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 27, 2017
Top 10 Blogs Explore Weighty Issues
Millennials’ reliance on their parents, retirement finances, and long-term care – Squared Away readers had some serious topics on their minds during the first half of the year.
Here are the 10 most popular blogs, ranked by the number of page views each received between January and June:
- Retiree Benefits: Tale of 2 Cities (and States)
- Get Dental Work Before You Retire
- Long-Term Care Insurance Goes Uptown
- Long-Term Care on a Boxed Wine Budget
- The Benefits of Late-Career Job Changes
- Retirees Don’t Touch Home Equity
- People Lack Emergency Funds, Tap 401(k)s
- Managing Money with Cognitive Decline
- Why Parents’ Home is the Millennial Crib
- Our Stubborn State of Financial Illiteracy …
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?
Garret Virchick and Kim Blanton
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 13, 2017
Social Security’s Legacy to Ex-Wives, Kids
Social Security Administration poster, 1956
Many women are fuzzy on how Social Security benefits for widows work and even more unclear about the program’s spousal benefits.
I know two of these women. Their situations nicely illustrate how this federal program promotes the well-being of older women and families.
One is my divorced aunt. She was surprised to learn, after my uncle died a few years ago, that her widow’s – or survivor’s – benefit, based on his decades of work as a housing developer, would be double the spousal benefit she’d received while he was alive. Divorced spouses are eligible for the same spousal and survivor’s benefits as still-married spouses, though only if the marriage lasted more than 10 years.
For a more complex experience involving Social Security’s child, spousal and survivor benefits, consider a friend of mine, who married an older man with whom she adopted two baby girls from China.
The couple divorced after 12 years, but John remained a loving older father. He showered his little girls with attention and, as they grew up, spoiled them with shopping excursions to the mall. But one of his best gifts came after he retired: Social Security benefits that provided financial security to his daughters and their mother.
John, like many older men, had difficulty finding steady work, but earlier in his career, he’d been a well-paid executive. On the strength of this earnings history, John signed up for his Social Security pension when he reached his full retirement age. His initial benefit was $2,209. In addition to this benefit, $828 per month went to each of his daughters, who were in elementary and middle school at the time.
Under Social Security’s rules, benefits go to children under age 16 when a parent is collecting a Social Security pension. This continues until the child reaches age 18 (or 19, if they’re still in high school). Each child’s benefit is precisely half of the parent’s pension, but John’s daughters received less than half because they bumped up against Social Security’s family maximum.
When John died a year ago, at age 73, his Social Security legacy continued. …Learn More
June 6, 2017
Slightly More Seniors Living With Family
In the 19th and early 20th centuries, it was not unusual for older Americans to live with their adult children and grandchildren. But more seniors could afford to live on their own after passage of Social Security and then Medicare.
By the 1990s, fewer than 10 percent of people over age 65 lived with relatives, usually offspring. This number has crept back up to around 12 percent in recent years, according to an analysis by the Center for Retirement Research.
Economic disadvantage is the common thread among older people living in these multigenerational households, a new study finds. This held true whether the seniors moved in with their adult children and grandchildren or the offspring moved into their parents’ homes.
“Experiencing economic distress increased the odds of a senior forming a multigenerational household,” concluded researchers from Arizona State University and George Mason University.
Here are their main findings, based on an analysis of U.S. Census data for more than 49,000 people who were 65 or older between 1996 and 2008: …Learn More
June 1, 2017
At 62, You’re a ‘Senior’ at National Parks
Wolf pups are born in late spring and early summer in Denali National Park in Alaska.
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 30, 2017
Young Workers’ Hopes Confront Reality
As the post-recession job market continues to improve, so has young adults’ optimism about their future opportunities, a Federal Reserve Board survey shows.
What’s poignant about this youthful optimism is that a changing labor market is making it increasingly difficult for young adults to get their careers off to the right start.
Surely, they sense this. Nearly two-thirds of adults between ages 18 and 30 told the Federal Reserve in a 2015 survey featured in a recent webinar that their schedules in “permanent” jobs were changing daily, weekly, or monthly. They strongly prefer future job stability over higher pay, despite the trendy flexibility of the “gig” economy, Uber driving, and freelancing.
“Permanent employment is not the same as stable employment,” Amy Blair, the Aspen Institute research director for the economic opportunities program, said during the webinar. “Without a stable floor, it’s difficult for a person to invest in himself or herself to build a career.”
The U.S. Bureau of Labor Statistics (BLS) has identified 30 jobs it predicts will have the fastest growth, generating 5 million jobs by 2024. Most of the top 10 are characterized by part-time, low-paying, or seasonal work that can make it difficult to put together a full-time schedule, Blair said. Many are the types of jobs that also lack health benefits, 401(k)s, and paid-time off.
The BLS’ top 10 are: …Learn More