05/30/17

Try Mental Accounting To Make Your Retirement Dreams Come True

By Robert Powell, April 5, 2017, USA Today

You might not know what it’s called, but odds are high you do it – you craft systems that enable you to make countless decisions about money without breaking into a sweat. Or at least so writes Diane Garnick, the chief income strategist at TIAA and the author of a just-published white paper, Income Insights: Mental Accounting in Retirement.

According to her paper, this system – more formally referred to as mental accounting in the world of behavioral finance – “is an economic concept that suggests people code, categorize and evaluate activities based on a variety of subjective criteria, ignoring that funds are transferable.”

Others share that point of view. “Mental accounting is essentially the household equivalent of financial accounting, but it is often done without conscious thought,” says Richard Thaler, a professor at the University of Chicago Booth School of Business and author of Misbehaving: The Making of Behavioral Economics. “A primary insight is that people treat various mental ‘buckets’ of money as non-fungible, meaning that there are implicit rules against taking money from one account – the children’s college savings account – and spending it on something else, like a new TV.

And this system, according to Garnick’s paper, holds the possibility of delivering tremendous benefits. “With the right architecture, it can save us precious time, economize our thinking and increase our self-control,” wrote Garnick, who is also a board member at CFA Institute Research Foundation.

How so? Well, to understand ‘how so’ requires a bit of background. Prior to retirement, people routinely allocate some portion of their money to many buckets, and often over commit ourselves — 25% to housing, 25% to food, 25% to loans, and of course, another 50% to entertainment. “We don’t necessarily make the best decisions, but if we make a mistake we have time on our side,” Garnick wrote.

In an email, Garnick noted that mental accounting enables people to immediately discover which retirement goals they will be able to achieve. “This framework enables a 30-year-old to quickly see if they are saving enough to enjoy hobbies in retirement or if they will be just scraping by, ” she wrote. “The insight offered by mental accounting can be powerful since it gives people time to adjust their savings to meet their needs.”

Mental accounting in retirement

But come retirement, your mental accounting requires a change in mindset, wrote Garnick. Among other things, you no longer have time on your side should you make a mistake with your money.

So, rather than allocate some funds to many buckets all at once, Garnick proposes fully funding one bucket before moving on to the next. “This framework offers transparency into the age-old question of how much guaranteed lifetime income each household needs while simultaneously offering savers insight into which goals they are on track to meet,” she wrote.

For instance, instead of allocating 25% to housing, allocate a portion of your retirement income to funding necessities (housing, transportation, personal items, entertainment and taxes), then fund health care expenses, then emergencies, then fun or what some call discretionary, and lastly bequest.

And this change in mindset won’t be easy. “I think the most difficult aspect of mental accounting and retirement savings is when households switch over from saving up for retirement to spending down,” says Thaler. “This requires an entirely new mindset. Most of our lives we live on a budget: Spend less then you earn, and put some aside for later. Then they are confronted with the much more difficult task of taking a pile of money and making it last over an uncertain lifetime. Hard!”

Would a budget be better than mental accounting?

On the surface, it might seem a budget would be better than mental accounting. But that’s not necessarily the case. “While creating a detailed budget is ideal, many of us don’t invest the time necessary to start one, let alone maintain it with all of life’s unexpected expenses,” wrote Garnick. “Mental accounting provides a framework that enables people to make decisions at the margin without placing their economic future at risk.”

The four-box approach

To be fair, mental accounting resembles what some call the four-box strategy whereby you use guaranteed sources of income (such as Social Security, a traditional defined benefit plan, a guaranteed lifetime income annuity) to fund essential expenses, including recurring health care expenses, and risky assets (your retirement accounts) to fund discretionary expenses and bequests.

And that approach has merit too. “When it comes to retirement there are two kinds of people in the world,” wrote Garnick. Those with old-fashioned pension plans and those in the YOYO generation, which stands for ‘you’re on your own.’”

And both kinds of people, Garnick said, can be well served by securing guaranteed income that covers their necessities. This includes social security, a pension if you have one, and guaranteed lifetime income for the YOYO generation.

As for matching risky assets with discretionary expenses an expert said it’s a good strategy too. “If (investors) treat retirement accounts as long-term investments that should remain untouched, they are more likely to reach their financial objectives,” said Victor Ricciardi, a finance professor at Goucher College and co-editor Investor Behavior: The Psychology of Financial Planning and Investing.

To Your Successful Retirement!

Michael Ginsberg, JD, CFP®

04/17/17

Worried you’ll run out of money in retirement? Then don’t make these rookie mistakes

By Katie Young & Sharon Epperson, April 13, 2017, CNBC.com

Being newly retired is definitely a reason to celebrate — and spend — some of the hard-earned money you’ve saved over the years.

Yet with Americans living longer, experts say you need to plan for a retirement that could last 30 years or more. Add in ever-rising medical costs, mostly stagnant Social Security checks and all of a sudden that pile of cash doesn’t look so big.

The issue of outliving your money is a real threat. To avoid having that happen don’t make these classic new-retiree mistakes.

Spending too much too soon

Making the transition from earning money to spending money when you first stop working is tricky. Especially if you’re healthy and eager to enjoy all that new free time.

“We get this all the time, where recently retired clients will do a trip to Europe or Asia, then spend four weeks in the Caribbean, saying, ‘When we get older we’ll slow down,’” said Chris Schaefer, who leads MV Financial’s Retirement Plan Practice Group, Bethesda, Maryland. “They’re eating so much of principal in early retirement that they don’t have enough to last.”

Schaefer suggests that working with a financial planner to create a withdrawal strategy for your retirement accounts is key. He says a good starting point is taking out no more than 4 percent of your total nest egg a year.

Overspending on the house

Wanting to be debt free is an admirable goal and one that works for many retirees. However, if you haven’t paid off the mortgage yet, rushing to do so may not be your best move.

As long as you have the cash flow to comfortably make the payments, Schaefer says don’t sacrifice your retirement savings by using a big chunk to pay it down. Instead keep it invested where it should continue to grow.

Plus having a mortgage offers tax benefits you can still claim as a retiree.

Overspending on the kids

Once you retire it’s time to let the 35-year-olds take care of themselves.

“Over the last 10 years we’ve seen this more and more with millennials not able to get out on their own,” Schaefer said.

So, if you’re paying rent for your adult children, or their cellphone bill, car payments or other recurring costs, it’s time to sit down with them and tell them it’s over.

Making smart decisions early on will help stretch your money further so you can retire well.

To Your Successful Retirement!

Michael Ginsberg, JD, CFP® 

03/20/17

How Not To Retire

By The New Zealand Herald, Feb. 3, 2017

Election years are always interesting because the topic of retirement age comes to the fore. We all have a vested interest in who receives what and when. When I think about the retirement age, I often recall a conversation with a client who employed a “re-potting strategy” throughout his life. While he would be at retirement age now, I doubt he has considered retiring.

His strategy has been to “re-pot” every 7-8 years. He retires one aspect of his life and embarks enthusiastically on a different path. For him, re-potting involved making a significant change in his life to refresh and gain a new perspective. His re-potting journey before I met him had extended to a new country, a new career, new friends and associates, a new wife and a new house. He had plenty of ideas to pursue in the years ahead to ensure sufficient re-potting opportunities to keep him interested and interesting.

He was about as far away from the traditional idea of retirement as I could imagine. But, as we are all living longer, retirement for many will simply be a change of some aspects of life but not others. The traditional approach to retirement is relatively straightforward. You save and invest as much as you can for as long as you can, starting as early as possible to accumulate enough retirement savings so you don’t need to work anymore.

For those who can’t save enough, the Government pension provides a retirement safety net. For everyone else, the more and faster they save, the earlier they can retire and the more leisure time can be enjoyed. At retirement, work ends and leisure begins…or so the theory goes.

However, a growing body of research finds the traditional retirement journey is less and less common. Fewer people actually want a retirement of all leisure and no work. Retirement is regarded as boring for many!

Apparently only half of today’s retirees (in the US) state they never intend to work again and only 30 per cent of pre-retirees intend to give up work indefinitely in retirement. Instead, whether it’s part-time work or starting a business, an encore career or some other path, retirement is less about not working at all and more about finding a different kind of engagement. Re-potting, you might call it.

Retirement for some might be semi-retirement, with a period of working part-time and potentially continuing to earn. For others, it might be a series of “temporary retirements” or sabbaticals in between periods of work. The significance of these changes is that it might not take nearly as much to retire as commonly assumed.

Some retirement lifestyles might simply need some savings to provide a buffer for the transitions between work. Some people might be able to retire earlier with a small pot of retirement savings, since that pot will be replenished at odd intervals with earnings from part-time or periodic employment.

If we’re not all going to retire according to the modelling – and I’ve never bought the concept that suddenly golf courses and cruise boats are going to be teeming with retirees – then the argument about the retirement age becomes easier.

A retirement age band, offering flexibility to those who wish to retire earlier and later, could be palatable for many. But it is election year, so who knows how the debate will unfold?

To Your Successful Retirement!

Michael Ginsberg, JD, CFP® 

02/14/17

Older Veterans Often Miss Out on Long-Term-Care Benefits of Up to $2,210 Each Month

By Kevin Richards, January 2017, Kiplinger.com

Many older war-era veterans and surviving spouses over the age of 65 across America are missing out on a major element in securing their retirements: the Aid and Attendance benefit for long-term care.

The Aid and Attendance benefit is available to veterans and their spouses to help offset recurring medical costs and some of the costs for home care and assisted living care. This is a benefit for senior veterans who served during wartime—World War II, the Korean War, Vietnam and the Gulf War—for at least 90 days of active duty and who are 65 or older, as well as their surviving spouses. It doesn’t matter if the veteran served stateside or internationally, saw combat or didn’t, was wounded or wasn’t. If the veteran’s doctor—not a VA doctor—affirms the veteran or spouse needs assistance, then he or she may be eligible for Aid and Attendance, regardless of Social Security, Medicare, pensions or other benefits.

These benefits can be quite substantial, even if they are a variable number. Under Aid and Attendance, a veteran living alone can receive as much as $21,456 annually, or $1,788 a month. A married veteran can receive as much as $26,550 annually, or $2,210 a month. A surviving spouse is eligible for as much as $13,788 annually, or $1,149 a month. These benefits are paid directly to the veteran or surviving spouse and are tax-free. Payments are retroactive to the date of application.

Many veterans and surviving spouses are not aware of the Aid and Attendance benefits they have earned, or they are confused about them. Too many veterans are told they can’t have a certain level of income or assets to apply for Aid and Attendance. That’s simply incorrect. As long as the veterans and surviving spouses meet the criteria, they are eligible for those benefits for the rest of their lives.

Some of this confusion and lack of knowledge is perfectly understandable, since the application process can be complex. The U.S. Department of Veterans Affairs (VA) cannot give veterans legal or financial advice on how to get qualified for the Aid and Attendance benefits. Even worse, if a veteran asks about the benefits, the VA will simply tell them to apply. The VA will not tell veterans the requirements or how a veteran can qualify based on the rules. Only around 20% of veterans who apply on their own for Aid and Attendance benefits ever receive them.

However, if a veteran follows the rules, they are able to receive the benefits. That’s why it’s important to get the facts about Aid and Attendance benefits from credible, unbiased sources with the ability to provide the correct information. The VA cannot and will not do that.

There are billions of dollars already set aside in Aid and Attendance benefits that veterans and surviving spouses have earned. Veterans and their families should not feel guilty about having earned these benefits through their noble efforts and service.

To Your Successful Retirement!

Michael Ginsberg, JD, CFP®

12/12/16

3 Ways to Boost Retirement Income

By Linda Backus, Oct 19, 2016, MotleyFool.com

A whopping 52% of working American households are “at risk” for not being able to live as comfortably as they did before retirement, according to the findings derived from the 2014 National Retirement Risk Index published by the Center for Retirement Research at Boston College. That’s a sobering statistic considering retirement is classically considered a time when people get to enjoy the perks of a lifetime of hard work.

Whether it’s finding the cash to take the trip of a lifetime or simply finding the money to make ends meet, there are a myriad of ways to quickly fatten your wallet, and in the process, enrich your quality of life.

How much can I make?

The first step for any retiree seeking more income should always be to know the rules when it comes to Social Security benefits. For those who are 62 or older and receiving benefits but haven’t reached full retirement age, the limit for new employment income is $15,270 per year without facing penalties, according to the Social Security Administration. Any amount above that will be deducted from your monthly checks based on a calculation that factors in your age and how much you are making. But when you reach “full retirement age” you can earn as much as you want and still receive your full benefit check each month.

Once you’ve determined how much you can safely make without impacting your benefits, the sky is the limit in terms of what you can do to boost income. Here are three simple ideas that can improve your financial status quickly without too much hassle.

Seasonal work is plentiful for seniors

Working a couple of months a year can increase income in the short term leading to long term financial benefits. Industry analysts were quick to point out as the holiday season approached that jobs are plentiful, and could translate into year-round employment.

Job posting giant Monster staffer Lily Martis made it a point to highlight the findings of global outplacement consultancy Challenger, Gray & Christmas, Inc. which predicted companies across the country are poised to take on 700,000 seasonal employees to deal with the rush of holiday shoppers this year. But the jobs aren’t all in retail, said John A. Challenger, chief executive officer of Challenger, Gray & Christmas in a press release.

“The big change we are seeing, however, is that while seasonal retail jobs remain flat or shrink, there has been a marked increase in seasonal job gains in other sectors,” he said. “The sector with the biggest increase in holiday hiring in recent years has been transportation and warehousing, as more and more holiday shopping is done online.”

When checking out possibilities for seasonal work, don’t forget to consider the perks. Some positions at higher-end department stores include discounts on items you purchase or commissions for sales. As many as 20% of seasonal hires are retained for work throughout the year, according to Martis — which you may or may not want — and many seasonal workers come back during the next year’s holiday rush.

Retirees can teach

Retirees have a wealth of knowledge that can easily translate into more income. Teaching is a great way to share skills and stay engaged in learning while saving for a big vacation or finding new revenue to invest. Depending on your specialty and preferences, teaching can be an incredibly flexible job choice as well.

Consider tutoring or consulting in your old field. Most colleges and universities will allow tutors to post flyers on campus or information on online bulletin boards.

Another flexible way to make extra money on a part-time work basis is to work as a substitute teacher. School systems across the country are continuously looking for a stable of people who are willing to be on-call when a teacher is sick or takes a personal day.

The range pay varies by state and district. In the Northeast, substitute teachers can make anywhere from $75 to $150 per day depending on the district and the level of experience. Do your homework, however before considering this option. Some districts require that subs have a Bachelor’s degree to be considered, and you will likely be asked to undergo a background check including fingerprints. Subs can agree to work every day, a few days a week or even half-days. (Let’s face it, having the summers off isn’t a bad deal either.) The National Education Association has an excellent state-by-state summary that can help you get started.

And, it’s worth noting that teaching does not have to be in traditional subjects. There may be money to be made teaching bridge, chess, sewing, or countless other skills you may have developed during your life that you can share with others in retirement.

Sell things you don’t need

There’s no point in hanging on to items that have out-lived their usefulness, especially when you’re looking for a fast way to improve your financial outlook. One of the easiest ways to make some quick cash while cleaning out your basement or attic in the process, is to call on a reputable auction house to come cart the stuff away. While this option will only work once to boost your income, it’s basically like getting paid to have someone else clean your space. Owners will get a percentage of the purchase price. It’s often well worth the money to take a lower percentage if the auction house is willing to do all the work. The National Auctioneers Association provides a list of reputable auction houses in your area.

To Your Successful Retirement!

Michael Ginsberg, JD, CFP® 

11/21/16

Before Retiring, Take This Simple Test

By Shlomo Benartzi & Martin Weber, Oct. 26, 2016, Wall Street Journal

For some people, the prospect of getting an immediate reward is simply too difficult to resist. One of the most important financial decisions people make is when to retire. It’s also one of the worst decisions many people make. Specifically, they retire too early, resulting in serious financial shortfalls in old age.

The good news is that, according to a new study by Philipp Schreiber and Martin Weber at the University of Mannheim in Germany, there’s a simple two-question quiz that can help predict whether you’ll regret the timing of your own retirement. Here are the questions:

Question 1: You just learned that you are due a tax refund. If you’d like, you can get the $1,000 refund right away. Alternatively, you can get a $1,100 refund in 10 months. Which do you prefer?

Question 2: You just learned that you are due a tax refund. If you’d like, you can get a $1,000 refund in 18 months. Alternatively, you can get a $1,100 refund in 28 months? Which do you prefer?

The two questions are nearly identical. Each poses the same kind of choice. But the second question postpones the two options for delivery by 18 months, while the first offers an option for immediate delivery.

Time will tell

The point of the exercise is to measure the consistency of a person’s time preferences. Someone with consistent time preferences should answer both questions the same way—choosing the early option both times, or the delayed option both times. Such consistency is a requirement for making financial plans that you stick with.

Some people, however, choose inconsistently. They will take the larger tax refund if both refunds require a delay, as in the second question. But they choose to accept the smaller amount when it is available immediately, as it is in the first question. For these people, the prospect of getting an immediate reward is simply too difficult to resist.

The respondents with inconsistent answers exhibit a tendency known as present bias, or hyperbolic discounting. They strongly prefer rewards that arrive right away. While previous research has linked present bias to a lack of retirement savings, this new study, which tallied results from more than 3,000 Germans, shows that present bias can also lead people to retire before they are financially ready.

The researchers found that people who give the most inconsistent answers tend to retire significantly earlier (about 2.2 years on average) than those with consistent preferences. This leads to a roughly 13% reduction in their monthly benefits. Over time, these people are also far more likely to say they regretted the timing of their retirement.

Help steering

This research helps us better understand why people choose to retire early. It can also help us find ways to stop people from retiring too early. For instance, many workers now benefit from automatic savings programs that rely on default payroll deductions to help them save for retirement. These programs generally use a one-size-fits-all approach, recommending the same savings rate for all workers.

While these defaults have boosted savings for many Americans, they could be even more effective if they were personalized according to the results of the two-question quiz. Consider a person who exhibits a strong bias for receiving rewards in the present. Given the likelihood that she’ll be tempted by an early retirement, she might want to be defaulted to a higher savings rate during her working years. This will help her avoid future regret over the timing of her retirement decision, since she will have sufficient savings.

We can also redesign the Social Security enrollment process to minimize the possibility of regret. The program is structured so that you can start receiving payments at any time after the age of 62. However, the monthly payments will be larger for every month you delay signing up to receive benefits, at least until you turn 70. For instance, a person who can expect to receive $1,000 per month if they retire at 62 will see his benefits increase to approximately $1,750 per month if he can wait until he’s 70 before collecting.

A number of economists have argued that waiting for the larger payment is usually a much better deal. Nevertheless, most people aren’t willing to wait. According to an analysis by Alicia Munnell and Anqi Chen at Boston College, the most popular age, by far, to start Social Security is 62.

Fewer regrets

With the new research from Germany, we can come up with strategies to encourage better decisions. One approach is to ask people to estimate their preferred retirement age when they are still working. Because retirement benefits are far off, they probably won’t be tempted by the smaller/sooner amount and will likely predict an age well past 62. While this estimated age isn’t binding, it will allow Social Security to personalize communication with that person in a way that might reduce their future regret. (The monetary amount itself won’t change, just the way the options are presented.)

Let’s say, for instance, that a person stated a preferred retirement age of 70 during his working years. When presenting his retirement options, Social Security could describe the benefits he’d collect at 62 as a relative loss of approximately $750 per month, at least compared with the benefits he’d receive if he waited until his preferred retirement age. Such framing could make the possibility of starting benefits right away far less appealing.

Nobody wants to regret his or her retirement choices; many of these decisions cannot be undone. By identifying those workers who are planning for a late retirement but are likely to succumb to the temptation of an early one, we can take steps to prevent mistakes before they occur.

 To Your Successful Retirement!

 Michael Ginsberg, JD, CFP®

10/31/16

Older Workers and the Search for “Good” Jobs

By Steve Vernon, September 22, 2016, CBS Money Watch

Working longer is becoming the go-to retirement plan for millions of older Americans who report they expect to keep working well into their retirement years. Many say they need the money and benefits, and most likely they’re right.

How many older workers are working at “good” jobs, compared with those who are desperately holding on for purely financial reasons? It turns out that defining “good” and “bad” jobs can have many subtleties, and it’s highly individualized to people’s goals and circumstances.

The Schwartz Center for Economic Policy Analysis (SCEPA) publishes a monthly report on unemployment for workers age 55 and over. Its August “older worker at a glance” brief noted that the unemployment rate for these older workers, as reported by the U.S. Bureau of Labor Statistics (BLS), is 3.5 percent, a historical low. This low rate is often cited as evidence that older people can continue working if their retirement income falls short. But simply focusing on this rate can be misleading. Note that this particular measure counts those who are unemployed as people without jobs who’ve been actively looking for work in the past four weeks.

The SCEPA brief also reports a total unemployment rate of 8.7 percent for workers age 55 and older. This rate is the sum of the BLS unemployment rate, workers who are working part-time but would rather work full-time and unemployed people who’ve recently given up looking for work. When you add jobless older workers who gave up looking after more than four weeks, the resulting unemployment rate is actually 12 percent. For these 12 percenters, just about any job might be considered a good one.

The SCEPA brief goes on to report that an increasing share of older workers are in “bad” jobs – 29.1 percent in July 2016 compared to 27 percent in July 2006. SCEPA defines a “bad” job strictly in financial terms. It’s a job for people working 30 hours per week or more that pays less than two-thirds of the median wage for such workers. In July, this median wage was $880 per month.

Other considerations can be used to define good and bad jobs. “Finding work that fulfills a sense of purpose is a major theme for older workers,” said journalist and author Mark Miller, who is also the editor of retirementrevised.com​. “Many people who have found themselves stuck in unfulfilling careers are looking for that second chance to get it right, and the research tells us they are happier, healthier and more likely to ultimately enjoy a successful retirement.”

Among the many other aspects for defining a good job are a harmonious work environment, friendly colleagues, flexible schedules or a short commute. A recent report by Merrill Lynch and Age Wave​ looked at the reasons retirees cited as motivation for working:

  • Staying mentally active (62 percent)
  • Staying physically active (46 percent)
  • Maintaining social connections (42 percent)
  • Keeping a sense of self-worth (36 percent)
  • Needing the money (32 percent)

Note that financial need ranked well below other considerations. As a result, it’s possible that many older workers may intentionally accept lower-paying jobs in exchange for increasing their fulfillment and freedom. In fact, many retirees report that they’re happy even though they have less income​ compared to when they were working previously.

What does all this mean if you’re approaching your retirement years? Spend the time doing the math and determine how much money you really need to support the life you want. Figure in how much income you’ll receive from Social Security, prudent withdrawals from savings and a pension if you have one. This exercise can help you find work that’s best for your unique goals and circumstances.

You’re much more likely to enjoy life in your retirement years if you’re working because you want to and not because you need the money. And if you really need the money, you might enjoy life more if your work keeps you mentally, physically and socially active. Work that’s flexible or part-time might also give you the freedom to pursue your hobbies, interests and travel.

If you’re in your mid-50s or early 60s, now’s the time to start planning for your retirement years​, including estimating your sources of income and determining how much you’ll be relying on work. If you need to continue working in your retirement years, it will take some planning and effort​, including taking care of your health, updating your skills and nurturing your contacts. But doing so will increase the odds that you’ll find good work and have a good life in retirement.

To Your Successful Retirement!

Michael Ginsberg, JD, CFP® 

10/10/16

Are Clients In Denial About Retirement Readiness?

What Americans don’t know about their retirement needs could hurt them—but what they think they know could hurt them more, according to a new survey.

Almost two-thirds of Americans say they’re not concerned about running out of money in retirement, according to the 2016 TIAA Lifetime Income Survey.

The survey reflects a general optimism among U.S. households—65 percent of the respondents were unconcerned about a retirement shortfall—but TIAA’s chief income strategist, Diane Garnick,  says the results likely reflect a population in denial about their personal finances.

“That means that only 35 percent are concerned about running out of money in retirement, and we think those numbers should be completely opposite—two-thirds of us should be worried while one-third of us shouldn’t be,” Garnick says. “There’s a huge disconnect. Because we’re living longer and because the do-it-yourself saving strategy isn’t working like it was expected to, I think it’s more likely that 65 percent of Americans are living in denial.”

Still, most respondents, 58 percent, felt confident that they could successfully generate income from their savings during their retirement. Other survey responses suggest that these respondents are also in denial. Just 46 percent of respondents knew how much they have saved in their retirement accounts, and fewer, 35 percent, know how much income they’ll be able to generate each month in retirement.

“We kind of saw this at the end of the financial crisis in 2008, people were suffering from the five stages of economic grief and stage one was denial,” Garnick says. “How many people decided that they didn’t even want to open their retirement account statements anymore? They didn’t even want to know what the balance is.”

Americans seem to harbor mistaken assumptions about retirement, according to TIAA. Most of the survey’s respondents, 63 percent, assumed that they’re going to need less than 75 percent of their current income to live comfortably in retirement, yet TIAA claims that most experts believe that retirees will need to replace 70 to 100 percent of their retirement income.

“I think people are able to intellectually recognize that they have a personal retirement problem, but until they are able to emotionally acknowledge that this is a problem that needs an immediate fix, they’re able to remain in denial,” Garnick says. “People are naturally afraid of complexity, so they take mental shortcuts.”

When asked what they were looking for from a retirement plan, nearly half of the respondents, 49 percent, said lifetime income to cover their costs of living and another 24 percent said protection from market volatility.

TIAA also found a lack of awareness of annuities as products that could provide a retirement income stream. Just one-in-10 Americans have purchased an annuity, according to TIAA. Two-thirds of the survey respondents, 66 percent, say they are unfamiliar with annuities, and only 23 percent of the respondents said they have a favorable opinion of them.

That unawareness comes through when TIAA’s respondents were asked about where their retirement income would come from—annuities fell behind defined benefit plan payments, retirement account withdrawals and Social Security as a plan’s income source.

The survey was conducted by telephone among a random sample of 1,000 U.S. adults in June.

To Your Successful Retirement!

Michael Ginsberg, JD, CFP® 

10/4/16

Majority of Today’s Retirees Have a Pension

By Lee Barney, September 26, 2016, editors@assetinternational.com

Eighty-one percent of today’s retirees receive some income from a pension plan. For 42% of these people, their pension provides half or more of their retirement income, according to a study by the Insured Retirement Institute (IRI). However, for those not yet retired, only 24% have a defined benefit (DB) plan.

IRI estimates that as many as 56 million Baby Boomers will not receive retirement income from a pension, and that future retirees will need upwards of $400,000 to make up for this income shortfall. “Replacing pensions and achieving financial security these plans provide to retirees will be a key issue for future generations,” says IRI President and CEO Cathy Weatherford. “As Baby Boomers retire in greater numbers over the next decade, and as Gen Xers begin to leave the workforce, financial professionals have an historic opportunity to help Americans create their own pensions, through Social Security optimization and the use of lifetime income strategies, to help their clients attain the same security, lifestyles, confidence and positive outlooks as the participants in this study.”

The study also discovered that nearly 60% of retirees have worked with a financial adviser, and 93% of these people say the advice they received has been effective. Seventy-two percent of retirees who own an annuity are satisfied with it. Retirees also face unexpected expenses; 40% have suffered a major health event, such as a heart attack or stroke, and 25% have faced a major non-medical event, such as a major home repair.

More than one-quarter, 27%, have relocated their primary residence in retirement, and of these people, 60% did so for lifestyle reasons, and 30% in order to lower their cost of living. While 67% of retirees think their chance of requiring long-term care is less than a 25% chance, the Department of Health and Human Services (HHS) believes that 70% of those turning 65 today will need such services. Sixty-percent think that Medicare will pay for their long-term care expenses.

Greenwald & Associates conducted the survey among 806 retirees between the ages of 65 and 80 who retired with at least $50,000 in investable assets and have been retired for at least five years.

To Your Successful Retirement!

Michael Ginsberg, JD, CFP®

09/19/16

What Millennials Are Doing Right, and Wrong—About Retirement

By Suzanne Woolley, June 29, 2016, Bloomberg.com

Millennials may be overly confident about their investing skills, but many are handling their 401(k)s with savvy, a new study by Wells Fargo Institutional Retirement & Trust suggests.

More than a quarter of younger workers—28 percent—have at least 10 percent deducted from their paychecks, according to the study. It analyzed the behavior of 4 million employees in the plans the company administers, from 2011 to 2016. Among the older generations, 35 percent of Gen X-ers and 44 percent of boomers were at the 10 percent contribution mark.

Boomers get their own shout-out. If you assume they are the ones earning $100,000 or more, which they likely are, they are the “most improved” group over the study’s five years among those who contribute at least 10 percent. There was a 15.3 percent increase among those making $100,000 or more hitting the 10 percent rate. At the same time, there is a lost opportunity for boomers. Just 7.7 percent of participants 50 and older make the additional $6,000 “catch-up contributions” allowed by the IRS.

Efforts to get employees to start saving earlier and a widespread trend to auto-enroll employees in retirement plans have helped put more people of all ages in the most popular default investments, target-date funds. These funds are widely diversified and automatically adjust asset allocations between stocks, bonds, and other assets based on a person’s age, leading up to a more conservative portfolio at retirement. The survey found that 85 percent of millennials use a managed investment such as a target-date fund, compared with 77 percent of Gen X-ers and 73 percent of boomers.

“We’re seeing the first generation that had the full, out-of-the-gate use of tools like auto-enrollment and target-date funds, and it’s really getting people into plans early and getting them diversified,” said Joseph Ready, head of Wells Fargo Institutional Retirement & Trust. “Whether they’re astute about the market or not, these things will help people take advantage of, hopefully, longer-term returns from the equity market over the next 35 to 40 years.”

When younger savers do fiddle with their 401(k) accounts, some of them are making smart tax moves. Sixteen percent of millennials elected to use a Roth 401(k), compared with 12 percent across all generations. Contributions that go into a Roth are after-tax, so starting one when you’re young and in a low tax bracket is a good strategy.

For all that, there’s room for improvement among millennials. If 28 percent are deferring at least 10 percent of their pay, seven out of 10 aren’t. Employers can help by automatically escalating employee contributions each year and doing so at a higher rate. Employers have been concerned about being too aggressive with this strategy, and those that do it typically increase the contribution rate by 1 percent annually.

Wells Fargo’s Ready urges employers that use auto escalation to bump employees up by 2 percent a year to get them up to that 10 percent savings goal faster. Wells Fargo data show that if employers bump the auto-increase rate from 1 percent to 2 percent, there’s no big difference in the rate of employees who opt out of the increase. And it makes a huge difference in how prepared they are to retire, Ready said.

Employees can take matters into their own hands, of course. Every time a raise or a promotion comes along, make it a point to increase your savings rate, whether through your 401(k) or in a separate savings account. That use of today’s rewards will yield a far more meaningful return tomorrow.

To Your Successful Retirement!

 Michael Ginsberg, JD, CFP®