02/25/13

Seniors are finding themselves with greater credit card debt than younger workers which is forcing them to put off retirement dreams

Consumer debt, particularly credit card debt, poses a serious challenge as I work with clients in putting together their retirement income plans.  In a recent Reuters article dated February 19, 2013, the reporter Chris Taylor, issued a very disturbing article dealing with seniors and the amount of credit card debt they are currently carrying.

I hope this article will get pre-retirees to start the process of aggressively paying down credit-card debt and avoiding the risks outlined in this article.

The first person the reporter discussed was Sandy Harsh.  Sandy’s story is not all that unusual in that client’s in their late 50’s and early 60’s still want to help their adult children while trying to save for retirement.

She never expected to find herself with $16,800 in credit-card debt and her retirement dreams drifting farther away.  Harsh, an IT professional from Tuscola, Illinois, is 62, around the age at which a lot of people start actively planning to retire to a white-sandy beach with a frozen margarita in hand.

Harsh’s debt snuck up on her as she helped her two daughters with college and living costs. She went back to school after a divorce and dealt with unexpected expenses such as big dental bills. Now she has about $300 a month in minimum payments, spread across three credit cards, and the balance never seems to go down because of all the interest she is paying.

“I totally did not think this was what my future held,” says Harsh. “I don’t want to leave debt to my daughters. I guess I’m going to have to work until I die at my desk.”

I was surprised by new credit-card debt figures recently released by a public policy based research organization Demos.  They found that Americans over 50 are struggling with a surprising amount of credit-card debt. Low- and middle-income households of older Americans who owed credit-card companies for three months or more have racked up an average of $8,278 in debt, according to Demos.

Amy Traub, a senior policy analyst at Demos reported, “what was surprising was older Americans were carrying so much more credit-card debt than younger people.” She further noted that those under 50 who had debt for at least three months had accumulated an average of $6,258. “It’s a troubling development, and it says that the tough economy has been taking a toll on American households.”

THIS NEW RESEARCH GOES AGAINST CURRENT STEREOTYPES: 

The stereotype of typical consumers drowning in credit-card debt is decidedly younger. Perhaps they are recent grads who are coping with college bills, unable to find a decent-paying job right out of college, or maybe they are young parents coping with a mortgage and a couple of kids. Indeed, the last time Demos conducted this survey back in 2008, it was households under 50 that bore more debt.

But these new findings reveal something else: Workers who should be in their prime earning years, stockpiling assets for retirement, are often turning to credit cards to deal with everyday expenses.

Indeed, according to Demos, it was not splashy big-ticket items for which boomers were whipping out the plastic. Half of older households surveyed used credit for basic stuff like groceries or utilities, and half for medical expenses such as prescription drugs. And they were not paying off the credit they incurred every month.

If the trend continues, the 79-million-member boomer generation could find themselves in serious financial straits in coming years. Especially in an era when a cash-strapped federal government may look at trimming Social Security benefits or raising the age of benefit eligibility to help cover massive budget holes.

“The problem with boomers is that they’ve always wanted a very comfortable lifestyle, and are willing to take on debt to get it,” says Fred Brock, author of “Retire on Less Than You Think: The New York Times Guide to Planning Your Financial Future”. “Old habits die hard. But it’s just dumb to approach retirement with a bunch of credit-card debt. That group of boomers could be in real trouble.”

Indeed, Brock calls boomers “masters at juggling debt”, and figures from the Washington, D.C.-based Employee Benefit Research Institute seem to support that. From 1992-2007 the average overall debt of households 55 and over more than doubled to $70,370. That was even before the Great Recession struck with full force.

For members of the 50-plus crowd who have accumulated credit-card debt, rebounding from financial troubles is not easy. Demos found that a quarter of those over 50 blamed job loss for their credit-card quandary, since they were often unable to find replacement work after being laid off.

Of course, while these debt figures are worrying, they are not insurmountable, notes Brock. In many cases, people over 50 do have financial resources, but the assets are difficult to tap.

For instance, they may have significant sums in their 401(k) accounts, but are loath to access that cash early and pay withdrawal penalties. Even so, Demos found that 18 percent of survey respondents 50-64 had done just that.

Wealth may be largely invested in boomers’ homes, but they may be cash-poor. In that case, that equity stake may need to be unlocked before they can wipe out their mounting credit-card debts.

“I will say this about boomers: Unlike their own parents, who tended to be very rigid, they’re willing to move and they’re willing to change,” says Brock. “So they may sell their homes and move where the cost of living is lower. They may not retire yet, so they can continue to earn.

“Their credit-card debt is not a good sign, but it’s wrong to think a whole generation of boomers is going to be eating cat food. They’re more resourceful and flexible than that, and whatever they need to do to face reality, they’ll do it.”

***

As this article, and the experts quoted in it discuss, there are ways for pre-retirees to avoid serious challenges with some focused and disciplined planning now.  If you need some assistance in this area, please speak with an advisor sooner, than later.

To Your Successful Retirement!

Michael Ginsberg, JD, CFP® 

02/19/13

Seven Ways Boomers are Rewriting the Rules of Retirement – Part 2

The baby boom generation has broken the mold at every stage of life, and it looks like retirement won’t be any different.

Boomers aren’t heading quietly into retirement. They’re launching businesses, embracing digital technology and living abroad in greater numbers than ever before. But in other ways they are struggling more than the previous generation.  In part 1 last week I discussed the first four  trends which were:

  1. THEY ARE LEAVING THE U.S.    
  2. THEY ARE STARTING COMPANIES  
  3. THEY ARE TECH SAVVY
  4. THEY ARE BORROWING MORE

Here are the final three trends which Boomers are engaging in to change the definition of retirement.

5.     THEY ARE OUTLIVING THEIR EXPECTATIONS

Life expectancy for men has jumped an average of almost two years in each of the last five decades, to 75.7 years in 2010, according to the Society of Actuaries. For women, life expectancy has risen by 1.5 years, on average, to 80.8 years.

Yet more than half of older Americans haven’t gotten the memo. A Society of Actuaries survey of 1,600 adults age 45 to 80 found 40 percent underestimated their likely average longevity by five years or more; 20 percent were too pessimistic by two to four years.

“That means there’s a 50 percent chance you’ll live longer,” says Cindy Levering, an actuary and co-author of the report. “If you make it to 90 and only planned and saved enough for 85, you may not have enough to live on.”

The odds that will happen are pretty good. For a couple with above-average health, there’s a 60 percent chance one of them will live to age 90, the Social Security Administration has reported.

6.     THEY ARE PROVIDING FINANCIAL SUPPORT

Some 58 percent of boomers are providing financial assistance to aging parents, such as helping them purchase groceries or pay medical and utility bills, according to an Ameriprise Financial survey of just over 1,000 Americans conducted in late 2011.

When it comes to their kids, boomers are even more ready to help out. Almost all boomers surveyed – 93 percent – say they have given their children a hand. A majority have “boomerang kids” who have moved back home to live rent free (55 percent) or afford a car (53 percent).

But only one-third believed that supporting adult children was making it more difficult for them to reach their retirement goals.

“They’re not connecting the dots,” says Suzanna de Baca, vice president of wealth strategies at Ameriprise Financial. “They may not be taking money out of their retirement accounts to help their kids, but the assistance is coming out of funds that otherwise could be additional savings.”

7.     THEY AREN’T RUNNING TO FLORIDA

Boomers aren’t embracing the Florida-Arizona axis of retirement to the extent their parents did. Counties known as retirement havens slowed their annual population growth to 1.7 percent from 2007 to 2009, compared with 3.1 percent between 2000 and 2007.

Instead, the Urban Land Institute (ULI) found that the metro areas with the fastest-growing population of 65-plus residents include locations in North Carolina, Texas and Nevada, as well as Colorado, Idaho and Georgia.

Boomers are attracted to communities with large universities and affordable housing, says John McIlwain, senior resident fellow for housing at ULI and author of the report.

The biggest draw affecting relocation? The kids.

“If you want to find out where a boomer couple will be moving to, find out where their oldest daughter lives. It’s the pull of the grandkids.”

I hope these seven trends give you some ideas about how you will write you own definition of Retirement.  Please feel free to share your definition with me.

 

To Your Successful Retirement!

Michael Ginsberg, JD, CFP® 

02/11/13

Seven Ways Boomers are Rewriting the Rules of Retirement – Part 1

The baby boom generation has broken the mold at every stage of life, and it looks like old age won’t be any different.

Boomers aren’t heading quietly into retirement. They’re launching businesses, embracing digital technology and living abroad in greater numbers than ever before. But in other ways they are struggling more than the previous generation.  This two part article will outline seven ways Boomers are changing the definition of retirement.

Here is a look at trends shaping the next wave of retirement.

1.     THEY ARE LEAVING THE U.S.

More older Americans are packing it in for foreign countries, where they can save on living costs and enjoy warmer climates.

The number of retired workers, spouses and survivors getting Social Security benefits in a foreign land is rising almost twice as fast as the number of Social Security beneficiaries generally, according to Social Security Administration data.

And 21 percent of baby boomers say they are “interested or very interested” in retiring abroad, according to a survey by the Center for Medical Tourism Research at the University of the Incarnate Word in San Antonio, Texas.

“If that were extended across all boomers, you’d have about 3 million people retiring abroad in the next couple decades,” says David Vequist, the center’s director.

2.     THEY ARE STARTING COMPANIES

Almost a quarter – 21 percent – of new U.S. businesses started in 2011 were launched by entrepreneurs age 55 to 64, according to the Kauffman Foundation, up from 14 percent in 2007. Entrepreneurs age 45 to 54 accounted for an additional 28 percent of the 2011 startups. Taken together, that’s 49 percent of all startup activity – far larger than the 20- to 34-year-old bracket, which accounted for 29 percent of new ventures.

In part, the surge can be attributed to the 2008 recession, which sent older workers into consulting gigs. However, there are a surprising number of complex, sophisticated and large businesses being created as well, according to Dane Stangler, director of research and policy at the Kauffman Foundation. He also thinks many of these older business owners are “serial entrepreneurs.”

“We’re seeing a lot of entrepreneurs in fields like technology and engineering who are launching substantial businesses,” he said. “They started companies in their thirties or forties, and now they’re doing it again.”

3.     THEY ARE TECH SAVVY

Young people might be leading the digital revolution, but boomers – the generation born 1946 to 1964 – aren’t far behind.

“Baby boomers got quite comfortable with the Internet and other digital technologies in the workplace,” says Lee Rainie, director of the Pew Internet Project. “They won’t give that up as they age.”

For example, 23 percent of older boomers and 27 percent of their younger siblings use tablet devices, compared with 30 percent of Gen Xers (born 1965 to the early 1980s), according to the Pew Internet Project. The gaps also are small when it comes to smartphones and social networking services.

“They’re not going to be downloading every new app that catches the crowd,” he says. “They’re very utilitarian – show me how it will work for me, how it will improve my life.” Expect retiring boomers to publish creative works online, connect with friends and children via social media and continue to job-hunt on sites such as LinkedIn.

4.     THEY ARE BORROWING MORE

Older Americans are taking more debt into retirement than previous generations. Mortgage debt is the biggest factor: Forty percent of homeowners over age 65 had mortgage debt in 2010, compared with just 18 percent as recently as 1992, reports the Joint Center for Housing Studies at Harvard University (JCHS).

The culprit: the refinancing boom before the housing crash. In the years leading up to 2008, homeowners took advantage of low rates and deductibility of interest to refinance, says Lori Trawinski, senior strategic policy adviser at the AARP Public Policy Institute.

“(They) took out equity for things like education or a new car,” says Trawinski. Boomers on the cusp of retirement are still refinancing, sometimes at the behest of their financial advisers, because of the appeal of today’s near-record-low interest rates.

Higher debt levels will have a variety of effects. Some retirees will be stuck in homes with underwater mortgages or monthly mortgage payments that sap their spending power; others will use low-interest mortgage debt to keep more cash on hand or to keep other money invested longer.

Next week I will outline the final three ways Boomers are changing the definition of Retirement.  As you write your definition, please feel free to share your definition with me.

 

To Your Successful Retirement!

Michael Ginsberg, JD, CFP®

 

02/4/13

The American workplace is about to get grayer, but you don’t necessarily need to be a part of that herd!

The American workplace is about to get grayer.  Nearly two-thirds of Americans between the ages of 45 and 60 say they plan to delay retirement, according to a report by the Conference Board. That was a steep jump from just two years earlier, when the group found that 42% of respondents expected to put off retirement.

“The increase was driven by the financial losses, layoffs and income stagnation sustained during the last few years of recession and recovery”, said Gad Levanon, director of macroeconomic research at the organization and a co-author of the report, which is based on a 2012 survey of 15,000 individuals.

As a Certified Financial Planner ™ specializing in Retirement Income Planning, this situation can be avoided at the best or minimized at the worst.  All you need to do is to engage in proper planning and prioritizing of spending and selecting suitable investments.  This is what I have done with several clients over the past couple of months who were getting ready to retire and start their retirement income flow based on their investments.

The general rule is that it is safe to withdraw up to 4% of assets to arrive at your retirement income.  But this rule has many problems such as: it is based on a 90% success rate, planning that the funds will last for only 30 years and that investment returns will not be effected by years of low-interest rates.  It is my opinion that while the 4% rule is a basic starting point, I don’t want to design a plan which may have a 10% failure rate, last only 30 years and must subject too much of the portfolio to market risk.  For this reason, I minimize portfolio volatility and use more income solutions.  In the plans that I have recently put together over these past couple of months, I was able to design a 6% average withdrawal rate and subject only a 1/3 of the portfolio to market volatility.

The bottom line I hope you take from this message is that if you want to work longer, then do it, but if you want to retire at a reasonable age which will allow you and your spouse to live an exciting 2nd half of life, then do that!  Here are the takeaways I hope you get from this message:

  1. Make sure to save at least 10-15% of income during working years.
  2. Be very conscious of your spending both during your working years and as you put your retirement spending budget together.
  3. Don’t look at a budget as a negative, look at it as a control tool to empower you and your spouse to spend mindfully which will ensure that each dollar you spend yields the maximum personal satisfaction.
  4. Plan – Plan and then Plan again!!!

 

To Your Successful Retirement!

Michael Ginsberg, JD, CFP®