October 31, 2017

Older Savers Inch Ahead: $135,000 in 401k

The typical baby boomer couple had $135,000 in retirement savings last year, up from $111,000 in 2013 amid a rising stock market and a strong job market that has kept them employed, according to a report on the new Survey of Consumer Finances (SCF) by the Federal Reserve.

Yet $135,000 – the balance for working couples who have a 401(k) – won’t go very far. This amount, held in both their 401(k)s and IRAs, will generate about $600 per month, said the SCF analysis by the Center for Retirement Research, which supports this blog.  That’s obviously not enough to supplement most retirees’ primary source of income: their Social Security benefits, which are slowly eroding for various reasons.  The purchasing power of the $600 will also be eroded by inflation over time.

Another way to assess retirement preparedness for 60-year-olds couples hoping to retire in five years is that they need assets equal to 8.5 times their household income at age 60.  They actually have around 2.5 times income, on average, the researchers found. This assumes a replacement rate of 75 percent, a reasonable target for how much of a working couple’s income they will need to maintain their standard of living into retirement.

It’s Halloween today, and here is more evidence of just how scary Americans’ retirement prospects are: the $135,000 applies only to older people with retirement savings – about half don’t have a retirement plan at all at work. …
Learn More

October 26, 2017

Gen-X, Millennials: Now is the Time

Generation X and millennials, there is time.

In contrast to baby boomers, who are now mostly too old to rack up appreciable increases in their 401(k)s – though they should try – younger Gen-X and millennials have time and compounding investment returns on their side.

This blog examines how they are faring – millennials, because saving and investing well now poises them for a secure retirement, and Gen-X because this “ignored” generation is sandwiched between the financial demands of parenting and parent care.  Their own assessments of their retirement preparedness appeared in a recent report by the nonprofit Transamerica Center for Retirement Studies (TCRS).

Millennials

“Millennials have heard the word that they need to save for retirement,” TCRS declared in its report summarizing its 2016 online survey of more than 4,000 workers.

Millennials’ ages are up through 37 in this survey.  Nearly three out of four who have 401(k)s at work are already saving for retirement. They typically started saving at 22, indicating impressive foresight about retirement dates far in the future.  Gen-X, ranging in age from 38 through 51, didn’t get started in earnest until they were 28.

While it’s great that millennials are saving for retirement, women in particular are not saving enough, said Catherine Collinson, president of TCRS. Among workers who participate in their employer’s 401(k) or similar plan, the survey finds that the typical millennial woman contributes only 5 percent to her plan, compared with 10 percent for millennial men.

Millennials aren’t taking advantage of their uniquely long investment time horizon, the survey finds. Retirement experts encourage younger adults to more aggressively invest 401(k)s in the stock market to enjoy decades of the long-term growth and compounding investment returns and potentially ride out the market’s inevitable volatility. Theoretically, if the stock market’s history proves true, equity-investing millennials can build up substantial retirement accounts, accumulating employers’ contributions and their own contributions and investment earnings over time.

But many millennials came of age during the 2008 financial crisis and still seem to be “in a state of shock with their concerns about the stock market,” Collinson said.  One in five millennials say they are investing conservatively in bonds, money market funds, and cash.

Generation-X

Baby boomers will be the last generation with substantial access to traditional pensions. Gen-X is the first generation to heavily rely on defined-contribution accounts. …Learn More

October 24, 2017

401(k) Nudges and Course Corrections

Behavioral economist Richard Thaler, winner of the 2017 Nobel Prize for economics, regards his field’s greatest contribution as showing that people are more likely to save if the saving happens automatically.

“I’m all for empowerment and education, but the empirical evidence is that it doesn’t work,” he said in a 2015 Wall Street Journal interview. “That’s why I say make it easy.”

To make saving for retirement easier, employers have increasingly turned to automated 401(k)s. Automation has taken two basic forms.  The first, automatically enrolling each employee, is pervasive and has had notable success in increasing participation in retirement savings plans.  The second form, automatically increasing the amount employees save – a concept originated by Thaler and economist Shlomo Benartzi – is catching on. It’s hoped that the second will correct a problem created by the first.

Last year, 45 percent of Vanguard’s client base used auto-enrollment plans, according to its “How America Saves 2017” report.  Historically, employees were asked to enroll in their employer’s 401(k). Today, more employers are – as Thaler would say – “nudging” workers by automatic enrolling them, usually when they are hired.  Although they then have the freedom to opt out, inertia tends to keep them in the plans.

Participation in all types of 401(k)s has roughly increased in lock-step with the spread of auto-enrollment.  Last year, 79 percent of workers participated in Vanguard-administered plans, up from 68 percent a decade ago, when a new federal pension law made auto-enrollment more appealing to employers.

The irony, however, is that while auto-enrollment encourages more people to save, Vanguard partly blamed a 2016 drop in employee contributions on their popularity. The average employee contribution in all types of 401(k) plans declined from 6.9 percent in 2015 of pay to 6.2 last year, well below the 7.3 percent rate prior to the Great Recession, according to Vanguard. …
Learn More

October 12, 2017

Before Retiring, Do this Homework

If you don’t know this chart on the Social Security website, you should:

The chart shows the so-called Full Retirement Age (FRA), which is the age at which you’re entitled to your full monthly Social Security benefit, a pension based on your earnings history.

Many boomers see their FRA as the time they ought to retire. But the question they should be asking themselves is: will the monthly benefit I’ll get at my FRA be enough?

At a time when many Americans are in danger of not having enough money for retirement, the answer is frequently no. …Learn More

October 3, 2017

Older Americans Handling Work Demands

Older workers face fewer headwinds and better working conditions than their younger co-workers, according to the first analysis of a new survey of 3,900 blue- and white-collar workers between ages 25 and 71.

The U.S. workplace overall is “very physically and emotionally taxing,” according to the study – that’s why they call it “work.”  Two out of three workers of all ages reported in the 2015 survey that they are often required to move at high speeds under tight deadlines, feeling intense pressure to accomplish too much in too little time.

But after people pass the age of 50, things get a little easier.  Older workers report having more flexible work schedules, more predictable hours, fewer scheduling changes, less stress, and greater ease in arranging time off to take care of personal matters, the analysis found.

Their workplace situation isn’t all rosy.  Larger shares of older workers feel under-employed or have unsupportive bosses – this held true whether they had college degrees or not.

The analysis of the new American Working Conditions Survey (AWCS), by researchers led by Nicole Maestas at Harvard Medical School and recently published in an e-book, is an introduction to what will inevitably be more research using this new, publicly available data. The AWCS might, for example, provide new fodder for studying the factors that influence older Americans to continue working or to retire.

The new study found some striking differences between older and younger workers – and among different groups of older workers: …Learn More

September 14, 2017

Moving? Check the State Taxes First

New Jersey’s retirement income exclusion for couples leaped from $20,000 to $100,000 in 2016.  Minnesota and South Carolina now have income tax deductions for retired military. And Rhode Island started exempting the first $15,000 of retirees’ income from the state’s income tax.

State taxes are one piece of the financial puzzle to consider when retirees – or Millennials – are thinking about moving to reduce their living costs, find a job or friendlier climate, or be close to the grandchildren.

The Retirement Living Information Center recently compiled a nice summary of tax rates for all 50 states on its website. The information comes from sources like the Federation of Tax Administrators, The Tax Foundation and the National Conference of State Legislatures.

State taxes vary dramatically. Alaska, Florida, and Texas are among the states boasting no personal income taxes, though some offset this with relatively high property or sales taxes. A few states – yes, Alaska again – have no sales taxes.  Tax deductions and exemptions for retirement income are the norm, but they vary widely from one state to the next.

Full disclosure: the Retirement Living Center is a company that makes money by referring retirees to senior communities listed on its website or by arranging residents’ reviews of these communities. But the state tax website is free and publicly available.Learn More

September 5, 2017

Senior Hunger in Decline but Still High

While hunger has eased among older Americans, millions still worry about having enough to eat from day to day.

A new report by two non-profits – Feeding America and the National Foundation to End Senior Hunger – found that food insecurity among people 60 and older declined by a meaningful amount between 2014 and 2015, the latest year of data available. This marked the first decline since the Great Recession.

Nevertheless, the percentage of the older population fitting the various definitions of being food insecure used in the report is much higher than in 2001.  In 2015, 15 percent of older Americans felt threatened by hunger – the broadest definition – compared with 11 percent in 2001.  And hunger is not isolated to the poor, said James P. Ziliak, founding director of the Center for Poverty at the University of Kentucky and co-author of the new report.

A big reason for rising food insecurity among seniors is that only 40 percent of those with low incomes who are eligible for federal food stamp assistance are actually enrolled in the Supplemental Nutrition Assistance Program, or SNAP, he said.  This compares with 80 percent of the eligible population as a whole enrolled in SNAP. …Learn More