08/25/14

Retirement Reset: Sandwiched Boomers put plans on hold

It seems the very things that helped define the Baby Boom generation are also working against its efforts to retire. Boomers are free-spirited, independent and active. They married later in life and had children even later.

As a result, they find themselves taking care of their ailing parents at the same time many are still taking care of their children. For many, the strains on their resources are proving to be yet another reason to delay retirement — thus, the name the “sandwich generation.”

“People who want to retire have to delay that,” says Lanta Evans-Motte, financial adviser at Raymond James in Beltsville, Md. “This is during the time when they are at peak earnings and can put away the most money. But it’s also when a lot of them are having to turn around and spend a lot of money and time taking care of their parents, their children and in some cases, their grandchildren.”

A new study by the Pew Research Center says a record 57 million Americans (or 18% of the population) live in multigenerational households. While that research did not specifically address how many near-retirees are taking care of both parents and children, it’s clear the trend is increasing.

There are already enough pressures on Boomers hoping to retire. The average person has a retirement savings balance of $81,000, according to Fidelity. And 50% of people in a recent survey don’t expect to retire at 65. (Of those, 24% don’t expect to retire at 70.) But the new trend is straining resources even more.

“It’s so common, having both aging parents and having kids come back into the house, ” says Scott Hanson, principal with Hanson McClain Investment Advisors in Sacramento. “Costs go up when that happens, even if they don’t think they will.”

Katherine Dean, head of wealth planning at Wells Fargo Private Bank, says that potential retirees are being squeezed by two things: Young people who are struggling to get jobs, and parents who are living longer. The latest statistics from a National Endowment for Financial Education survey says 42% of people ages 18 to 29 are getting some kind of financial help from their parents. “Those two things are setting up a perfect storm,” she says.

Stories of the sandwich generation started with Boomer parents who, because they had children late in life, still had high school and college-age children at home when the health of their own parents started to deteriorate. That group has expanded greatly. Boomers are finding that even if their parents or children don’t live under the same roof, and even if their parents are in good health, they sometimes need financial support.

“Everyone wants to help their children,” Dean says. “If they have aging parents, they want to help them, too.”

Some tips from family and financial experts for dealing with the financial and psychological pressures.

1. Consider your own emotional and financial health. ”You can’t let aiding others destroy your own retirement and your own future,” Dean says. “You have to make those decisions in concert with your own goals. Beware of the emotional aspects. It can take a toll.”

“They have to understand the resources,” Evans-Motte says. “Can they really afford to do it? In some cases, they can afford it, but have to cut back on their discretionary spending. In other cases, they can’t afford to do it. Then you have to deal with the guilt part.”

“We work for the client,” says Ron Weiner, CEO of RDM Financial Group in Westport, Conn. “We don’t work for the children. We don’t work for the parents. Our job is to analyze everything going on and solve the rate of return they need, after taxes and inflation, to achieve all their stated goals.”

Make sure all the family members are on board, says Robert Fragasso, of Fragasso Financial Advisors in Pittsburgh. “Often, (taking care of a parent) falls on one of the children.”

2. Set ground rules and expectations. “If you have a child moving back in, let’s get it in writing,” Dean says. “How are you going to contribute to the household? Will you help out with chores? Will you get a job, even if it’s at McDonald’s or Target? Will you pay rent?

“What I’ve found is children really appreciate it because they are going through something difficult,” Dean says. “Setting boundaries and giving guidelines is great for both parties. It’s just difficult to do.”

Amy Goyer, AARP family and caregiving expert, says it’s also important to talk through the use of space. “The younger generation wants their privacy and wants to come and go as the please. The older generation feels the same, and the parents are in the middle. Space in one of the problems that cause most conflicts.”

3. Talk about finances: ”The talk about expenses and finances is often a sticky subject,” Goyer says. “With any family, that could be the case. It is often helpful to create a shared household budget and keep individual budgets separate. Be clear about who’s paying what: ‘I pay the mortgage, you pay for this, I buy food and you give me $100 a month.’ ”

“A lot of kids don’t know what things cost,” Dean says. “They’ve never had a budget. Have them create a budget. If they want this type of apartment or this kind of iPhone, create a budget so they know what they need to shoot for to make that a reality. There is still such a sense of entitlement. They need a little bit of a wake-up call.”

4. Update your financial plan. If you already have one, update it to include your new realities.

“They have to continuously update their own retirement calculations,” says Jim Stoops, vice president and financial consultant with Charles Schwab in Naperville, Ill. “Plans need to be revised once a year. Everything changes. You have to know where you stand for the next 12 months.”

“Get the right kind of financial investment advice,” Fragasso says. “Make sure the adviser knows elder care planning.”

“We can’t tell them you can or you can’t,” Weiner says.”It’s their money. We can point out that they are on a path to very difficult circumstances.”

6. Plan for the unexpected. It’s easy to plan for aging parents,” Hanson says. “The surprise comes when a child comes back, and often, it’s a failed marriage. The kids will come back in with a couple of their children. Those are a little more challenging.

“People need to be retirement-ready,” Hanson says. “They never know what will happen. Maybe the kids move back in with young ones. It’s important for people to think about all the things that might happen, down to what may derail our plans and plan around them. It’s not just how much … you save in your 401(k).”

“It’s a very prevalent, emotional, distressing issue,” Weiner says. “The human being seems to have an enormous propensity to make the wrong financial decision in emotional times. We all get frightened. We give up. We all feel children or parents should be our focus and we need to suffer. But by being smart, you can solve a lot of problems.”

To Your Successful Retirement!

Michael Ginsberg, JD, CFP® 

08/18/14

Why You Should Prepare for the Next Bear Market Now – Develop a contingency plan for the next stock market dip while your investments are performing well.

By David Ning July 30, 2014 |

Avoid taking on too much risk just because your investments are performing well right now.

The stock market is going gangbusters these days, with the S&P 500 close to surpassing 2,000 points. As many people are celebrating their paper worth, I can’t help but remember a few short years ago when the S&P 500 dropped to the 600s. While the index may never fall back to that level, bear markets will one day hit us hard again. It’s a good idea to develop a plan for the next bear market now, while your asset values aren’t free falling and clouding your judgment. That way, you will be less tempted to make a permanent move that derails your solid retirement plan the next time the stock market takes a dive. Here are some of the sensational claims that could wreak havoc on your retirement plans if you buy into them during the next bear market:

Someone will claim that buy and hold is dead. Index investing is making many Wall Street brokers unhappy because every dollar invested in a low cost index fund is another dollar gone from the pool that pays them commissions. The next time the stock market dips, you will again hear how buy and hold is not going to work this time and that you need to time the market to be successful. Of course, you are always going to make a killing if you can accurately get out right before declines and get back in after the carnage. Unfortunately, those who succeed in getting out and back in are only the lucky few, while practically everybody else who tries ends up paying extra taxes and missing out on gains that follow. People who sold around 2009 didn’t get the full value of the recovery.

Financial pundits will say that this time is different. While they may be right that the reason for the big decline is slightly different each time around, don’t let anyone fool you into thinking that a drop in stock valuations is permanent. Unless there’s a catastrophe that permanently wipes out huge parts of the world, betting on the world stock market coming back to new highs is a very sure bet. Remember that stocks aren’t only pieces of paper people want in bull markets. Buying stock is buying the right to own a piece of the profits a company generates. If you buy an index, you are betting that at least some of the companies within the index will once again make higher profits, which has always happened because world economies have always bounced back. That’s why you should think very carefully if you sell after valuations go down, because doing so means you won’t be participating in the extremely high chance that valuations will once again march upwards. Stocks have endured the great depression, two World Wars, high inflation and all kinds of asset bubbles and still came out the best yielding asset class over the long term. What makes you think it won’t survive the next shock?

Everyone will tell you that you had too little in bonds. It’s always tempting to reduce your bond exposure in bull markets and increase it during bear markets, when you really should be doing the opposite. Remember in 2009 and 2010 after the big crash when just about everybody was saying that you needed more bonds? If you followed that advice, any dollar moved into bonds then saw a modest increase while stocks rallied hard for about five years and counting. Once you realize the stock market is crashing it is already too late to profitably shift your money to bonds because stock valuations are low. You are severely increasing the odds of buying high and selling low by moving to bonds after declines. The prudent asset allocation strategy may be the opposite. It might be painful to do, but selling bonds and buying stocks after equity values go way down actually increases the odds of outperformance.

 

To Your Successful Retirement!

Michael Ginsberg, JD, CFP® 

08/11/14

Faring just fine in retirement

BY NICK THORNTON, July 30, 2014 •

Here’s what could be considered a bit of contrarian news: a lot of recent retirees are faring just fine as they sail through their golden years, thanks to their ability to draw on Social Security.

That’s according to a survey by T. Rowe Price that looked at how retirees are doing one to five years after they’ve left the workforce and who rely, in part, on the 401(k) plans they continue to be enrolled in or savings from 401(k)s rolled into IRA accounts.

The retirees surveyed have considerable assets, with nearly half claiming $500,000 or more in household assets (investable assets plus home equity minus debt).

Stocks and stock mutual funds account for 38 percent of their reported wealth and 13 percent of their overall wealth is in mutual funds diversified among other asset classes.

Real estate accounts for a good portion of illiquid net worth: eight in 10 recent retirees said they own homes with an average of $191,000 in equity.

While withdrawals from 401(k)s and IRAs are certainly vital to their survival, these retirees also say they are dependent on Social Security, which accounts for 43 percent of their income. Defined benefit plans provide 19 percent of income, and withdrawals from defined contribution plans and IRAs account for 18 percent.

Almost half of the retirees surveyed said they have an established withdrawal plan from savings accounts. The median drawdown was 4 percent of investable assets over the past 12 months. One quarter of retirees withdrew 8 percent or more; one quarter withdrew only one percent.

Retirees also are definitely living on less. Three years into retirement, the average reported income is 66 percent of pre-retirement income.

But that hasn’t affected quality of life, as 89 percent say they are somewhat or very satisfied with their retirement lifestyle.

Meanwhile, workers over 50 report being much more anxious than retirees, despite having considerable assets themselves.

Almost a quarter (22 percent) fear they will run out of money in retirement, and nearly half don’t think they will have enough savings to cover health care costs.

Median household assets for workers approaching retirement was $465,000, nearly as much as retirees’. They’re understandably more aggressively invested, with 60 percent of their assets parked in stocks, stock mutual funds, or asset allocation funds, according to the study.

Aimee DeCamillo, head of T.Rowe Price Retirement Plan Services, says the study shows those approaching retirement that there is hope for a satisfactory lifestyle in retirement, and the cash to support it.

“For workers approaching retirement, we know there is anxiety and uncertainty as they look ahead and think they can’t possibly be prepared for retirement. But the study demonstrates that you can do it,” says DeCamillo.

She says the study also underscores the vital role Social Security plays in providing a retirement foundation.

Most surveyed workers (80 percent) said they plan on waiting until full retirement age before drawing Social Security, with 34 percent saying they’re willing to wait until age 70 to receive the maximum benefit.

To Your Successful Retirement!

Michael Ginsberg, JD, CFP® 

08/4/14

The wealthy enjoy working, even in retirement

The rich love to work and aren’t likely to view retirement as an opportunity to kick back and bid good riddance to their careers.

A survey by Merrill Lynch and Age Wave looks at misconceptions about retirement and finds that one-third of respondents with a net worth of $1 million to $5 million are still working in retirement. That compares with 15 percent of the population with $250,000 or less.

Among those with a net worth of more than $5 million, 29 percent are still working.

What’s more, the wealthy are more likely to say they continue working in retirement because they enjoy what they’re doing.

When asked the most important reason to work, 65 percent of wealthy respondents say it is because they want to stay mentally active, versus 10 percent who say they work for the money.

Other reasons to continue working include maintaining social connections and a sense of identity.

But these rich, active retirees don’t necessarily want to be glued to their desks every day. They are seeking a career-life balance, with more than half of the respondents saying that work during retirement is more fun than it was before and 90 percent saying they have more flexibility.

“This study confirms that as people live longer and healthier lives, they’ll continue to find satisfaction from work even after they retire from their primary career,” Ken Dychtwald, founder and CEO of Age Wave, said in a release. “People have come to realize that retirement doesn’t necessarily represent the end of an active life, but rather the beginning of new and exciting chapters.”

To Your Successful Retirement!
Michael Ginsberg, JD, CFP®