Posts Tagged "retirement"

It Pays More Than Ever To Delay

Single people can receive tens of thousands more from Social Security over many years of retirement and couples can receive nearly $125,000 more by waiting until their late 60s to sign up.

The most common age for starting up Social Security is 62, when individuals first become eligible, even though monthly benefit checks would rise sharply if they’d wait. But it’s becoming increasingly worthwhile financially to hold out, according to economist Sita Nataraj Slavov of the American Enterprise Institute, who presented her research findings at the Retirement Research Conference in Washington last month.

 

 

 

 

 

 

 

 

This contradicts the conventional wisdom that no matter when people file, they’re going to essentially receive the same total amount over their entire retirement. The trade-off has always been between filing early and receiving a smaller check for a longer period of time, or filing later and receiving a bigger check for fewer years. Financially, it’s a wash.

But an economic fluke has changed all that: historically low interest rates. Slavov and co-author John Shoven, a Stanford University economist, have determined that, increasingly, there’s a payoff to holding out in this unusual rate environment. (More later on how that works.)

“There’s real money at stake here. This is not a trivial amount for most people,” Slavov said in a telephone interview. “What we’re trying to communicate is, it’d be good to think more about what you’re giving up when you claim early.”

At Squared Away’s request, Slavov calculated the present values for retirees who file for Social Security at the age at which they would maximize their benefits – she did so for the average single man, single woman, and two-earner couple. The payoff is largest for married couples who delay filing for benefits: …Learn More

Motivation to Save: A Simple Solution?

Quiz: by socking away $400 per month, earning 10 percent on your money, you can save $302,412 in 20 years. So, how much would you have in that same account in 40 years?

Yes, it’s more than double. But how much more?

Most Americans can’t do the math, explains Craig McKenzie of the University of California, San Diego’s Rady School of Management, in this video. And if they can’t do the math, then they are unable to comprehend how much easier their lives would be if they took advantage of the enormous benefits of starting to save early for their retirement.

That’s hardly surprising. What is surprising, however, is that McKenzie, a cognitive psychologist by training, experimented with a “simple, straightforward intervention” to get the point across to research subjects of the large boost to saving of earning compound interest over many years. Even better, it succeeded in motivating them to save, he said.


The solution is, as promised, simple – so easy that employers who offer 401ks, as well as mutual fund companies, banks and credit unions, could easily implement it…
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Campaign Discourse Misses Major Issue

Retirement-income security is receiving little attention as the presidential campaign heats up, despite a mound of evidence that Americans’ retirement prospects are stagnating – or worse.

While Medicare has been at the center of the debate, there has been little emphasis on the broader topic of income security for what remains the largest demographic bulge in U.S. history – the baby boomer generation – and now the largest block of retirees.

In the retirement community, however, debate swirls constantly about how bad the situation really is. These debates are slicing the onion awfully thin when one research paper or report after another contains a new aspect of the troubling fallout from the final years of a transition from secure, employer-guaranteed pensions to DIY retirement. Sometimes it seems that Wall Street’s collapse in 2008 was just the kickoff for the bad news on the retirement front.

A new report from Boston College’s Center for Retirement Research, which funds this blog, finds that just 42 percent of workers in the private sector had pension coverage in their current jobs in 2010 – that’s coverage of any kind, including the defined-contribution plans that now dominate. Yikes!…Learn More

Flatline: U.S. Retirement Savings

Baby boomers’ balances in 401k and IRA accounts have barely budged for most of the past decade.

In 2004, the typical U.S. household between ages 55 and 64 held just over $45,000 in their tax-exempt retirement plans. Plan balances for people who fell in that age group in 2007 rose but settled back down after the biggest financial crisis in U.S. history. In 2010, they were $42,000, a few bucks lower than 2004 balances.

These are among the reams of sobering data contained in the Federal Reserve’s 2010 Survey of Consumer Finances released in June. The $42,000 average balance is for all Americans – it includes the more than half of U.S. workers who do not participate in an employer-sponsored savings program.

There’s more bad news buried in the SCF: the value of other financial assets such as bank savings accounts dropped in half, to $18,000. And hardship withdrawals from 401(k)s have increased, to more than 2 percent of plan participants, from 1.5 percent in 2004.

So, where did all that wealth created by the longest economic boom in U.S. history go? The 2008 financial collapse didn’t help. But we can also blame the baby boom culture. Click here to read a year-ago article that examines the cultural reasons for the troubling condition of our retirement system.

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What You May Have Missed

A few articles Squared Away readers might’ve missed while they were on vacation are listed below.

A link to each article appears at the end of these summer headlines:

Couple Reach Across Financial Divide

Little Thought Put Into Retirement Date

How Can Debt Enhance Self-Esteem?

Progress Stalls for Young Adults

Free Financial Advice Goes Online

10 Student Loan Prevention Strategies

To support our blog, readers may want to sign up for our unobtrusive alerts – just one per week – by clicking here. And there’s always Facebook and Twitter!
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Image: cartoon of letters 401k

401(k) Tax Break May Be Weak Incentive

The typical American household approaching retirement age had just $42,000 saved in its 401(k) in 2010. This raises the question: Does the federal tax incentive designed to spur savings even work?

In what one retirement expert called “landmark” research, a new study has found that employers’ automatic enrollment and other employee mandates are far more effective ways to increase retirement savings than the federal tax exemption granted for retirement-fund contributions.

Harvard University Professors Raj Chetty and John Friedman, together with Soren Leth-Petersen and Torben Nielsen at the University of Copenhagen, tested the impact of both types of incentives on an enormous sample of 4.3 million people in Denmark. Chetty said the findings also hold implications for the United States.

They found that every $1 increase mandated for retirement savings – in this case, by a temporary Danish policy that required workers to contribute 1 percent of their earnings to government pension savings accounts – spurred 86 cents in additional savings by individuals. In contrast, the Danish government’s tax subsidy, which is very much like our own 401(k) tax break, spurred only 20 cents more in savings.

“This is a landmark study,” Dartmouth College professor Jonathan Skinner said about the paper, presented during the Retirement Research Consortium’s conference in Washington in early August. “I can’t emphasize enough how important this study is in terms of how retirement policies work.” …Learn More

Less Smoking Trumps More Obesity

Smoking cigarette

Since the 1950s and 1960s, the number of cigarettes smoked in the United States has plummeted by one-half but the number of obese Americans has tripled.

So which megatrend has a greater impact on U.S. health and life expectancy? Remarkably, the winner is the positive effect of the decline in smoking. And the additional longevity, as fewer Americans light up, will continue to play out at least through 2040, according to new research.

“The advantages of smoking reductions are expected to outweigh the disadvantages of increases in obesity for both sexes,” according to findings by University of Pennsylvania sociologist Samuel Preston and his colleagues at UPenn’s Population Studies Center and at Emory University’s Department of Global Health.

The declining popularity of smoking has driven down deaths due to lung cancer to 18 percent of all U.S. deaths. But currently obesity is nearly running neck and neck, causing 16 percent of all deaths.

“We have a horse race going on,” said Christopher Ruhm of the University of Virginia’s Batten School of Leadership and Public Policy, who commented on Preston’s paper at the Retirement Research Consortium’s conference in Washington earlier this month. “The winner of the horse race is that the smoking effect is going to dominate.” (The Center for Retirement Research, which sponsors this blog, is a consortium member.)

Estimates of longevity, in this particular case, should be viewed with caution. The mortality impact isn’t easy to calculate, Ruhm and Preston said, because many conflicting things are going on at the same time. For example, although obesity is rising, cholesterol-lowering statins and blood pressure medications are reducing the risk that any individual will die from obesity. …Learn More