Wednesday, March 22, 2017
Are you a Parrot Head? (If you don't know what I mean, the answer to the question is no). Whether you are a Parrot Head or not, wouldn't you love to retire to Margaritaville? Now you can! Jimmy Buffet is opening a chain of 55+ communities within the next year or so. Forbes ran a story last week with the exciting news! Jimmy Buffett To Open String Of Margaritaville Retirement Homes By 2018 explains the plan: "[t]he golden years are looking even brighter with news that Jimmy Buffett is planning to open a string of luxurious Margaritaville retirement home communities, the first in Daytona Beach, Florida. Retirees will be able to live in a paradise where the party never stops and 'growing older, but not up' is encouraged. The price tag will start in the low $200s and furnished models are scheduled to open in early 2018 for those '55 and better.'"
So what will we do if we live in Margaritaville? According to the story "[t]his utopia promises retirees exciting recreation, fitness facilities, lap pools, spas, personal beachfront access, unmatched dining and an entertaining nightlife. Minto Communities has 60 years of experience developing award-winning, master-planned communities and building quality homes for over 80,000 families."
You can read more about this project here .
See you there!
PS-have the song stuck in your head yet?
Thursday, March 9, 2017
You know experience is a good teacher. So imagine getting advice about retirement from someone who is living it? The New York Times ran a wonderful article, From the Elders to the Kids: What I Wish I’d Known. The assignment for a group of "journalism students from five colleges and universities [was] to talk with retirees, and find out what they wish they had known when they were the students’ age." The conversations were recorded and can be viewed on the website. One thing that struck me is that of those individuals featured in the print part of the project retired at a fairly "young" age, ranging between 51 and 67.
Questions included what did the elders wish they had known about retirement when they were the ages of the interviewers, what they wished they had done in preparing for retirement, living a healthy lifestyle, keep active, etc. In one of my classes, I have students interview someone they know who they consider to be an elder. I'm going to include the "what should I know now about preparing for retirement" to the list of questions the students ask. Anyone else assign any similar exercise to their students?
Wednesday, March 8, 2017
The teachers' pension fund in Puerto Rico is the latest example of an under-funded government-operated retirement plan. A unique complication of the Puerto Rico teachers' plan is the decision to opt out of Social Security as a separate form of retirement income. In a recent New York Times article, the reporter makes the the analogy to a Ponzi scheme:
Puerto Rico, where the money to pay teachers’ pensions is expected to run out next year, has become a particularly extreme example of a problem facing states including Illinois, New Jersey and Pennsylvania: As teachers’ pension costs keep rising, young teachers are being squeezed — sometimes hard. One study found that more than three-fourths of all American teachers hired at age 25 will end up paying more into pension plans than they ever get back.
“I think they’re really being taken advantage of,” said Richard W. Johnson of the Urban Institute, a co-author of the research. “What’s so tragic about this is, often the new hires aren’t aware that they’re getting such a bad deal.”
The problem is magnified by the fact that the Puerto Rico teachers union — like many teachers and police unions around the country — opted out of Social Security long ago, hoping it could save both workers and the government money by not paying Social Security taxes.
That decision was predicated on the assurance that the workers’ pensions would be well managed and adequately funded. But in Puerto Rico, as in some other places, that has not been true for decades.
For more, read In Puerto Rico, Teachers' Pension Fund Works Like a Ponzi Scheme.
Tuesday, March 7, 2017
The glass ceiling has long term repercussions for women. Making less during their working lives may mean they have less for retirement. The New York Times ran an article recently, Money Worries for Retired Women. Looking at a report, the article notes that
Across all age groups, women have considerably less income in retirement than men, according to a report from the National Institute on Retirement Security. For women age 65 and older, their income is typically 25 percent lower than that of men. As men and women age, the gap widens to 44 percent by age 80.
As a result, women were 80 percent more likely than men to be impoverished at age 65 and older, while women age 75 to 79 were three times more likely to fall below the poverty level than men the same age.
It's not just earning less that contributes to the problem, according to the article. Taking time off to raise a family contributes to this matter. As well, consider if the woman is a caregiver for an elder and has to take a leave of absence. (We've blogged several times about family caregivers and the impact it has on the caregiver).
Many women take time off to raise children or care for an aging relative, which gives them fewer years to contribute to a retirement plan. Moreover, because employers will often match — up to a set amount — the money an employee sets aside in a workplace retirement account, like a 401(k) or 403(b), those matching dollars are sacrificed.
“Financial problems in retirement and senior debt arise with insufficient income as a result of lower lifetime earnings and less in savings, costs of family caregiving and divorce...”
Don't forget to add increased longevity into the equation and possibility of running out of money in retirement is a real fear. One piece of good news in the story is that women are working longer, which allows them to save more for their retirement. "Working longer makes it possible to add to retirement accounts and to avoid tapping into them for living expenses. It also frequently comes with employer-based health insurance. It can also deliver a substantial financial benefit in Social Security... The extra years of earnings at these ages replace earlier years of low or zero earnings in the retirement benefit computation formula...."
From the Washington Post, an especially moving account written by former White House Communications Director Jennifer Palmieri about her sister, who died at age 58 following some ten years with "early onset" Alzheimer's:
Every day, more Americans receive the devastating news that someone in their family has this affliction. For now, there is not a lot of hope for recovery. It can make you envious of cancer patients; their families get to have hope. Having come through this experience with my sister, I am afraid that I can’t offer these new Alzheimer’s families hope for a recovery. But I do hope that by relaying the story of my sister’s journey, I can offer them some peace.
My sister Dana was brilliant, beautiful, full of positive energy, a force of nature. She was not an easy person. She was driven and successful, and, as the disease progressed unbeknown to all of us, it became harder to connect with her. Ironically, that began to change once she got the diagnosis.
When she called each of us with the news, she already had it all figured out. We were all to understand that, really, she saw the diagnosis as a blessing. It was going to allow her to retire early. It would motivate our family to spend time together we would not have otherwise done. It would shorten her life, but she would make sure the days she had left were of the highest quality.
The thoughtful piece can help all of us as we and our family members tackle challenges. For more, read The Blessings Inside my Sister's Alzheimer's Disease.
Wednesday, March 1, 2017
I've noticed a fair number of articles recently on the topic of planning for retirement, including this recent one from the New York Times. What to Do Now to Retire Better looks at actions you should based on your age group, starting when one is in her 20s. For example, for folks in their 40s the article suggests working with a financial advisor, portfolio rebalancing, establishing a self-employed plan such as a SEP IRA and using a retirement calculator to make sure you are on the right track. The advice for those in their 50s is more extensive, including planning for what happens after retirement, checking out Social Security, reducing debt, investigating downsizing and more.
Since financial literacy is so important, this article would be good to assign to students to get them thinking about their own futures and planning for their retirements.
Monday, February 27, 2017
The Washington Post ran a recent story about saving for retirement. Two-thirds of Americans aren’t using this easy way to save for retirement stress the importance of workers taking advantage of various workplace retirement accounts yet many fail to do so.
Fewer than one-third of Americans are saving money in their 401(k)s and other workplace retirement accounts, according to an analysis of tax records by Census Bureau researchers.
Although nearly 80 percent of Americans work for an employer that offers retirement programs — whether a 401(k), 403(b) or something else — only 32 percent of workers sign up for such accounts, according to a working draft of the study by Michael Gideon and Joshua Mitchell. The researchers studied W-2 tax forms from 2012 from 155 million American workers for their findings, which help shed light on just how ill-prepared many Americans are for the future.
The article discusses the importance of saving for retirement for the various age groups and notes that it's unlikely that those close to retirement have a realistic idea of what it costs to live during retirement.
Older workers ... are increasingly experiencing sticker shock when they realize just how much money they’ll need for retirement, said Manisha Thakor, a financial adviser in Portland, Ore. The most conservative calculations estimate Americans will need to have about eight to 10 times their annual salary saved for retirement, she said.
“By the time people see how much they need, it seems so horrific and out of bounds that they just freeze and do nothing,” she said, adding that she counsels clients to save at least 20 percent of their income toward retirement and other expenses. “They just throw their hands up and say, ‘What’s the point of even trying at this point? I’m so far off.’ ”
At the same time, people are living longer, which means they’ll have to save up that much more to help support themselves in their post-work years. She added, “Layered on top of both generations is the specter of student loan debt, which has now eclipsed credit card debt.”
The student debt referenced in the article is that taken on for their kids or grandkids.
What is the way to get more workers to take advantage of the offered workplace retirement plans? One idea in the article is automatic enrollment. Even though that may be successful, don't forget, "[i]n recent weeks ... Congress has moved to repeal Obama administration measures that allow states to automatically enroll workers ii retirement programs."
NPR had a good recent summary of the politics behind opposition to full implementation of fiduciary duty standards for investment brokers in providing retirement advice:
Over the past two weeks, the Trump administration has taken steps to delay and perhaps scuttle a new rule designed to save American workers billions of dollars they currently pay in excessive fees in their retirement accounts.
The Obama administration spent 5 years crafting the rule through the Labor Department. It requires that financial advisers and brokers act in their customers' best interest when offering them investment advice for their workplace retirement accounts. Firms must comply by April [2917 under the current rule].
As the commentary pointed out, early-on Trump pledged to support the interests of ordinary working Americans and to take on Wall Street:
In his inauguration speech, President Trump talked about giving America back to everyday working Americans. In one of the more memorable moments, the president said, "The forgotten men and women of our country will be forgotten no longer."
The fiduciary duty rule for investment brokers directly signals the tension between President Trump's pledge to working Americans and his career-long focus on big business.
AARP supports the rule, recognizing that the U.S. has an "under savings" problem. Distrust of investment advisers plays into the reluctance of ordinary Americans to engage in professionally-assisted planning for the future. Will AARP rally retirees to resist repeal or delay of the fiduciary duty rule?
For more, read or listen to Trump Moving to Delay Rule that Protects Workers from Bad Financial Advice.Trump Moving To Delay Rule That Protects Workers From Bad Financial Advice and White House to Investors: Put Savers' Interests First.
Warren Buffett has been counseling -- for years -- to avoid high fee "experts" for investment advice, recommending the use of index funds instead. See e.g. Newsday's "Warren Buffett Says Don't Waste Money on Investment Fees."
Wednesday, February 22, 2017
The marketers of reverse mortgages often paint a rosy picture of how seniors will be able to draw on the equity in their homes to cover daily expenses, without risk of repayment before death. But details of these mortgages can be overlooked and as we've reported before, seniors can be surprised when terms and conditions create traps that can lead to foreclosure. However, from Florida, we're now hearing about cases where one of the simplest conditions -- the borrower continuing to live on site -- has become the subject of litigation.
“All of a sudden, we saw a spate of foreclosures where the mortgage companies alleged the seniors no longer lived in the home,” said Gladys Gerson, supervising attorney for Coast to Coast Legal Aid of South Florida’s senior unit. “This has been happening around the state.”
About a dozen similar cases reached Gerson and other attorneys at Coast to Coast, who have helped a growing number of low-income seniors fight and win dismissals despite aggressive lender litigation.
Florida is ground zero for seniors’ issues, but as the strategy has often proved effective, it’s likely to spread, according to defense attorneys. “If you see the volume of national advertising that’s geared to seniors, I can’t believe this is limited to Florida,” Corona’s father and partner, Ricardo, said. “The servicers are not even based in Florida, so I don’t see why they would limit themselves.”
Corona admits he didn’t expect a hard fight when he first reviewed El Hassan’s case, but court records show he was wrong. Over the last 10 months, the ongoing litigation yielded two hearings, 40 docket entries and attempts by both sides to collect attorney fees.
For more, read the full article, Foreclosure Litigation Strategy Takes Aim at Seniors, Attorneys Say.
Thank you to my colleague, Dickinson Law Professor Laurel Terry, for this source.
Thursday, February 16, 2017
20 New Yorkers from all different circumstances and backgrounds who have both exceeded life expectancy and who are disrupting commonly-held expectations of what it means to grow old.
Every few weeks, [the authors] introduce the story of a new person to our readers. You will meet a woman who cares for her 1-year-old great-grandchild, a man who was in prison for 30+ years and is trying to make up for lost time and an optometrist who has retired four times but keeps returning to work.
Isn't it time for a little positive news?
Friday, February 10, 2017
When I first saw the news stories of the French cyclist who had set a cycling record for sixty minutes, I wasn't particularly impressed -- that is, until I realized that Mr. Robert Marchand is now age 105 and he's trying to break his own record of almost 17 miles per hour, set when he was 103. Turns out this is part of a much larger story about fitness in aging. From the New York Times:
At the age of 105, the French amateur cyclist and world-record holder Robert Marchand is more aerobically fit than most 50-year-olds — and appears to be getting even fitter as he ages, according to a revelatory new study of his physiology.
The study, which appeared in December in the Journal of Applied Physiology, may help to rewrite scientific expectations of how our bodies age and what is possible for any of us athletically, no matter how old we are.
For more, read Lessons on Aging Well, From a 105 Year-Old Cyclist. Inspiration for your own weekend workout, perhaps!
Thursday, January 26, 2017
The Young Invincibles recently released a report that looks at the financial health of the Millennials. The Financial Health of Young America "compares the financial health of young Americans in 1989 compared to today’s young adults to reveal major declines across five key factors – income, assets, net wealth, home ownership and retirement savings. In summary, Boomers had higher incomes, owned more homes, and had twice the net assets that Millennials have today."
In addition, the report notes the following key findings:
Millennials have earned a net wealth half that of Boomers at the same age.
Young adult workers today earn $10,000 less than young adults in 1989, a decline of 20 percent.
Education attainment still an individual’s best pathway to financial security.
When Boomers were young adults, they owned twice the amount of assets as young adults.
Disturbing racial inequality persists and grows. Young African Americans’ median wealth declined by a third since 1989.
Student debt blunts some of education’s benefits.
The report makes various recommendations in the following categories: skills, education, income, employment benefits, housing policies, improving the ability to save and gain wealth, and improve portable retirement choices. This is the first of several reports. The full report runs 30 pages and is available here.
Wednesday, January 25, 2017
The Denver Post ran an AP story a few weeks ago about Americans retiring abroad. Growing number of Americans are retiring outside the U.S. highlights the increase in the number of Americans who decide to retire and live abroad. "The number grew 17 percent between 2010 and 2015 and is expected to increase over the next 10 years as more baby boomers retire... Just under 400,000 American retirees are now living abroad, according to the Social Security Administration. The countries they have chosen most often: Canada, Japan, Mexico, Germany and the United Kingdom." The article references a lower cost of living or cheaper health care as a reason some Americans choose to retire to other countries. Climate may also be a factor. It would be an interesting exercise for students to list the issues and considerations when clients decide to retire to another country. Anyone want to assign this as a project?
Sunday, January 22, 2017
University of Illinois Law Professor Richard Kaplan responded to my post last week, that questioned the appropriate age to compel IRA distributions, by providing a more in-depth look at the topic, via his own article, Reforming Taxation of Retirement Income.
His recommendations include simplifying how Social Security retirement benefits are taxed, bifurcating defined contribution plan withdrawals into capital gains and ordinary income components, repealing certain exceptions to the early distribution penalty, reducing the delayed distribution penalty and adjusting the age at which it is triggered, and changing the residential gain exclusion to avoid unanticipated problems with reverse mortgages.
The 2012 Virginia Tax Review article demonstrates that increased life expectancy supports an increase to age 74 (from 71.5) as the trigger for mandatory distributions.
Thanks, Dick! As always, you have important analysis to share.
Friday, January 20, 2017
Under long-standing IRS rules, IRAs and similar retirement accounts created with tax deferred income are generally subject to "required minimum distributions" when the account holder reaches age 70 and a half. As the IRS.gov website reminds us:
- You can withdraw more than the minimum required amount.
- Your withdrawals will be included in your taxable income except for any part that was taxed before (your basis) or that can be received tax-free (such as qualified distributions from designated Roth accounts).
As the Wall Street Journal recently reported, as baby boomers are now reaching that magic age of 70 1/2+, there will be huge mandatory transfers of savings, creating taxable income, even if they don't actually need the retirement funds yet.
Boomers hold roughly $10 trillion in tax-deferred savings accounts, according to an estimate by Edward Shane, a managing director at Bank of New York Mellon Corp. Over the next two decades, the number of people age 70 or older is expected to nearly double to 60 million—roughly the population of Italy.
The account holders may not actually "need" the money in their early 70s, an age now often seen as "young" for retirement, and they may still be in high tax brackets, thus cancelling the original reasons for the savings and deferral. The rules were made when average lifespans were shorter.
On average, men and women who turned 65 in 2015 can expect to live a further 19 and 21.5 years respectively, according to the U.S. Social Security Administration’s most recent life-expectancy estimates; those post-65 expectancies are up from 15.4 and 19 years for those who turned 65 in 1985.
....[D]istributions are expected to grow exponentially over the next two decades because of a 1986 change to federal law designed to prevent the loss of tax revenue. Congress said savers who turn 70½ have to start taking withdrawals from tax-deferred savings plans or face a penalty. Specifically, retirees who turn 70½ have until April of the following calendar year to pull roughly 3.65% from their IRA and 401(k) funds, subject to slight differences in the way the funds are treated by the Internal Revenue Service. Then they must withdraw an increasing portion of their assets every year based on IRS formulas. The rules don’t apply to defined-benefit pensions, where retirees get automatic distributions.
There is a 50% penalty for failure to make required minimum withdrawals. And not all retirees are aware of the consequences of failing to make with withdrawals, especially when accounts were created originally by a spouse who is no longer alive or is unable to manage the account personally. From the Wall Street Journal article:
Bronwyn Shone, a financial adviser in Pleasanton, Calif., said many of her clients aren’t aware of their legal obligation to take distributions. “I think some people thought they could let the money grow tax-deferred forever,” she said.
Certainly the federal government wants -- and an argument can certainly be made that it "needs" -- more tax revenues, but if the goal of the permitted deferral is to encourage saving for the the "real" needs of retirement, which can include disability, health care, long-term care, and other "late in aging" needs, is it still realistic to set the mandatory threshold for withdrawals at age 70.5? For example, Donald Trump is just today commencing his "new job" at age 70 and a half, and yet he could be subject to the RMDs for any IRAs. Maybe this is a financial issue that might interest the new Trump Administration?
For more, read Pulling Retirement Cash, but Not by Choice, by WSJ reporters V. Monga and S. Krouse (paywall protected article from 1/16/17).
Thursday, January 19, 2017
The New York Times has a recent article that resonates with me. I am spending my sabbatical time in Arizona in order to be of more help to my sister with our parents who are both in their 90s. Neither my sister or I have children and we sometimes question what will happen with us if we reach our parents' age with similar needs. Here's an excerpt from the piece that gets right to the point:
While the demand for caregivers is growing because of longer life expectancies and more complex medical care, the supply is shrinking, a result of declining marriage rates, smaller family sizes and greater geographic separation. In 2015, there were seven potential family caregivers for every person over 80. By 2030, this ratio is expected to be four-to-one, and by 2050, there will be fewer than three potential caregivers for every older American.
For more, read the thoughtful essay Who Will Care for the Caregivers? by Dr. Dhruv Khullar, a resident physician at Massachusetts General Hospital and Harvard Medical School.
Wednesday, January 11, 2017
A recent article in the Washington Post by Michelle Singletary suggested a New Year's resolution, knowing your retirement account. Resolve to take a closer look at your retirement account offers insights from author (Empire of the Fund: The Way We Save Now), William A. Birdthistle, who participated recently in her online discussion. The article contains 3 questions and Mr. Birdthistle's answers, one of which discusses in what types of investments to invest retirement funds. Ms. Singletary closes her article with this advice to readers: "Let 2017 be the year that you take a closer look at your retirement savings. Don’t just blindly throw money in your account. No one can predict the unpredictable when it comes to your nest egg. But at least you can become better informed about what there is to know for sure."
Thanks to Professor Naomi Cahn for sending us this article.
Monday, January 9, 2017
Social Security's blog, Social Security Matters, posted the full retirement age info for 2017. 2017 Brings New Changes to Full Retirement Age explains that for those between 1955-1956, full retirement age is 66 and 2 months. The post also explains what the increase in full retirement age means to benefits: "[a]s the full retirement age continues to increase, there are greater reductions in benefits if you claim them before you reach full retirement age. For example, if you apply for benefits in 2017 at age 62, your monthly benefit amount will be reduced nearly 26 percent." The blog also offers tips to those who are contemplating retirement along with helpful links.
Thursday, November 17, 2016
AARP is offering a online chat on November 21 from 3-4 p.m. on Home Sharing: A Powerful Option to Help Older Americans Stay in their Homes. The website offers a summary of this upcoming chat:
The vast majority of older adults have told AARP that they want to “age in place” by remaining in their current home and neighborhood. But much of the U.S. housing stock isn’t very aging-friendly (stairs are an example), and millions of older Americans face economic hardships that challenge their ability to afford the costs of safe and suitable housing.
The rise of home sharing — in which people rent space in their residence to a traveler or short-term tenant — is allowing people of all ages (but especially older adults) to literally earn an income from where they live.
Join AARP’s Nancy LeaMond, former Philadelphia Mayor Michael Nutter, Airbnb executive Sarah Bianchi and Gene Sperling, an economist and consultant to Airbnb, for an online discussion and Q&A about the benefits of home sharing for older adults and the new Airbnd report “Home Sharing: A Powerful Option to Help Older Americans Stay in their Homes.”
The accompanying report will be available here starting November 21.
Wednesday, November 9, 2016
The Wall Street Journal ran an article last month about a study that focused on people's decision-making regarding whether to retire. Before Retiring, Take This Simple Test reports on study by "Philipp Schreiber and Martin Weber at the University of Mannheim in Germany, [where] a simple two-question quiz [was developed] that can help predict whether you’ll regret the timing of your own retirement." Two questions-that's pretty easy, right. Here we go, it won't take you long to answer them:
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?
How did you answer them? According to the article, "[t]he 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." There are folks who don't answer consistently, and that's a red flag, the article explains. Those folks "exhibit a tendency known as present bias, or hyperbolic discounting. They strongly prefer rewards that arrive right away." As for timing of retirement, the article notes that study shows that those who provided inconsistent answers ultimately regret the timing (too early) of their retirement.
The article suggests some positive applications of the study results. For those of us who participate in savings via payroll deductions, such programs could be improved "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." The article goes further, suggesting changes to enrollment in Social Security to minimize buyer's remorse for early retirement (evidently a lot of folks start drawing Social Security at age 62, which we all know results in a permanent reduction in benefits).
The study referenced in the WSJ article is reported in The Influence of Time Preferences on Retirement Timing. The abstract explains
This study analyzes the empirical relation between the decision when to retire and individuals time preferences. Theoretical models predict that hyperbolic discounting leads to dynamic inconsistent retirement timing. Conducting an online survey with more than 3,000 participants, we confirm this prediction. The analysis shows, that time inconsistent participants decrease their planned retirement age with increasing age. The temptation of early retirement seems to become stronger the closer retirement comes. We show that the negative effect of age is between 1.5 and 3 times stronger for participants who can be classified as hyperbolic discounters. In addition, we find that time inconsistent participants actually retire earlier. On average, the most time inconsistent participants retire about 2.2 years earlier. The time inconsistent behavior has severe consequences: Time inconsistent participants are ex post more likely to regret their retirement timing decision. Also, the unplanned early retirement leads to a constant decrease of retirement benefits of about 13%.
The full paper can be downloaded from the SSRN link here.