04/25/16

Retirement Income 25% Lower for Women

Thinkadvisor.com, March 2, 2016

Women past traditional retirement age have about 25% lower incomes than men in the same age group, according to a March report from the National Institute for Retirement Security. Women receive less from Social Security and have lower account balances in retirement savings plans, the report found. Furthermore, while women are at a distinct disadvantage compared with men, even among women, some demographics are worse off than others.

Lower levels of income, and lower access to and participation in retirement plans, among other factors, contribute to lower overall savings levels for black and Latina women compared both with men and with women overall. The report is based primarily on data from the Survey of Income and Program Participation conducted by the U.S. Census Bureau.

Median household income for women 65 and older was $35,810 in 2013, the report found. Over half of that is from Social Security benefits, and about a quarter is from defined benefit and defined contribution plan savings. Household income for men had a similar distribution but a higher level: of their $48,280 annual income, 47% is from Social Security and 25% is from DB and DC plan savings.

Wages make up a declining share of household income, unsurprisingly, but after age 80 represent 10% of a woman’s household income, compared with 8% of a man’s. A 2015 survey by NIRS found that 41% of women said they needed to work in retirement, compared with 31% of men, to make up for less time in the work force, lower earnings or to make up losses incurred during the recession.

The shortfall in retirement savings among women is happening in spite of greater access to retirement savings plans, the report found. Historically, men were more likely to work for employers who offered a retirement plan, but that trend reversed between 1998 and 2012. Since 2006, women’s participation rates have equaled that of men, but differences in eligibility and pay have made it difficult for women to save as much.

Between 1998 and 2012, when more women than men worked for employers that offered a retirement plan, they were less likely to be eligible to participate: 85% were eligible, compared with 89% of men. For non-white women, the wage gap is especially pronounced. Overall, women earn $0.79 for every dollar earned by men, the report found. However, black women earn only 60% of what men earn, and Latina women earn 55%.

Age and experience doesn’t reduce the wage gap, the paper found, referring to data from The American Association of University Women. “In fact, the disparity between the earnings of all women and men grows over time — a 10% gap in median weekly wages between women and men ages 20 to 24 grows to a 23% gap by the age of 55 to 64 for women and men.”

Access is lower among people of color, too, for men and women. A third of Latino men and 35% of Latina women work for employers that offer a DC plan, the lowest in the report. Access for black and Asian workers was closer to that of white workers: 45% for black and Asian men, compared with 48% for white men. Asian women were less likely to have access to a DC plan (43%) than black or white women (46% and 48%, respectively).

For Latino workers in particular, low access and low participation (less than three-quarters of Latinos who are offered a DC plan participate in it) have resulted in just 20% of households having more than $10,000 in retirement savings, according to the report. Among Latina women, median household income after age 65 is $32,480. The report found median household income for black women in that age group was just $31,320. Asian women had the highest income level at $39,380.

Differences in investing style may contribute to better investment returns for women, but there are still challenges, according to the report. Data from Fidelity Investments shows that women tend to have more balanced portfolios with higher allocations to blended assets, and tend to be invested more age appropriately than men. “These factors may allow women to achieve the same or better rates of return than men over time,” the paper noted, referring to a report by finance professors Brad Barber and Terrance Odean that found “female investors had better rates of return than male investors.”

Additionally, data from Vanguard shows women contribute as much or more of their salary than men. With a lower pay rate, though, it still results in a shortfall. The median account balance as of the end of 2014, according to Vanguard, was $36,875 for men and $24,446 for women. The average balance for men was $121,201, compared with $78,007.

To Your Successful Retirement!

Michael Ginsberg, JD, CFP® 

04/18/16

Housing Debt Is Invading Retirement

By John Manganaro,  Assetinternational.com, March 02, 2016

Research from LIMRA Secure Retirement Institute finds more Americans are entering and living in retirement with a mortgage representing their biggest source of debt. Home ownership remains widespread among retirees, according to the latest installment of the LIMRA Secure Retirement Institute Industry Trends series, and so does mortgage indebtedness.

Among retirees with $100,000 or more in assets, nine out of 10 own a primary residence, LIMRA finds, dropping to seven in 10 among retirees with fewer assets. “At one time, few people retired with mortgage debt,” LIMRA explains, “but that has changed in recent years.” In 1989, just 11% of homeowners ages 65 to 74 were still paying the bank back for their home equity, averaging $29,000 of mortgage debt at retirement. By 2013, 43% of these households carried a mortgage, with the average debt rising significantly to $136,000.

Even retirees age 75 and older are carrying more debt burden, according to LIMRA Secure Retirement Institute. As of 2013, 2.7 million households, or 20% of the 75-plus group, had mortgage debt. Looking at the same population segment in 1989, only 5% still carried a mortgage. “Institute research finds people carry debt into retirement for many reasons, such as using their home’s equity to fund health care, education, consolidating other loans and other expenses,” LIMRA explains. “Even with low interest rates, mortgage debt represents a cash outflow that can eat away at retirement income. In the best circumstances, a couple’s collective retirement income will allow them to stay on top of their living expenses and debts.”

Unfortunately, the research also shows “very few plan for the inevitability of meeting all these obligations when one of them dies. For this reason, an adviser’s best counsel is to encourage both spouses to be actively involved in their financial decisions as the surviving spouse typically lives for an extended period of time.”

To Your Successful Retirement!

Michael Ginsberg, JD, CFP®

 

04/11/16

How Severe is the Retirement Crisis?

By Michael Hiltzik, March 2, 2016, LA Times.com

It has become fashionable in some quarters to pooh-pooh the very idea of a “retirement crisis” facing millions of Americans. The skepticism tends to come from economists and pundits whose retirement security is not in doubt, thanks to handsome retirement plans and high-income jobs that enabled them to assemble healthy nest eggs. They’re scarcely fazed by the discovery that some of their claims are based on arithmetic errors.

Economist Monique Morrissey of the progressive Economic Policy Institute delivered some hard evidence of the problems facing the average American retiree with release of her updated Economic Inequality Chartbook: 32 interactive graphs that show how the shift from defined benefit pensions to 401(k)’s “has failed the majority of workers.” This shift, which relieves much of the burden and risk of saving for retirement from employers and places it on employees’ shoulders, has increased wealth inequality for older workers and left them on average with meager resources, even as their periods of retirement grow longer.

Morrissey also shows how Social Security has become more important to the average worker over time, giving strength to the argument that this all-important program should be expanded and its funding spread over a larger proportion of the population. Under the existing payroll tax system, which covers only earned income up to an inflation-adjusted $118,500 (this year), higher-income wage-earners and those who collect income mostly from capital gains, dividends and other unearned income, pay a lower rate.

We’ve selected six especially telling charts from Morrissey’s collection.

1. Savings have plateaued. Mean, or average, retirement accounts for all households have stagnated since the recession. “Rather than stagnation, we should be seeing rising 401(k) and IRA account balances at all ages to offset declines in defined-benefit pension coverage and Social Security cuts,” Morrissey says. EPI’s research shows that the financial crisis was especially punishing for households nearing retirement: They’ve lost on average about 23% of their nest eggs and haven’t had the opportunity to recover.

2. Many families don’t have any retirement cushion. Even the figures above overstate the retirement resources of the average family, because they’re skewed by large balances held by the wealthy. In truth, nearly half of all families have no retirement account savings at all; even for households in the 56-61 age range, with retirement as little as four years away, the median retirement account is only $17,000 (and only half what it was before the financial crisis).

3. Defined-contribution plans such as 401(k)’s are heavily skewed toward the wealthy. Participation in 401(k) plans is closely associated with income. Although about twice as many families have defined-contribution plans, such as 401(k) plans, as defined-benefit pensions, 68% of the richest fifth of households participate in a plan, compared with only 4% among the lowest-income fifth.

4. The imbalance in 401(k) participation is making income inequality much worse. As Morrissey observes, “the bottom 60% of working-age families receive 17% of total income but hold 7% of retirement account balances. Meanwhile, the top 20% receive 63% of income and hold 74% of retirement account balances.”

5. The disaster of the Great Recession is not a memory for the average family, mostly because of the lingering effects of the housing crash. “Working-age families’ median wealth, or net worth, fell by almost half during the Great Recession and its immediate aftermath,” Morrissey observes, “and stagnated between 2010 and 2013 despite rebounds in stock and housing prices. Declines in the net worth of older families since 2010 are especially worrisome since they have less opportunity to make up losses before retirement.”

6. Social Security remains the bulwark of retirement for low- and middle-income seniors. The program remains the largest single source of income for seniors with household income of at least $30,000.

To Your Successful Retirement!

Michael Ginsberg, JD, CFP® 

04/4/16

Americans Desire Advice About Saving and Investing

By Lee Barney, March 03, 2016 AssetInternational.com

Less than two-thirds of Americans interviewed are confident they are saving enough for retirement, down from 72% in 2015. Ninety percent of working Americans believe they should be investing for retirement, but only 75% are doing so, with many prioritizing other goals, like travel and weight loss, according to the Capital One Investing 2016 Financial Freedom Survey of 1,005 U.S. adults.

Only 16% say that increasing their retirement savings is a top priority for 2016, with the majority, 27%, saying traveling to a new destination is their top goal, and 23% pointing to weight loss. Among Millennials, only 11% say that growing their nest egg is their top goal, compared to 31% who prioritized travel and 22% who hope most to buy a home. For Baby Boomers, only 21% put retirement savings ahead of losing weight (30%).

Only 75% of Americans are saving for retirement, down from 80% a year ago. Less than two-thirds, 64%, are confident they are saving enough to live comfortably throughout retirement, down from 72% in 2015. Although 39% think they should be saving more than 15% of their income, only 15% are doing so. Just more than one-quarter of Americans, 26%, are saving 5% or less for retirement. Among Millennials, 61% are confident they are saving enough, but 29% are saving 5% or less for retirement.

The majority of Americans, 76%, think saving for retirement today is more challenging than it was for their grandparents because investing is more complex, they cannot rely on Social Security and fewer companies offer pension plans. Eighty five percent of Millennials feel this way, along with 72% of Generation X, 73% of Boomers and 69% of women. In addition, 83% of Americans think companies of all sizes should be required to offer their employees retirement savings plans.

Most investors, including Millennials, want access to both human support and digital investing tools when planning for the future. More than half of investors, 52%, rely on a financial adviser. When there are market fluctuations, 75% of investors would like to receive advice from an adviser, either by phone, email or in person.

Seventy-five percent of Americans think there are benefits to robo advisers, with 33% citing 24 hour access and 25% pointing to the ability to independently manage and maintain control of their portfolio. However, 31% of Millennials question robo advisers’ accuracy, and 30% of Gen X say the lack of human oversight is a drawback.

Forty-two percent of Americans say industry jargon prevents them from investing with confidence, while 41% say a lack of transparency in pricing causes them to lack confidence. Half of investors say a lack of knowledge or experience causes them to lack confidence, and 60% of Millennial investors say this causes them to feel less confident about investing.

Even among those investors who consider themselves self-directed, 39% prefer to work with an adviser to create a portfolio, 34% would like them to perform financial planning, and 36% would like them to rebalance their portfolio.

To Your Successful Retirement!

Michael Ginsberg, JD, CFP®