July 5, 2012
Public Perplexed About Annuities
Sales of annuities are slow, because most retirees simply don’t know how to assess their value, new research concludes.
Many of the nation’s top retirement experts agree that annuities are the best solution for retirees struggling with the best way to invest and spend a lifetime of savings.
Annuities have a singular benefit: they guarantee monthly income, no matter how long the retiree lives – something a savings account can’t always do. This constant, pre-determined stream of income has the added advantage of preventing financial mistakes as the elderly lose cognitive capacity, according to Harvard economist David Laibson. Smart Money magazine has dubbed annuities “dementia insurance.”
Yet sales of fixed and variable annuities have been largely flat over the past decade. This “annuity puzzle” has befuddled the academy for years.
Research by the Financial Literacy Center, a joint effort by George Washington University, the Wharton School, and the Rand Corporation, concluded that most people avoid annuities – they “stick to the status quo” – because they don’t understand how they work.
“How can they make these decisions if they don’t understand what a good decision is?” said a Rand senior economist and one of the paper’s co-authors, Arie Kapteyn. “We have to do something about the fact that people have to make these decisions” about managing their retirement wealth. … Learn More
July 3, 2012
Fourth of July Quiz
Just over two-thirds of Americans were able to answer the questions below correctly. Given their “simplicity,” Annamaria Lusardi and Olivia Mitchell called the results “discouragingly low” in their 2011 research published by the National Bureau of Economic research.
Women did worse than men: 59 percent of women got it right, compared with 71 percent of men.
Take the test to see how you do.
1. Suppose you had $100 in a savings account and the interest rate was 2 percent per year. After five years, how much do you think you would have in the account if you left the money to grow?
a. More than $102
b. Exactly $102
c. Less than $102
d. Do not know
e. Refuse to answer
2. Imagine that the interest rate on your savings account was 1 percent per year and inflation was 2 percent per year. After one year, how much would you be able to buy with the money in this account?
a. More than today
b. Exactly the same
c. Less than today
d. Do not know
e. Refuse to answer
To see the answers, click “Learn more” below. And happy Fourth of July!Learn More
June 26, 2012
Employers Try New 401(k) Strategy
Employees apathetic about their 401(k)s are not saving enough. Some employers are bringing in reinforcements to push, cajole, or entice them.
Employers and employees share the blame for the low rate of retirement savings nationwide, consultants say, but the common practice of employers handing their new workers a 401(k) sign-up form and investment materials from the mutual fund manager clearly isn’t working. A few employers are trying a different tack.
One such initiative, by the Foundation for Financial Wellness in Colorado, trains and certifies CPAs, estate planning attorneys and financial advisers to educate its clients’ employees. NASA was the foundation’s first client, and they now include hospitals, city governments, oil companies, unions and churches, said Brent Hines, founder.
The foundation’s educators “are unbiased and don’t have a dog in the fight,” Hines said. “We’re not the 401(k) provider, and we don’t have the bias of wanting to put more money into your 401(k) or invest in a product.”
Separately, a program to educate credit union employees is expanding from four pilot states to an additional six and Washington, DC. And the American Nurses Association recently teamed up with a non-profit to train 10 nurses in five initial states to run workshops; to date, more than 700 nurses have gone through the financial workshops.Learn More
May 29, 2012
Boomers May Stop Work Because They Can
Baby boomers who’ve left the labor force in their pre-retirement years are in better financial shape than they once were.
The wealth of non-working Americans between ages 55 and 61 increased from $83,000 in 1992 to $98,000 in 2008, according to new research from the Urban Institute in Washington. (Comparisons are in constant dollars.)
Potential explanations for this trend range from greater U.S. inequality that launched more boomers into the top wealth tier to a rise in the numbers of married men who don’t work – but have wives who do.
Barbara Butrica, a senior research associate at the Urban Institute, said her study did not look into the “why” for the emerging group of voluntary non-workers who are approaching traditional retirement ages, married and single men in particular. One possibility, she said, is that “they are leaving the labor force because they can afford to.” …Learn More
May 24, 2012
Wanna Live Forever, Huh?
Mark Wexler (right), director of the documentary “How to Live Forever,” with fitness celebrity Jack Lalanne.
Immortality hasn’t been this hot since Ponce de Leon searched for the fountain of youth in 16th Century Florida.
The evidence: Captain Jack Sparrow (a.k.a. Johnny Depp) searched high and low for it in “Pirates of the Caribbean” Part IV last summer. Meanwhile, U.S. beaches were littered with the polka dot cover of “Super Sweet Sad Love Story” about a dystopian Manhattan, where longevity had to be earned. Mark Wexler’s documentary, “How to Live Forever,” was a bizarre-funny send up of baby boomers’ search for their fountains of youth. And time – not money – was the currency in the Justin Timberlake vehicle, “In Time.” Another Twilight vampire movie on the way…
This spring, Jane Fonda is promoting her new book, “Prime Time,” about what she calls the “third act” of life as more Americans are increasingly healthy into their 70s, 80s, even 90s. Not to put a damper on things, but can we afford our third act if we’re not Jane Fonda?
Noting the 30-year increase in U.S. longevity over the 20th century, she said it is ushering in a lifestyle “revolution.” But an index produced by the Center for Retirement Research, which funds this blog, indicates that we won’t have enough income to afford it. This regularly updated retirement index shows that nearly half of U.S. households with boomers in their early 50s are “at risk” of not having enough money for retirement.
Are you ready for your glorious third act? Or will it be more like the explorer’s quest? Pure myth.
May 22, 2012
New Financial Tools Backed by Research
The Center for Retirement Research at Boston College has created a prototype personal finance website with tools and information on topics ranging from how to reduce spending or refinance a mortgage to the best way to draw down savings during retirement.
The website offers a comprehensive set of tools backed by impartial academic research – not sales pitches. Individuals can use each calculator, “Learn More” lesson, or “How To” guide individually or as the building blocks for an overall financial plan, which they can construct in a step-by-step process that begins on the homepage.
The website, also called Squared Away, was created by the Financial Security Project (FSP), a financial education initiative of the Center. It was funded (also like this blog) by the Social Security Administration.
The Center plans to distribute the site through various organizations, such as credit counselors, financial planners, employers, credit unions, and non-profits involved in helping low-income people build up their savings.
The website is still in the “beta” phase and will be improved over the coming months. We invite readers to try out the tools and comment on them by clicking “Learn More” below. All comments – good and bad – are welcome.Learn More
May 17, 2012
Americans Put Cold Cash on Ice
More than one in four Americans revealed that they put their “mad money” in the freezer.
The freezer strategy was more popular than socks and mattresses, according to a Marist College survey last month of more than 1,000 people.
More people with college degrees chose the freezer than did non-college graduates. But the second most popular hiding place – socks at 19 percent – was particularly popular in the Northeast where people own a lot of socks. Third was the proverbial mattress, and more men than women went this route. Wisely, 17 percent knew of “no good place” in the house to hide their mad money.
Several years ago, I put my credit card in a plastic deli container, filled it with water, and froze it. Just once, I was thinking, it’d be nice to get an American Express bill that didn’t break the $500 barrier. (My barrier is higher now.)
I didn’t admit this to anyone at the time, but maybe it’s alright to talk about our quirky financial habits. Apparently, many of us have them.
Unfortunately, Marist did not ask how much this mad money amounts to. Presumably we’re not talking about thousands. Are we? Squared Away readers, where do you put your mad money, if you have any?Learn More