Good News On Retirement Trends

Market Watch.com, May 19, 2015 by Alicia H. Munnell

With lower Social Security replacement rates, vanishing traditional pensions, and longer lifespans, people need to work longer to ensure a secure retirement. Working longer directly increases current income; it avoids the actuarial reduction in Social Security benefits; it allows people to contribute more to their 401(k) plans; and it shortens the period of retirement.

The good news is that people have begun to respond. In a recent study, using unpublished data from the Social Security Administration (SSA), we found that of eligible workers turning age 62, the share claiming benefits at that age fell from 56.0 percent in 1996 to 35.6 percent in 2013 for men; the comparable decline for women was 62.8 percent to 39.5 percent.

Much of this decline was obscured in the annual data reported by SSA. These annual data show of all workers claiming benefits in a given year, the percentage that are age 62, 63, 64, etc. The problem is that when the size of the group turning age 62 is increasing, as it has over the last two decades, the data will show that 62-year-old claimants make up a larger portion of total new claimants in a given year even if a smaller percentage of 62-year-old workers claim immediately.

The number of eligible participants turning 62 began to increase around 1997, rising from 829,000 in 1997 to around 1.4 million in 2013. For readers who are surprised, like we were, that the increase in numbers began before the retirement of the baby boomers, we note that births declined sharply from the 1920s through the trough of the Great Depression, and then started to increase in 1935. This reversal shows up 62 years later with the number of people eligible for benefits beginning to rise in 1997. This increase in the number of participants turning 62 — or “cohort effect” — distorts the trend in claiming patterns.

So the news is good. Let’s celebrate.

 To Your Successful Retirement!

Michael Ginsberg, JD, CFP®


Reverse Mortgages Could Be Used By Retiring Boomers

By Hope Yen, Associated Press September 16, 2014

WASHINGTON – Advertised as a path to affordable retirement, federally insured reverse mortgages are showing signs of a rebound, drawing scrutiny of regulators seeking to reduce historically high default rates that have cost the government billions. Industry analysts expect strong growth as the housing market improves, particularly in once hard-hit Sun Belt areas including Phoenix, Miami and San Diego. This is also true with aging Americans that find value in growing old in their homes. In addition, reverse mortgages are being boosted by high-appreciation, gentrifying neighborhoods in older cities and areas such as Brooklyn.

Analysts say they expect continued interest as the leading edge of 78 million baby boomers approaches 70, the age a person typically begins to consider a reverse mortgage. A Gallup poll in April found 68 percent of Americans ages 50-64 said they were “very” or “moderately” worried about having enough money in retirement. A reverse mortgage lets borrowers 62 or older receive a line of credit or lump-sum or monthly cash payments off the accumulated equity in their homes.

The loan comes due when the borrower dies, moves or sells the house. The borrower’s heirs are not liable if the loan balance exceeds the value of the home — the Federal Housing Administration covers the risk. Philadelphia has ranked at the top for reverse mortgages awarded since 2011, according to an analysis of FHA data for The Associated Press by Reverse Market Insight, a California-based company. This year, Philadelphia was followed by Los Angeles, Washington and Chicago.

After retiring from his newspaper ad sales job two years ago, Myles Griffin and his wife took out a reverse mortgage in May to supplement their Social Security income. The couple took out loans worth nearly $30,000 on the home they have lived in for 40 years in northeast Philadelphia. The money will help pay off credit card bills and remodel their kitchen, leaving open the option to tap into some of the remaining equity later if needed. ”We had a look at whether we wanted to move into a senior living facility but that was more expensive, so we decided to stay with the house,” Griffin said. “We like our neighbors very much so this was the best way to go.”

Reverse mortgages haven’t always worked well. After the housing boom many Americans took advantage of flexible lending terms to draw large amounts of cash quickly, later falling into financial trouble in the extended economic downturn. In the coming weeks, the FHA, a division of the Housing and Urban Development Department, is expected to complete its proposed rule requiring loan applicants to undergo a detailed financial assessment. It’s aimed at reducing a current default rate of 10 percent, roughly double the level of regular mortgages. The agency also has limited the amount of upfront payments a borrower can receive and recently reissued stern guidance to lenders to curtail deceptive marketing of reverse mortgages.


To cover projected losses of $70 billion over a 30-year period, the FHA was forced last year to receive a $1.7 billion emergency cash infusion from the Treasury, due largely to losses from reverse mortgages during the downturn. Total projected losses, the most recent available, don’t reflect recent home-price increases, decreasing losses on its portfolio and other changes. Congress last year gave the agency new authority to tighten lending rules.


Though the Department of Housing and Urban Development has power to issue warning letters, revoke a lender’s approval or initiate other sanctions, the Government Accountability Office and Consumer Financial Protection Bureau suggested in 2009 and 2012 that HUD may not have actively monitored marketing practices during the run-up of reverse mortgages in the late 2000s.

• The latest guidance is intended to ensure “lenders know we’re keeping a watchful eye on their marketing and advertising practices,” FHA Commissioner Carol Galante said.

• In the first half of the year, 27,648 reverse mortgages were issued worth $7.2 billion, FHA data show. Though lower than the same period in 2013, Reverse Market Insight, which analyzed the data, said it expected this year’s total value to exceed the low in 2012, when 52,883 reverse mortgages were issued at a value of $12.7 billion.

• Overall loan volume and applications also have been up in recent months, a leading indicator of increases in reverse mortgages, the company said.

 To Your Successful Retirement!

Michael Ginsberg, JD, CFP®


For the 401(k) Employee who has maxed out

Benefits Pro, Sept 17, 2014 | By Chris Carosa

In many ways, Health Savings Accounts have been the “middle child” of retirement savings. For one thing, whatever attention big brother 401(k) doesn’t get, baby sister ROTH IRA gets. On the other hand, HSAs generally have been viewed more as a health benefit rather than a retirement benefit. But, you know, if you think about it, if you ask a lot of folks, they’ll tell you their greatest retirement worry is paying for health care. Once they leave the cocoon of employment, they’ll no longer have the benefit of using their company’s health care plan.

Many people, for the first time, will have to shop for health insurance all by their lonesome. Think about it. If you have to shop for something for the first time, aren’t you afraid what the cost might be? That’s why many people infinitely smarter than I am see HSAs as a potential answer to this retirement health care anxiety.  Only a fraction of those companies eligible offer HSAs (the company must offer a high deductible health plan – HDHP – to qualify).

Don’t get me wrong. I’m not saying saving in HSAs should take priority over saving in 401(k)s (or even ROTH IRAs, for that matter). It’s just that everything has its limits, and when those limits have maxed out, it’s time to look for another opportunity. HSAs represent just such an opportunity. Granted, the savings limits don’t seem that compelling ($7,500 including catch-up), but it can add up as you don’t have to spend it all right away.

Think about that. If an employee treats HSAs as a form of a retirement plan, save money in it, and invest it for the long term, that future retiree may just have at least made a dent in removing some of the “How am I going to pay for health insurance?” anxiety. Sure, it’s not a cure-all, but, then again, nothing is. What it is, though, is just another arrow in the quiver.

For the employee who seeks a more secure retirement. For the plan sponsor who wants to give employees a chance to seek a more secure retirement. And for the plan service provide who, by looking at a tool from perhaps a different perspective, allows the plan sponsor to discover the additional benefit that could give the employee a more secure retirement. With so many potential winners, how could this idea lose?

 To Your Successful Retirement!

Michael Ginsberg, JD, CFP


Student loans imperil parents’ retirement

Investment News Sept. 16, 2014 by Darla Mercado

Borrowing or cosigning for a child could mean debts too hard to get out from under. As student loan balances continue to rise, advisors have a warning for clients who are inclined by cosigning or taking out a loan on behalf of a child: when you borrow you imperil your retirement.

Take it from Larry Rosenthal, president of Rosenthal Wealth Management Group, who recently started working with a woman in her mid-50s who is holding about $50,000 in student loan debt taken out on the behalf of her children, including some that was paid for with credit cards. Will they be able to retire at their ideal age of 65? If they’d like to, it’s going to be an uphill haul, Mr. Rosenthal said.

“The conversation was that they have to retire this debt before they get into retirement,” he said. “[They're] up to their neck in spending issues with this debt, and that’s going to move into retirement with them. They won’t be able to retire unless we assassinate the debt.” A recent report depicting the plight of retirees chained to student loan debt is a stark warning to advisers such as Mr. Rosenthal whose clients want to bear the brunt of borrowing for their college-bound children.

The report, compiled by the U.S. Government Accountability Office, found that 3% of households led by those aged 65 and older — 706,000 households in all — are maintaining student loan debt. The number is tiny compared to the 22 million households led by those 64 and under who are still holding student loan debt.

Still, the dollar amount of student loan debt held by borrowers over age 65 is growing rapidly. In 2005, the amount of outstanding federal student loan balances for the senior crowd was $2.8 billion, according to the GAO. By 2013, that figure had ballooned to $18.2 billion. Though the study focused on retirees who had taken out their loans decades ago and were still paying them down, it highlighted a concern that advisers have for clients who may imperil their retirement because they are inclined to help their children.

“Don’t harm your own financial future to help your kids,” said Abby Rosen, a financial adviser with Brinton Eaton. “They have a much longer working future ahead of them.” For parents already encumbered with student loan debt, “retirement isn’t a green pasture,” said John Collins, managing director of GL Advisor. These parents will likely end up working longer and may even dip into their home equity to try to service their debts. That strain may continue into retirement.

Parents, particularly those who borrowed those PLUS loans when interest rates were higher, may benefit from refinancing those loans via the private marketplace. Those who borrowed around the 2008 financial crisis may have interest rates as high as 8.5%. Refinancing could bring the interest rates on the loans back down to something more reasonable, Mr. Collins said.

Adviser Jeffrey Cutter, founder of Cutter Financial Group, says he’s seeing more retirees and near-retirees budget out a portion of their income to manage student loans that they’ve cosigned for their kids. Those children have run into hardship and can’t afford their monthly payments. The amounts of money parents spend to service student loans is significant: $800 to $1000 a month, Mr. Cutter said.

“In the past year, I can count eight to 10 times where this has happened,” he added. “It’s significant. And when you drill down, you find that it’s not just one kid that they’re paying for; it’s multiple kids.” Mr. Rosenthal is working with the woman with about $50,000 in student loans by basing her retirement plans around cash flow. She is able to save a little money in spite of the debt servicing that’s going on, but is unable to ramp up her savings — and she’s able to pay down only the minimum payments on the debts.

Mr. Rosenthal asked the woman to prepare for their planning by pulling together four months of expenses and determining where she can start making some budget cuts. “The challenge she has is that all the money that’s going in, is going out,” he said. For Millennials, the GAO report is a glimpse into what may be ahead. Broken down by age group, the under-30 crowd has the lion’s share of student loan debt: $322 billion as of the end of 2012, according to data from the Federal Reserve Bank of New York. The possibility of carrying five- and six-figure debt into retirement, plus the prospect of having your Social Security garnished if you default, doesn’t seem all that unrealistic anymore.

“If you’re paying the debt now, how does it impact your ability to save and put away for retirement and to invest in assets that appreciate over time, like a home?” posed Mr. Collins. “Mortgage underwriting standards have changed so dramatically and student loan debt is so pervasive that people who would be great first-time buyers aren’t even close to eligibility for loans.” “It has a dire impact on Millennials,” he added.

 To Your Successful Retirement!

Michael Ginsberg, JD, CFP®