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The Boston College Center for Retirement Research always has wonderful posts on their blog. It’s great for someone like me, who’s working on a dissertation that focuses on retirement. I can get a quick synopsis of the current research coming out of the CRR. They always make their information useful for the general public too, and I want to share with you a recent post  that highlighted a new tool for people planning for retirement. How do you know if you’re doing enough? Ask the calculator!

You can play around with the calculator here. I really liked the tool, and found it easy to use and visually appealing. I liked how the graphics instantly updated based on my changes. The calculator also took into account important information like what age I plan on retiring and what I expect to get from Social Security or my employer pension. The calculation gave me a good estimate of my monthly income in retirement because all my resources were accounted for. It also told me I’m not doing enough if I want to maintain my standard of living in retirement!

The best part was Step 3: Make a Plan. Unlike many of the other retirement income estimators I’ve seen online (which are often on the website of an investment company) this calculator helped me reach my retirement goals and come out with a plan for free! Nothing to sign up for or invest in. The site offered simple steps to increase my retirement income like asking me to consider spending less each month or retiring at 65 instead of 62. And the tool showed me exactly what will happen to my income if I take one or both of these steps. I came up with a plan that suited me and the site offered to help me develop an action plan for moving forward.

I encourage anyone who’s planning for retirement to give it a shot: Target Your Retirement

A recent post by the CRR shows that non-working Baby Boomers age 55 to 61 (ages ineligible for Social Security benefits) are wealthier now than non-working 55 to 61 year olds of the past. The post explores how they’ve accumulated the wealth and why they chose to leave the labor force. An important point of the article is that, though they find themselves wealthier than non-workers of the past, they still only have a median wealth figure of $98,000. This “isn’t a lot of money for a boomer with a long spell of retirement ahead of them.  Boomers who leave the labor force often put themselves at risk of depleting their 401(k) assets too soon.”

Full post from the Center for Retirement Research.

Post Introduction: “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.”

…Read the full story

During my study of retirement income security something has always bugged me.  Countless articles and reports suggest smart asset allocations are the tried and true way to have a successful retirement (and still say this even after the economic recession). They talk about the value of investing and give financial advice that is clearly geared toward those with ample resources. Advice for the little guys is rarely provided, though arguably they need it more. Most people try to save for retirement but end up with little financial wealth. They’ll probably spend at least some of their retirement struggling financially.

A recent article by the Center for Retirement Research explores ways individuals can leverage their savings and assets so they are more likely to have a secure retirement. They suggest financial planning should not only include building retirement portfolios but:

  • Delaying retirement and taking more time to contribute to retirement accounts
  • Controlling spending and using the money saved to increase your savings
  • Investing assets in ‘riskless equities’ after retirement
  • Taking out a reverse mortgage

In other words, when all your financial adviser tells you is which stocks and bonds to put your money into, they are missing the big picture. There is an array of tools that people should explore and, based on their situation, employ to help them build a secure retirement. In fact, asset allocation was found to have the smallest effect on retirement security. The paper found working six months longer produces the same outcome as moving all investments into ‘riskless equities.’

However, I’d like to bring it back to my original point: do we provide advice to those who need it most? Recently, I gave a talk on women’s retirement security to a local Council on Aging community event. Community members had wonderful questions after the talk. One question struck me most: “I didn’t know about saving when I was young, my husband did that. But we spent most of it on his illness and now he’s gone. I have nothing but my Social Security check, do you have any financial advice for me?”  Later we had a chat and I asked her some questions about her situation. I found that she had been a homemaker, she did not own her home, and she was physically incapable of working. Her monthly check was also ‘too much’ for her to qualify for government services and benefits. What advice do we have for people like her?

Researchers and financial experts are starting to explore ways low- and middle-income workers can make the most out of their savings and assets. But still, there are people currently in retirement who live on little income, own next to nothing, and would love some advice. This is particularly true of older women. Many never needed to care about their finances until their husband passed away. If anyone knows an organization or service that advises these people (for free!) please educate me…because I don’t know of one.

The Older Women’s League has come out with their 2012 Mother’s Day report. Their reports are always thorough, up-to-date, and readable. This year the topic is on women in the U.S. workforce and highlights what women are faced with as they grow older. As OWL’s president mentions in her message to readers, this is a timely report since mid-life and older women are the fastest growing segment of our workforce and the economic downturn presents new challenges in their ability to find work, keep their jobs, and build their retirement wealth.

Women and the Workforce: Challenges and Opportunities Facing Women as They Age

MDR2012

From the OWL National Website: “This year’s report looks at how factors such as unemployment and underemployment, pay inequality, caregiving, age and gender discrimination, and education, training, and technology are impacting women age 40 and older. The report highlights existing programs that produce real results and offer innovative solutions and policy-driven recommendations to expand economic diversity and accelerate our nation’s productivity.”

Last week I was asked to present high school students with information on women in the workforce and saving for retirement. One of my major goals was to instill the value of starting early. But I had the sense, maybe because I’m not too far from high school age myself, that my slides about compound interest and Roth IRAs would be particularly boring.

Rather than watch their eyes glaze over I added a new slide: A personal story about my mother, her life course, marital history and saving behavior. I wasn’t saying anything novel but by explaining compound interest this way I kept everyone’s attention. So, I encourage you to share this with the young people in your life and reflect on what it really means to save early and save often.

(For simplicity, the interest rate at all time points is 5%. In actuality, she gained more during her earlier life and has lost a lot during the recent recession).

This figure tells us two stories. Let’s begin with the story in blue, which is what really happened. At age 21, my mom got married and started working a new job. She was so excited to finally have her own money and be able to buy all the clothes she wanted and decorate their new house. My dad, however, didn’t think this was a good plan and told her, “Save your money! We both should be saving now for our future.” Reluctantly she saved, putting $2,000 away each year for her retirement. By the time her first child was born (me!) she had saved up $20,000.

In her 30’s she had another baby and raised my sister and me. She was not working or saving at this time but her $20,000 continued to grow. By 42 her marriage was on the rocks and she became divorced. Now, all that planning for her future had to be done alone. She spent a couple years searching for a new job and struggling with the change. Even so, the savings from her 20’s continued to grow. By 45 she found a new job and started her career over. She was getting nervous about her retirement savings and started putting away $5,000 a year. The savings from her new job were added the nice nest egg she had accumulated while she wasn’t working. The final blue bar shows an optimistic future where she continues to save each year, the economy improves and hopefully she reaches over $300,000 by retirement.

What is the reality of saving? Well, you can’t always save when you want to or need to and it’s hard to predict the future. For example, my mom couldn’t predict that we’d be in an economic recession right at the time most people her age start saving for retirement. The green bars show us what this path would look like for her. Nothing in her life has changed except that she didn’t save in her 20’s. Instead she chose to ignore my dad’s suggestion and spend her money on clothes, new furniture and all the other things she wanted. The message is clear: Saving early, even if it’s just a little, makes a huge difference for your future.

I can tell you honestly that most of my mom’s friends are extremely worried about their futures. They are in their 50’s, starting to save now and having a difficult time. She knows, though she hates to admit it, my dad was right.

This post by Robert Powell from MarketWatch (The Wall Street Journal) discusses a bleak outlook for America’s state of retirement security. In my opinion, the most important thing mentioned in this article is how the lack of financial education among workers can directly affect their retirement wealth. Many people hold misguided expectations about their retirement portfolios and believe they have more in Social Security benefits, employer pension plans, or health and long-term care coverage than they really do (Helman, VanDerhei, & Copeland, 2007). What’s worse, this misinformation can actually drive planning behavior so much that ill-informed workers, rather than doing nothing, are losing significant portions of their pension wealth because they take inappropriate and detrimental action (Chan & Stevens, 2003). Not everyone has expendable income to play with, yet the financially-informed worker is 5 times more likely to respond to pension incentives accordingly and increase their pension wealth (Ekerdt & Hackney, 2002).

The article highlights many other topics that are important to educate yourself about. We need to fix Social Security, we need to contribute more to our own 401(k)s and retirement savings, we need to make sure more workers are covered by pension plans, and so forth. Yet, many of the suggestions for fixing these issues are based on what’s feasible for the typical, middle class worker.

Should you really force people to put part of their wages into an IRA when they need every penny of every paycheck to cover the costs of food, shelter, and clothing? If yes, can you tell them what percentage of their income they must contribute? Are you then required to financially educated them or give them free access to financial experts? Will they even live long enough to reap the benefits of their automatic IRA account?

Longevity may be increasing in this country but we should always be cautious of statistics. Longevity varies widely by gender, race, income level, health status, region of the country…I don’t know, pick something. In fact, life expectancy has actually declined for women between 1997 and 2007 which is extremely rare in developed countries. “The nation has experienced a widening gap between the most and least healthy places to live. In some regions of the country, men and women are dying younger on average than their counterparts in nations such as Syria, Panama and Vietnam.”

As with any policy change or “universal” action, all parties who will be affected by the changes must be considered. I encourage you to read Powell’s article and to approach his solutions cautiously. Though it cannot be the only answer, there is one that seems to me most helpful and realistic: Financial education for all.

 

Many older workers would like to retire slowly, decreasing their hours at work before completely retiring. With the current economic downturn, people are expressing interest in working longer. People have a lot of their identity wrapped up in their careers, so reducing your hours can be a smoother transition both psychologically and financially. But is this option available to everyone? The Boston College Center for Retirement Research answered this question in a report titled Phased Retirement: Problems and Prospect.

Phased retirement is a white-collar phenomenon and high income individuals who are White, wealthy and educated are more likely to be able to reduce their hours with their employer. Interestingly, 73% of employers interviewed said they would ‘work out’ a phased retirement plan for certain managerial or higher level employees. These informal policies dominate over formal procedures with older workers being kept on to train colleagues or new staff. Unfortunately, not all workers are given the same options.

Employers point to a variety of constraints that make it difficult for them to provide phased retirement options. Pension plans or paying health insurance for older part-time workers is a frequently named drawback. Employers also express interest in only keeping certain employees. In fact, phased options are often offered to the best or favored employees allowing the employer to weed out undesirable workers. Still, one of the main reasons a company did not have phased retirement was simply because their business did not want or need part-time work.

The good news is that phased retirement options continue to increase among companies. If you are interested in phased retirement talk to your employer. Many different arrangements can be made to accommodate both the worker and the company. Here are some tips:

  • Double check – does your employer already have a phased retirement program in place?
  • Determine your needs – what do you want and what options are realistically available to you?
  • Pension impacts – does your plan provide for phased retirement? how could it impact your benefits?
  • Health insurance – what will happen to your health benefits if you reduce your hours?
  • When can I start – does your employer have policies that could affect your decision? (for example: 6 months after you retire you can come back and work part-time)
  • Employer expectations – what will be expected of you and how will your role and responsibilities change?
  • Find more information from the Wall Street Journal and AARP’s Public Policy Institute

Today, after listening to the President speak, I started thinking about the economy’s impact on older Americans. I found an interesting report from The National Academies Press titled:  Assessing the Impact of Severe Economic Recession on the Elderly. You can read the document here, which summarizes a workshop called by The National Institute on Aging. The report’s main goal is to reflect on what we already know and what we need to learn about the current recession’s effect on older adults. Unfortunately, what we already know is quite bleak.

How People are Coping: All age groups are being affected by the recession but older workers are often unable to completely recover from these kinds of financial shocks. The most common ways people are coping with income loss are to reduce spending, reduce saving, utilize unemployment benefits, withdraw money from savings, get financial assistance from friends or family, and borrow money (i.e. credit cards, loans). Some older workers are also choosing to delay retirement as an additional coping method.

Our Health and Well-Being: Our health is being negatively effected by the economic recession. GDP is strongly, inversely related to mortality over the long term, and older workers who lose their jobs are at greater risk for certain health conditions than those who remain employed. Still the Gallup Well-Being Index found that people’s well-being significantly declined in the fall of 2008 but went back up substantially by May 2009. I am nervous, now that we lost our AAA rating and the current stock market is in turmoil, if people’s well-being will again decline.

Unemployment or Retirement: Unfortunately, older adults who lose their job are less likely to get hired back into the labor force compared to younger workers. Those who do find work are often making significantly less than they made at their previous job. Researchers find that age discrimination in the workplace continues to exist, particularly for older women. It is therefore not surprising that many older adults who lost their jobs are deciding to retire. This early retirement, however, could hurt future finances. Increases in Social Security’s full retirement age, less time to invest in your retirement accounts, fewer vested years with your employer, or simply having less in wages over your lifetime can all have negative effects on your finances in old age.

What Can You Do: The report summarizes a depressing situation and then has limited suggestions (and most of them seem pretty intuitive to me). I don’t know if it will tell you anything new but here they are along with my own comments:

  • Buy low, sell high – Experts suggest raising your contribution rates (if you can) to your stocks, bonds and pension accounts while the market is doing poorly. If the markets bounce back before you retire you may gain substantially (the younger you are the more you are likely to gain). If you are retired and have spare cash, consider moving it into low-risk funds so that you too may gain from the markets being low (Please consult a financial adviser who will learn about your personal situation. Do not take this as professional advice).
  • Reduce your spending – A no-brainer but often hard to do. Consider what you really need now and what can wait. Did you know that “I don’t need it” is the most common reason eligible individuals refuse welfare? Figure out what you really need, what you can live without, and what is most important to you.
  • Stay in your home – Selling now is not a great idea, so consider modifications if your home is currently not a safe place to grow old.
  • Keep your job – If possible, consider waiting to retire. If you have been laid off, consider looking for new employment and working a few more years before you retire. Collecting your Social Security benefits early will mean a lower monthly paycheck for the rest of your life.
  • Utilize family – Your family may be able to provide some insurance against financial shocks. It’s important to have someone you can call on for help, even if you don’t use them.
The report highlights a ton of questions we need to research before we can understand what is going on. Unfortunately all that means is the recession’s impact on older workers will be understood after it’s all over, providing them little support in the meantime.

Employment over one’s life time is rarely with a single company. Individuals often change jobs or employers over their working years. People leave to have children, to go back to school, or to try their hand at running a business.  All these changes in employment could confuse retirees trying to determine what pensions they are entitled to. And let’s be honest, who couldn’t use an extra $100 a month.

For New England residents there is a free resource that I’d love to share with you. The Pension Action Center was launched in 1999 and is based out of the University of Massachusetts Boston. Its primary program, the New England Pension Assistance Project, brings together pension experts, pension lawyers and a group of dedicated, knowledgeable volunteers to help you understand or obtain your pension benefits.

As their website states, the goals of the Center are to:

• offer individual counseling and assistance
• help you negotiate layers of bureaucracy
• help locate pension funds
• explain the benefits and rights under your pension plan
• supply referrals to attorneys if needed
• supply a listing of financial advisers if needed

The Pension Action Center complied this informative booklet in 2009 to help retirees answer a few burning pension questions. Am I entitled to a pension from my former employer or my spouse’s former employer? Where do I start looking? What documents will I need to understand my situation? What resources are available in my state? I think I have a lost pension, now what?

Employers are not required to provide a pension, so everyone’s results will be different. But now more than ever it is important to make sure you are getting all the benefits you are entitled to from your years of hard work. Check out the booklet to read more or contact the Center if you’d like to talk to someone directly. No one should be missing out on their much needed and well deserved retirement income.

The New England Pension Assistance Project
Phone: (617) 287-7307 or toll free (888) 425-6067
Fax: (617) 287-7080
E-mail: npln@umb.edu

Recently I’ve been working on this crazy data analysis for my professor. I say crazy because it involves 9 waves of data (different interview time points), a sample of over 22,000 Americans nearing retirement, and over 400 calculated Dow Jones scores representing changes in the stock market from 1992-2008 (That took me a better part of a week!) Our data comes largely from the Health and Retirement Study (HRS), a nationally representative, longitudinal data set  that looks at people over 50 and follows them through the end of their working lives and into retirement.

This all started with an idea about the lasting effects of the 2008 stock market crash. All else being equal, whether you were interviewed by the HRS in March or December should have no bearing on your retirement plans. Unless, of course, historical time and place played a role in your decisions. By December you may have been listening to the news, watching your stocks drop, and talking to your spouse about an unanticipated future. Did the changes in 2008 influence people’s plans for retirement? Preliminary results indicate, Yes. Many people who were planning on working till 62 or 65 are now planning to work longer or are no longer sure when they can expect to retire.

So we’ve taken it a step further (enter my hundreds of stock calculations) to examine stock market fluctuations from 1992 to 2008 and see whether or not economic conditions at the time people are interviewed have any effect on individuals’ plans for retirement. I mean sure, people may be thinking and worrying about it but have they really changed their plans? The answers are yet to come!

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