Boomers, Markets & Money

A Down-to-Earth Discussion of Financial and Lifestyle Information for Baby Boomers


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Summary of “Boomers and the Great Recession: Struggling to Recover”

AARP also recommends that older workers keep up-to-date with the latest job skills.

AARP recommends that unemployed workers receive government help with job training. (Click to Enlarge)

Here is a summary of points in a 131-page report prepared by the AARP Public Policy Institute on Baby Boomers experiences during the Great Recession and soon after.

Study surveys found:

  • 47% of Baby Boomers who were unemployed gave job loss as the reason for not working.

What the unemployed perceived as significant job search barriers:

  • The struggling economy.
  • One-third to one-half felt that age discrimination was a factor.

Feelings of the recently reemployed:

Fewer than 50% felt they were on target for their financial goals.

Reasons why they felt this way:

  • Pay at the new job was lower and savings were depleted.
  • Debt levels were too high.
  • They were hired as temps.

How Boomers surveyed coped with financial setbacks

  • Most commonly, they cut expenses.
  • They withdrew money from savings accounts.
  • Some postponed medical or dental care or stopped taking medications.

Researchers wrote “More than half of the Boomers surveyed stated that they were less confident of having enough money for a comfortable retirement than they had been before the recession started.”

Biggest worries for Baby Boomers:

  •  Cost of health care and long-term care.
  •  Inflation
  • Unable to leave an adequate inheritance
  • Unable to live in their own home.
  • The surviving spouse might not be able to maintain their way of life.

A selection of the report’s public policy recommendations:

  • Encourage older workers to take advantage of employer training programs. AARP advises employees who are close to retirement to continue to participate in training. They may be forced to stay in the workforce longer than planned or to re-enter the workforce after retirement.
  • Offer financial assistance to cover training costs for unemployed workers. Government data on job skills needed and areas of demand needs to be timely, accurate and easy to obtain.
  • Increase monitoring and enforcement of age-discrimination laws.
  • Let older workers know about government and private programs that offer advice on entrepreneurship. Information should be available about the suitability of considering this as a primary or secondary source of income.
  • “As traditional pensions decline, Social Security remains the only major stable retirement income source. It is critical that this program be protected.”

Source:

SURVEY METHODOLOGY  (Click to Enlarge)

SURVEY METHODOLOGY (Click to Enlarge)

“Boomers and The Great Recession” By the Public Policy team at AARP Public Policy Institute. September 2012. You can find a ink to the PDF of the 131 page report in this article.

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Summary and Link to Interesting Video on Recent Retirement Study

Review of PBS Frontline’s “The Retirement Gamble”

Resources to Help You Decide When to Take Social Security

A Critical Step in Preparing for Retirement

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Summary and Link to Interesting Video on Recent Retirement Study

I saw an interesting interview on Bloomberg Surveillance this morning that is worth watching and have included a link below.  Tom Keene interviewed Andrew Sieg, head of Global Wealth & Retirement Solutions at Bank of America, about a recent study on near-retirees and retirees.

A quick summary of some of the points:

  • Tom Keene believes politicians have created an uncertain future for people nearing retirement. Conversations seem to be dominated by this fear.
  • Healthcare costs are the big “wildcard” of retirement expenses.  Retirees on average spend about $20,000 per year on health care costs per year. Baby Boomers worry about healthcare costs more than any previous generation.  Sieg said that it is critically important that people purchase long-term insurance at as young age as possible.  People’s biggest concern is that they want peace of mind during retirement and long-term insurance will help.
  • Sieg said Boomers are radically changing retirement.  Seventy percent plan to work in retirement with about a half doing so by choice.  The optimistic side of this is that many are choosing to use the “longevity bonus” as an opportunity to use their new freedom to pursue careers that they didn’t have time for when they were younger. Many see it as an opportunity to reinvent themselves.
  • Current low interest rates are punitive for retirees.
  • Both Keene and Sieg are concerned that proposals are being circulated around Washington that reduce the incentive to save.  Most people need to increase their saving rate.

Bloomberg TV Video. “BofA’s Sieg on Retirement Planning” Video


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Review of PBS Frontline’s “The Retirement Gamble”

I recommend that you watch the eye-opening PBS Frontline Special “The Retirement Gamble.” Thank you to Claire for suggesting it.

Some key points from the program:

  • Many hidden layers of fees are eroding individual investor wealth.

Jack Bogle, founder of The Vanguard Group, gave an example of how much fees cost an individual over a 50-year investing lifetime. If this consumer receives a 7% annual return and pays 2% in annual fees, fees will erode two-thirds of the investor’s gains. Bogle said you can see these results on a compound interest table.

I decided to do just that and found an investment calculator at Buyupside.com. (Please click on the image below.)  Using the same figures show that the portfolio would be reduced by 63.58%. We should all be checking the fees on our retirement plans!

Annual Fees Greatly Reduce Portfolio Results

Investment Key Calculator (Click to Enlarge) http://www.buyupside.com

  • Robert Hiltonsmith, a policy analyst at Devos, examined his own retirement plan to see what fees were taken out of his account. He found that about 25 fees were extracted from his account by mutual funds, fund brokers, plan adminstrators, etc.

  • Teresa Ghilarducci, economist at The New School for Social Research said:

401(k) plans were originally designed for wealthy people. Now, the advisors middle class have access to are really just sales people.

American consumers don’t know the price, quality, or dangers of their 401k plans due to strong industry lobbying.

“So we know after 30 years of this 401(k) experiment that people do worse in 401(k)s than they would have if their money was in a traditional plan or if it was in a plain vanilla retirement account.”

  • Many of the options in plans are mediocre and many people are not prepared to invest their own money.

This became clear to me when I had someone from a cable company come to my home to repair the phone. When he saw that I had the TV set to a financial news channel, he began telling me that he had all of his retirement money in marijuana stocks. Although his portfolio had lost 50% of its value at this point, he was very optimistic about his future prospects. I was very shaken when he left as I wondered how many people were investing their retirement funds this recklessly.

  • According to the Department of Labor, there are no clear standards on who can give advice to consumers of retirement plans. Also, there is no clear way for a consumer to tell who has the expertise to advise them. There was intense industry lobbying when new standards were proposed, forcing them to be withdrawn.

Source:

PBS Frontline. Videos and transcripts.

Related Posts on This Blog

“Resources to Help You Decide  When to Take Social Security”

“A Critical Step for Preparing for Retirement”

“How the Heck Do I Invest My Money?”

“Book Review -‘The Bankers’ New Clothes: What’s Wrong With Banking and What to do About It”


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Resources to Help You Decide When to Take Social Security

At What Age Should I Take Social Security Benefits?

At What Age Should I Take Social Security Benefits?

Are you confused about what age you should begin taking Social Security? I came across an article that clearly and efficiently summarizes information about the pros and cons of taking Social Security benefits at various ages. At the end of the post, I include links for other resources.

The article is “When Should You Take Social Security?” by Rande Spiegelman, CPA, CFP at the Schwab Center for Financial Research. It is a bit long but I like the article because:

  • There’s a handy table letting you know “When can you get your full Social Security benefit?” by birth year. Retirees born in 1937 or earlier received full benefits at age sixty-five. If you were born in 1938 or later, the retirement age to receive full benefits gradually increases. People born in 1960 or later must wait until age 67 to receive full benefits.
  • It gives specific figures on how much you will be penalized by the amount of months you retire before your “full retirement” age. It also let you know how much your monthly benefit will increase by the amount of time you delay in taking the check later. You don’t receive additional benefit for delaying past age 70. That shouldn’t be a problem for most people because over two-thirds take their Social Security benefit early.
  • The article gives a list of factors to consider when making this decision.

Here are a couple of other links:

  • U.S. Social Security Administrations benefit estimator
  • Kiplinger’s has an index of articles on Social Security topics. “10 Things You Must Know About Social Security” covers a lot of the same information as the article above as well as some additional tips. Another short article that you might find helpful is “How to Check Your Social Security Statement Online.


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A Critical Step in Preparing for Retirement

How Are We Spending Our Money? (click to enlarge)

How Are We Spending Our Money?

Do you have peace of mind about your retirement savings? A key contributor to anxiety is that most of us don’t know how much we are spending now. And we have no idea what our future expenses are likely to be.

A financial planning fact finder can guide you in gathering important information about your assets, debts, insurance, expenses, and goals.

The good news is as you put each piece of the information puzzle in place:

  • You get a feeling of satisfaction and accomplishment.
  • Anxiety drops.
  • Ideas on helpful things to do will become clearer.

The main thing is to get started.  You don’t have to be perfect.  As you gather data, you put yourself in a place to make more realistic choices.

Everyone has a different approach to getting a handle on expense tracking. For example, my brother and his wife wrote down everything they spent money on for years.  This approach was a lot of work, but it helped them free up funds to save for retirement and to do fun things like travel.

I tried their approach for nine months and found it useful.  As I wrote in the post “Tightwad Tips:Small Recurring Savings Add Up”, when we bought a vacation home, we had an added incentive to conserve money. Writing down our expenses helped us come up with cost cuts that weren’t too painful to make.

Planning Helps Bring Peace of Mind

Planning Helps Bring Peace of Mind

After a while, I found this method too time consuming but it taught me to take a look at expenses periodically to see what I could trim.

Now we are at a new stage, where my husband is gradually cutting down on the hours he is working (unfortunately, the money goes down, too!) over the next few years.

So, to take the emotion out of dealing with this new stage, we decided it was time we worked with some investment professionals.  Right now I am gathering information for a “Financial Planning Fact Finder.”

You can get financial planning organizers from most investment firms.  You can also find many variations on the web.  Below are links to examples of worksheets I found on BalanceTrack, a financial education website.  It doesn’t matter if you track your expenses on a complicated spreadsheet or write them in pencil on a piece of paper.  Just total them up each month to see where the money is going.

 


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How The Heck Do I Invest My Money?

The crazy, bizarre events of the last few years have had me scratching my head as I tried to figure out how to invest our money.

The older we get, the scarier these decisions become because we have less time to make up for our mistakes. And who has the time to keep up with each new crisis and every speech politicians make? Not to mention the volatility caused by high-frequency trading.

Barry Ritholtz’s article “Keep it simple, avoid the pitfalls” has good suggestions for simplifying investment decisions. These strategies help tame some of the emotions that are involved with investing money.

Ways to Avoid Portfolio Mistakes

Avoid Investment Pitfalls

  •  Use passive investing versus active investing. In other words, instead of investing in individual stocks or hiring an active manager, use index ETFs (Exchange-Traded Funds). My post “Resources to Help Boomers Decide if ETFs are Right for Their Portfolios” details a list of reasons investors choose to use these securities. It suggests articles that give basic information about Exchange-Traded Funds and helpful websites.
  •   Diversify across asset classes and keep expenses low. You hear this advice all the time but it is important—and hard to follow. We all want to pile into to the latest hot investment as the price is rising.
  • The suggestions of dollar cost averaging and “be mindful of valuation” seem to be contradictory but can be used in combination. I try to make myself add a little bit of exposure to an asset class that is underweighted in my portfolio as markets are dropping. I don’t try to buy at the very bottom since who knows when that will happen. I just figure, if a sector is down substantially, on average, I should be OK in five to seven years.
reduce stress of portfolio decisions

Tame Emotions

  • A few suggestions are particularly important for beginning investors:

Avoid venture capital and private equity

“Most IPOs are a sucker play.”

“Avoid new financial products”

Really, do you think the big money is going to give us individual investors a good deal?! These complex products are meant to humble, confuse, and separate us from our money. Warren Buffet is right when he repeatedly says that he only buys what he understands.

I recommend Ritholtz’s easy-to-read article. “Keep it simple, avoid the pitfalls” The Big Picture


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LESSONS FROM RETIREMENT SURVEY RESULTS

BlackRock conducted a survey of retirees, retirement plan sponsors, and workers saving in retirement plans.  A few points jumped out at me:

  • People expect retirement to be an active time in their lives.  Currently, 47% of retirees work or volunteer because they enjoy it while 1% work for income.  However, current workers have dramatically different expectations for the retirement phase. The majority, seventy percent, expect to work for enjoyment and fifteen percent expect to work for income.
  • Over half of plan sponsors are not confident plan participants are saving enough for retirement.
  • Current retirees in the survey were confident in their retirement.  They also had the vast majority of their expenses covered by traditional secure sources of income such as Social Security and defined benefit plans.

How can we use these survey results?

  • Clearly, people nearing retirement expect their lives to be different than the traditional retirement scenario. Some type of work will be a part of their lives for personal satisfaction, and for many, by necessity. We should be exploring ideas on how to make that happen before we retire.
  • This may be stating the obvious, but most of us should be saving more money. Probably a lot more money.

 

The survey raises a lot of questions for me as well. How is the quality of life of people going to be affected when they don’t have these secure sources of income? Plainly, the practical aspect of affording necessities is a concern for many. But I believe stress levels for retirees and those approaching retirement are elevated and will continue to stay high.

Looking at the big picture—how is the economy going to be affected? (Not to mention the effect of stress on our health.) The United States had a low savings rate compared to other developed countries in the past.  The high level of spending helped our economy grow at a higher rate than other industrialized countries.  Will the loss of secure sources of income be a permanent drag on the economy as people are forced to save a higher percentage of their income?

You can find the survey at: 2012 BlackRock Retirement Survey