More than half of older Americans with the lowest socioeconomic status can expect to face an income gap if they retire when they’re planning to.
That finding is from a study by the Center for Retirement Research, which supports this blog. The researchers quantified and compared the gaps in the retirement preparedness of more than 3,000 older U.S. households, grouped by four levels of educational attainment.
First, the researchers estimated the target income that each working household will need in retirement to maintain its current standard of living. That target income will be less than its current income from working, because retirees no longer need to save money, and they pay less in taxes. Then, the researchers projected the income each household will actually have – at each different retirement age – from their Social Security, employer retirement plans, regular savings, and home equity.
When a household’s projected income reaches the target, that’s the age at which they can expect to retire comfortably. But people don’t necessarily make decisions that are in their best financial interest. … Learn More
A decade of research into the impact of cognitive aging shows that workers throughout their 50s and 60s are generally just as productive as the younger people working alongside them.
A new summary of this research, by the Center for Retirement Research at Boston College, explains how older people are able to adapt to the gradual loss of brain mass in the parts of the brain associated with memory and an ability to think on one’s feet – their “fluid intelligence.”
The highly skilled pharmacy profession is a good example of how workers in their 50s or 60s adjust to this changing dynamic. These pharmacists have an advantage over their younger coworkers in what psychologists call “crystallized intelligence,” which is the deep reserve of information stored up over decades of working in their profession. They can no longer process drug interactions and other new information as rapidly as they once did. But they can tap into their reserves to solve the myriad issues that crop up in their work. This crystallized intelligence – for pharmacists and many other types of skilled jobs – is effectively making up for their loss of fluid intelligence.
Interestingly, older workers who execute routine tasks usually aren’t at risk of aging out of their jobs for cognitive reasons either. That’s because even though their fluid intelligence is in decline, they have more than enough of it in reserve to complete their relatively simple tasks.
While the majority of older workers do not lose their productivity due to cognitive aging, two groups are vulnerable. One group is those for whom the work demands on their fluid intelligence are extremely high. A 2009 study of air traffic controllers highlighted this challenge – and demonstrates the logic behind a Federal Aviation Authority requirement that controllers retire at age 56. …Learn More
Taking care of her elderly parents is Vivian Gibson’s full-time job.
The last two weeks in October weren’t so unusual. She tended to her 86-year-old father for several days in the hospital – another episode in his unending battle with ankle sores stemming from service in the Korean War. Gibson also helped her mother, age 81, get through a medical procedure and chauffeured both parents to more than a dozen doctor’s appointments and to their dentist. Her mother has been dealing with a pulled tooth, along with abnormal cells in her bladder and an abnormal EKG.
In addition to their medical needs, Gibson helps them with everything else, from cleaning and dressing her father’s wound daily to buying their groceries and cleaning up the yard. Her parents live in Bartow in central Florida, about 20 minutes from Gibson’s home in the country, and she’s always on call in case her father falls again.
Yet she remains surprisingly upbeat, unfazed by a non-existent social life and a caregiving burden made heavier by the fact she is an only child. “There is never any respite,” she said. “I have to work my doctor’s appointments in around theirs. My mother keeps telling me, ‘Don’t get sick. You can’t get sick!’ ”
To help her parents, Gibson retired from a local hospital just shy of her 59th birthday. She’s now 61 and premature retirement has strained, though not broken her financially. She drained most of her $17,000 emergency fund to meet regular expenses and reluctantly dipped into her IRAs and past employers’ retirement savings plans. Her combined balance is down to $300,000 – or about $12,000 lighter than when she retired, despite a rising stock market. Her lifeline has been a $24,000 pension from her work in state government.
“I wanted to travel,” she said – Australia, New Zealand, Canada – “but I don’t have the money – or the time – for that.” …Learn More
Retirement experts and financial advisers maintain there is a right way and a wrong way to approach Social Security.
For most people, the right way is to view waiting until your late 60s to sign up for benefits as the route to boosting your retirement income and protecting against out-living your savings. People who delay will have a larger Social Security check to pay the bills that come due every single month for as long as they live.
The wrong way is to make a decision based on fear – the fear of losing money if you don’t sign up soon after turning 62, the earliest age allowed under the program. While you might feel that delaying means losing out, delay can, in fact, protect you and your spouse from a more consequential loss in the future: inadequate monthly income when you are very old.
A study on this issue used a new technique to identify which individuals possess this fear of loss. In six different online surveys, the researchers asked some 7,000 working-age adults to choose between numerous pairs of gambles showing the probabilities of scoring a financial gain (45 percent), losing money (45 percent), or breaking even (10 percent). In each pair, one gamble had a smaller potential dollar loss than a second gamble in which they could lose more money – but also win more.
Loss aversion was prevalent. They found that about 70 percent of adults showed some degree of loss aversion, meaning that they preferred the gamble that risked a smaller dollar loss.
Next, the researchers analyzed whether the people who were most loss averse also plan to claim their Social Security benefits at younger ages. In all six surveys, the most loss-averse workers were significantly more likely to claim their benefits earlier.
The researchers hope their new technique and findings improve the ability to identify who is loss averse, so that experts can design better ways to help people make smart decisions about their Social Security, the bedrock of most Americans’ retirement security. Learn More
Wyoming government has brought some 535 employees of the state’s executive, legislative and judicial branches into its retirement savings plan since July 2015 under a new policy of automatically enrolling each new hire.
They are free to withdraw from the plan at any time, but only 15 of the 535 have done so – “and not a complaint from anybody,” said Polly Scott, who manages the savings plan and heads employee retirement education.
This technique, borrowed from behavioral economics, addresses the inertia that prevents many people from ever signing up to save in their employer’s plan. So why wait for them to join? Instead, Wyoming uses inertia to benefit state workers: when people are automatically enrolled, research shows, they tend to stay put and save.
This is one piece of a larger effort to educate government workers about what’s required to properly prepare for retirement – and nudge them to do it. The 457 retirement savings plan is crucial. Wyoming’s retired state workers receive Social Security, but the inflation adjustment in their traditional defined benefit pension has virtually been eliminated for the near future. The 457 plan “is voluntary, but it’s not optional if you want a secure retirement,” Scott said.
The heart of the state’s education efforts is a website titled “Your Whole Story” that is on point and explains in clear language likely to benefit employees. Employees are encouraged to increase how much they’re already saving, resist the temptation to withdraw their savings prematurely, and prepare themselves for a long time in retirement in an era of increasing life expectancy.
This initiative is based on a campaign sponsored by the National Association of Government Defined Contribution Administrators (NAGDA) – Scott was NAGDA’s president last year – and designed by the National Association of Retirement Plan Participants. Other states use some version of “Your Whole Story,” including the Missouri State Employees’ Retirement System and Montana Public Employee Retirement Administration.
One problem Wyoming is tackling is young adults who hurt their retirement prospects by withdrawing money from their 457 plans when they leave their state jobs, which “means they’re spending it,” Scott said. Another issue is that more older workers are rolling 457 savings over to private IRAs, which can have higher fees. …Learn More
Young adulthood is the staging ground for financial success later in life, and today the stakes are higher than they’ve ever been. Young adults are managing the burden of paying back student loans or feeling an urgency to save – and many are trying to do both.
According to a study linking economics and psychology, what most strongly separates young adults who start out on the right foot from those already experiencing financial distress is whether they are conscientious or neurotic individuals.
University of Illinois researchers followed more than 13,000 teenagers and young adults between 1994 and 2008 in the National Longitudinal Study of Adolescent to Adult Health. The survey asked questions about both their psychology and finances. The six measures of financial distress in this study were determined by survey questions such as whether the respondents were keeping up with their rent and utility bills, whether they were worried about having enough food, and whether their net worth was positive or negative.
The personality measures were based on the Big Five traits widely used in psychology research: conscientiousness, agreeableness, neuroticism, openness to new experiences, and extroversion (known collectively as CANOE). The survey respondents were grouped in this way based on the extent to which they agreed or disagreed with various statements. Examples included “I get chores done right away (conscientious),” and “I get upset easily (neurotic).”
The researchers found clear links between two of the Big Five traits and financial distress. Being conscientious – following through, controlling one’s impulses, and being organized – strongly reduced the likelihood of having all six of the study’s financial distress outcomes. …Learn More
As the U.S. Department of Labor video above makes clear, the population of Latino workers is exploding.
By 2024, nearly 33 million Latinos will be working in this country – they will have doubled their labor force share to 20 percent, from just 10 percent in 1995.
Despite their expanding presence in the labor market, Latino-Americans face significant retirement challenges.
Chief among them is that they don’t have the same access to traditional pensions and retirement savings plans that white Americans have, primarily because of where Latinos tend to work. Two out of three Latino workers – many people prefer the term Hispanic – lack a 401(k)-style plan in their jobs, the U.S. Social Security Administration and other sources report.
The National Hispanic Council on Aging recently called the older Hispanic population “the least prepared for retirement of any ethnic group.”
One reason cited is that they are more likely to work for small businesses, which often don’t set up a plan. Latinos are also disproportionately employed in low-paid cleaning, landscaping, and food services occupations, and a mere 12 percent of all low-income older individuals are saving for retirement. Median earnings for Latino-Americans, at $45,000 per year, are about one-third lower than median earnings for whites, according to the U.S. Census.
Things are rapidly changing, however: more Latino-Americans than ever are attending college and completing their degrees, which will improve financial security for this college-bound group and their families.
But while Latinos have, like past waves of immigrants, fully integrated into American society in recent decades, many have not yet integrated into the mainstream institutional structures that support retirement. Until that happens, the lack of access will create greater financial challenges for the Latino community.Learn More