Posts Tagged "saving"

Boomers Lament Disappearance of Pensions

More than one of this blog’s readers said a recent article about 401(k)s was hardly revelatory. But it sure generated a lot of comments.

Ed McGrath wrote this about “Retirees with Pensions Slower to Spend 401(k):” “Well thank you for this Caption Obvious.”

Perhaps the article struck a nerve because baby boomers are the generation who mostly lost out on pensions. Nearly two-thirds of U.S. workers born in the 1920s through the 1940s – many of them parents of boomers – had pensions. But a measly 6 percent of boomers from the tail end of the wave have them.

Millennials and members of Generation Z usually wouldn’t even consider pensions in their retirement plans. But boomers at one time might’ve hoped or even expected to enjoy a retirement similar to their pensioned parents.

“I am a single woman, a former nurse, and not one job offered me a pension,” said Jennifer Lee, who is 67. “I am relying on my savings and Social Security as well as the equity in my home.” Lee expressed chagrin that a 60-year-old cousin – a rare boomer with a pension – has already “mailed in his retirement papers.”

Gumball MachineSeveral readers pointed out problems with a U.S. retirement system that increasingly relies on savings – leaving retirees to figure out how much to withdraw every year – as monthly pension checks have disappeared. Ken Pidock, quoting a financial journalist, said 401(k)s lack the reliability of pensions: “Forcing people of modest means to depend on the stock market for income to pay bills after they stop working is madness.”

Paul Brustowicz, a former insurance company employee in his late 70s, feels lucky to have the security that comes with a pension, along with his Social Security and some IRA funds he converted to an annuity. “The steady monthly income lets my wife rest easy at night,” he said.

But another reader, Brian Jarvis, has a different perspective on the generational pension divide. “Yes, my father had a traditional pension that I don’t have,” he said. But Jarvis and his wife built up an ample nest egg “that my parents couldn’t have dreamed of,” he said. “We’ll be in good shape for quite a while – the rest of our lives – even without our parents’ type of pensions.”

Unfortunately, not everyone is as prepared as Jarvis. About half of U.S. households aren’t saving enough to retire at the traditional age of 65, which puts them at risk of suffering a drop in their standard of living when they quit working and the paychecks stop. …Learn More

Retired Couple Chopped Down $40,000 Debt

While living in New York City, Clifton Seale and Charles Gilmore piled up an enormous amount of credit card debt for basic expenses and frequent dinners out.

After retiring – Seale was a librarian and Gilmore a clergyman – the couple were notified of a $200 rent increase on their Queens apartment. With so much debt on the books, they realized they could no longer afford New York City, and after a few visits to see friends near the Delaware seashore, they moved there.

“I like to say I flunked retirement because I found out neither of us could afford to live on the pension and Social Security,” Gilmore said.

Although Delaware was a less expensive place to live, they didn’t turn their finances around until they found the non-profit Stand by Me 50+, which offers free financial coaches to Delaware residents over age 50.

The couple, who have been together 35 years and married for 8 years, have a decent income by rural Delaware’s standards, if not New York’s. Their combined income is about $70,000 per year. They were able to buy a $185,000 three-bedroom house in Lincoln, Delaware, after a friend helped with the down payment. Their $1,150 mortgage isn’t much more than the rent on their one-bedroom apartment in Queens.

Credit cards were Seale and Gilmore’s big issue. They owed about $40,000, including moving expenses and some new furniture purchased in Delaware. Both of them had retired at a fairly young age – 62 – but felt they had no choice but to go back to work. Gilmore found a job at a local operation for a national hospice organization and, last September, landed a part-time position as a Presbyterian pastor. Seale has worked at a non-profit that helps seniors who want to age in their homes.

The extra income helped, but the debt was still going up. “We weren’t paying off as much [debt] as we were spending,” Seale said. “No matter what I did, everything was still falling down around my shoulders.”

They just needed to get rid of the debt. …Learn More

The power of words being typed

Viewing Retirement Saving as a Fresh Start

Employers have learned over the years that understanding employee psychology is critical to getting them to save for retirement. Researchers have landed on a novel idea along those lines: explain to employees that they have an opportunity to save in a 401(k) or increase their 401(k) saving on a future date that represents a fresh start, such as a birthday or the first day of spring.

In a 2021 study in the journal Organizational Behavior and Human Decision Processes, this “fresh start framing” during an experiment increased the percentage of workers who agreed to contribute to their employer retirement plans and increased the share of pay contributed to the plans. In both cases, the increases were well in excess of 25 percent in a comparison with employees who were presented with less salient future dates.

Add this technique to a well-established one that growing numbers of employers already use with some success: automatically enrolling workers in the 401(k), and sometimes automatically increasing their contributions, which research has shown can work better than waiting for them to do it themselves. Most of the retirement plans in the study did not have any automatic features, and the fresh start dates proved another way to elicit better saving habits – voluntarily.

The option to delay a commitment to save is based on an assumption that people are more willing to make a change that involves sacrifice if it can be postponed – smokers often try to quit this way. One theory for using a fresh start date is that it imbues a feeling of optimism, giving employees permission to set aside past failures. …Learn More

Documentary: Navigating a 401k World

Early in this new documentary, the director’s message seems to be that retirement finances are messy, elusive, and too complicated for mere mortals to understand. He’s right on all counts.

Filmmaker Doug Orchard reminds us in “The Baby Boomer Dilemma: An Exposé on America’s Retirement Experiment” that there are no easy solutions for Social Security, which economists predict will deplete its trust fund reserves around 2034. Closing the shortfall will probably require some combination of benefit cuts and revenue increases.

Social Security is “one of the most important problems we face as a nation,” The Wharton School’s Olivia Mitchell says in the documentary.

Our other primary program – a 401(k)-style retirement savings plan – seems great when the stock market is going up, as it has until recently. Viewers are reminded of the 2008 stock market crash, which panicked older workers who realized they might not have time to make up their losses before retiring. The stock market rises over long periods of time, increasing the money in retirement accounts, but it entails risks that can be unnerving for workers and force them into making bad decisions about their investments.

Finally, the filmmaker presents a real-world example – in Florida – of the difficult decisions workers grapple with in a U.S. retirement system that has largely transitioned from defined benefit pensions, which provide regular monthly income, to 401(k) and other defined contribution plans, which accumulate a pot of savings that retirees have to figure out how to manage.

“Baby boomers are sort of the guinea pig, and we’ve said, ‘Okay you figure it out guys,’ ” says David Babbel at Wharton. …Learn More

Save money sticky note

2 Options in an Emergency: Savings or Family

The pandemic was a crash course in the importance of having some money in the bank for an emergency.

When COVID started to spread, jobs vanished, mothers abruptly stopped working to care for children who weren’t in school, and, for the unlucky people who became ill, the medical bills rolled in.

Congress took extraordinary measures during these extraordinary times and approved three rounds of relief payments totaling several thousand dollars per household in 2020 and 2021. But the federal payments, along with extra unemployment benefits and an increase in the child tax credit, weren’t enough to keep everyone afloat.

That left the people who didn’t have any savings with one other fallback option to get them through the tough times: borrowing from a family member.

The non-savers resorted to borrowing from family at three times the rate of people who did have savings – 15 versus just 5 percent, according to surveys conducted in 2020 and 2021 by the financial services company, BlackRock.

But borrowing from family to ease financial strains causes another problem: the people who got help from family said it stressed them out, the survey found.

Right now, the economy is doing pretty well, and jobs are plentiful. It might be time to think about a New Year’s Resolution. Many workers are still barely getting by, and it can be difficult to save. But at least give it a try.

The next time you have a financial emergency, Congress probably won’t be there to bail you out.

Read more blog posts in our ongoing coverage of COVID-19.Learn More

People of various occupations

Retirement Saving is Focus of Popular Blogs

U.S. retirement preparedness can best be described as mediocre: about half of workers are not saving enough money to continue their current standard of living once they retire.

Judging by a dozen blogs that attracted the most web traffic in the third quarter, our readers understand the importance of the issue. Some felt strongly that workers need to take responsibility for their retirement finances. Workers “disregard the notion of saving for the future,” one reader said in a comment posted to “Onus of Retirement Planning is on Us.” “They have lived their lives like there is no tomorrow and spend money on any and everything they want.”

To boost savings, growing numbers of state officials and employers are taking charge. The article, “State Auto-IRAs are Building Momentum,” was a roundup of states that are either implementing or weighing a requirement that employers automatically enroll their employees in an IRA. The workers can always opt out if they want to, but they often remain in the plans.

And automatic enrollment in 401(k)s and 403(b)s is gaining traction in the private sector. The plans, which were virtually nonexistent in 2003, now make up a significant minority of corporate and non-profit plans, according to a unique database that tracked the changes in plan design. A summary of this research appears in “401(k) Plans Evolve to Boost Workers’ Savings.”

Baby boomers never seem to get enough information about the nuts and bolts of retirement. In “Enrollment Trends in Medicare Options,” readers had a vigorous debate about the advantages and disadvantages of supplemental Medigap plans versus Medicare Advantage insurance policies. The article revealed a major shift away from Medigap and into Medicare Advantage, which has the benefit of relatively low premiums, with the tradeoff being that Advantage plans tend to provide less protection from large medical bills than Medigap.

Our readers are also interested in the difficult decisions boomers are making about when to retire. The article, “Not Everyone Can Delay their Retirement,” highlighted the racial and educational disparities driving these decisions. And “Disability Discrimination and Aging Workers” dealt with the choice facing aging workers whose bodies are breaking down but who can’t afford to retire.

Here are a few more articles that attracted readers’ attention – some about retirement and some not: …Learn More

401k Plans Evolve to Boost Workers’ Savings

Many employees in the private sector, when left to their own devices, either save very little in the company retirement savings plan or don’t even sign up for it.

But a growing number of companies have revamped their 401(k)-style plans over the past two decades to strengthen the incentives for employees to save. While progress has been gradual and uneven, the companies are moving in the right direction.

In a new study, researchers have compiled a unique nationally representative data set that tracks the changes employers have made to their 401(k)s and 403(b)s. The findings describe three important areas in which they are making progress:

  • About 41 percent of the largest 4,200 U.S. employers in this study automatically enrolled workers in a savings plan in 2017 – up sharply from 2 percent in 2003. Workers can still opt out but the vast majority remain in the plans.
  • Similar improvements were also evident in the study’s broader sample of employers of all sizes. In 2017, about a third of all companies had auto-enrollment, compared to virtually none in 2003.
  •  Among companies with auto-enrollment, about 44 percent of the large employers and half of the overall sample are automatically increasing their workers’ contributions.
  • Contributions to the plans are generally rising too.

The researchers credited some of the improvements to the Pension Protection Act. The 2006 law explicitly allowed companies to automatically enroll employees in savings plans and also established a minimum standard for the level of employer contributions made by companies that adopt auto-enrollment. …Learn More