drivers or work more overtime hours. What is probably going on, the bank said, is that people “have delayed either receipt of medical treatment or payment of their medical bill until they were able to pay” – when the extra income arrives.

Tax refunds are one clear source of this income for paying large one-time medical bills. These payments were the most frequent around tax time, JP Morgan’s customer data show. But the $163 average increase in monthly income, mostly from tax returns, was small relative to the average $2,000 medical bill.

The damage done to family finances was apparent even a year after such bills were paid.  Credit card balances, which had been reduced prior to paying the medical bill, rose for at least a year following a payment. Meanwhile, spending on non-medical purchases, as well as the amount of cash on hand, decline in the aftermath as the families struggle to repair their household finances.

This dry but compelling report is a window into the Herculean feat of paying medical bills for some families.  It helps to explain why two out of three Republicans and Democrats in a Kaiser Family Foundation poll said that lowering their health care costs should be a top priority for any reform.

To read the full J.P. Morgan report, click here.Learn More

May 18, 2017

Women Get a Bigger Social Security Bump

The magic number is 35.

That’s how many years of earnings the U.S. Social Security Administration (SSA) uses to calculate every worker’s pension benefit.  But 35 years can be a tall order for the many boomer women who took time off or cut back on their hours to raise their children.  Nearly half of 62-year-old working women today didn’t make any money for at least one year in their earnings history on record with SSA.

But this also means they have more to gain financially than men from working longer, because each additional year of work substitutes for a zero- or low-earning year during motherhood in the benefit calculation, according to research by Matt Rutledge and John Lindner at the Center for Retirement Research, which sponsors this blog.

Beefing up one’s earnings record is actually one of the two ways that working longer raises monthly benefits.  The other, more familiar way is a benefit increase from delaying collecting Social Security.

Delaying claiming compresses the time period over which workers will receive benefits.  The resulting increase when they finally do start is known as Social Security’s “actuarial adjustment.”  Take the most extreme example: both men and women who begin their Social Security at age 70 receive 76 percent more per month from this adjustment than they would’ve gotten had they started at 62.

But it is women who generally gain much more from additional years in the labor force.

By working to 70, rather than retiring at 62, the average woman can increase her monthly Social Security check by 12 percent, the researchers found.  Adding this to the standard actuarial adjustment produces an 88-percent increase, from roughly $1,112 per month at 62 to $2,090 at age 70.

The earnings bump that 62-year-old men get from working to 70 is half as big – about 6 percent – because men typically already have had more years of higher earnings during their working lives.

A woman doesn’t have to work all the way to 70 either to benefit. Any period of delay will increase monthly benefits – and that will help. …Learn More