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This cartoon, by Vancouver Sun cartoonist Graham Harrop, hits on one of retirees’ biggest mysteries: their future health.

The elderly live with the anxiety of getting a grave illness that isn’t easy to fix, such as cancer or a stroke.  And despite having Medicare insurance, they also have to worry how much it would cost them and whether they would run through all of their savings.

They’re right to worry. Health care costs increase as people age from their 50s into their 60s and 70s. About one in five baby boomers between 55 and 64 pays extraordinary out-of-pocket medical expenses in any given year. But by 75, the odds increase to one in four, according to a report summarizing the reasons that some seniors’ finances become fragile.

Large, unexpected medical expenses are one of two major financial shocks that threaten their security – widowhood is the other. A small and unlucky share of retirees will find it difficult to absorb a spike in their medical costs, forcing them to cut back on food or medications, the report said.

Harrop’s cartoon is the product of his cousin’s inspired suggestion that he fill a book with cartoons about the humorous accommodations made between couples who’ve lived together for decades. The book – “Living Together after Retirement: or, There’s a Spouse in the House” – reveals his personal knowledge of the subject. Harrop, who is 73, has lived with his partner, Annie, for more than 20 years.

Squared Away writer Kim Blanton invites you to follow us on Twitter @SquaredAwayBC. To stay current on ourblog, please join our free email list. You’ll receive just one email each week – with links to the two new posts for that week – when you sign up here

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It’s usually not talent or street smarts or brains that make people wealthy and comfortable. It’s the luck of having rich parents.

But there is another way to get there, one that is within reach: becoming the first generation in the family to earn a college degree.

A new study by the Federal Reserve Bank of St. Louis, using the latest federal data on household finances, measures the impact of having that degree – or not having one – on wealth and income.

Although the ranks of college-educated Americans have grown over the past quarter century, people lacking a degree still make up a substantial majority – two out of three Americans.

And they are lagging far behind financially.  Specifically, households headed by a non-graduate have only one-fifth of the net worth – assets minus liabilities – of those headed by a college graduate.  The income penalty is also large. The earnings of households without a degree are less than half of what a college-educated family earns.

But there’s a positive side too. People born into families lacking a degree can rise swiftly if they break the mold and go to college. For racial minorities, the improvements are even more dramatic.

On a ladder with 100 rungs representing family earnings, a non-white college graduate whose parents have no degrees will climb between 26 and 41 rungs higher than if they had not attended college.  In comparison, a graduate with college-educated parents will move up 22 to 37 rungs on the ladder.

College is the fastest ticket to improving one’s lot, but it’s also important to remember that most people either can’t or don’t want to go.

Squared Away writer Kim Blanton invites you to follow us on Twitter @SquaredAwayBC. To stay current on our blog, please join our free email list. You’ll receive just one email each week – with links to the two new posts for that week – when you sign up here.

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People who have a college education are known to live longer. But could a sunny disposition also help?

Yes, say two researchers, who found that the most optimistic people – levels 4 and 5 on a 5-point optimism scale – live longer than the pessimists.

But this effect works both ways. The biggest declines in optimism have occurred among older generations of Americans who didn’t complete high school at a time when this was far more common. It’s no coincidence, their study concluded, that the white Americans in this less-educated group in particular are also “driving premature mortality trends today.”

The finding adds new perspective to a 2015 study that rocked the economics profession. Two Princeton professors found that, despite improving life expectancy for the nation as a whole, death rates increased for a roughly similar group: white, middle-aged Americans – ages 45-54 – with no more than a high school degree. They suggest that addiction and suicide play some role, both of which have something to do with the deterioration in the manufacturing industry that once provided a good living, especially for white men.

To make the link between mortality and optimism, Kelsey O’Connor at STATEC Research in Luxembourg and Carol Graham at the Brookings Institution examined whether heads of households surveyed back in 1968 through 1975 were still alive four to five decades later. They controlled for demographic characteristics and socioeconomic factors, such as education, which also affect longevity.

One group clearly emerged as having the biggest increase in their level of optimism: women who are the head of their households, perhaps because of widening job options for women, including single mothers, starting in the late 1980s.

The researchers said they don’t want to overlook something else that is going on but is difficult to tease out – that optimism and education can reinforce each other, and, in turn, influence longevity.

For example, they find that optimistic people are more educated and make more money – and it’s already widely known that people who earn more live longer. On the other hand, teenagers who start life out with a dreary outlook might choose not to go to college and invest in their future, unwittingly subtracting a few years from their lives.

The good news is that we have a modicum of control over how long we live. If people can improve their outlook – not always easy to do – “they could live longer,” the researchers said.

Squared Away writer Kim Blanton invites you to follow us on Twitter @SquaredAwayBC. To stay current on our blog, please join our free email list. You’ll receive just one email each week – with links to the two new posts for that week – when you sign up here.  

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West Virginia teachers started the wave of strikes over pay.
Photos courtesy of Janet Bass, American Federation of Teachers

Teachers’ strikes and walkouts over inadequate pay – in Arizona, Kentucky, Louisiana, North Carolina, Oklahoma, and West Virginia – are making news this spring. In Oklahoma, half the people who’ve left teaching recently said pay was their top reason for moving on.

A wave of reductions in another significant form of compensation – pensions – also appear to be making state and local governments a less appealing place to work, according to researchers Laura Quinby, Geoffrey Sanzenbacher, and Jean-Pierre Aubry at the Center for Retirement Research, which publishes this blog.

Pensions have traditionally been the great equalizer for governments trying to recruit people from the higher-paying private sector. But benefit cuts, which had been fairly uncommon, gained momentum after the 2008 stock market crash that battered pension funds’ already declining finances.

The pace of cost-cutting reforms peaked in 2011, when 134 state and local government plans made some type of cuts that year. They run the gamut from increasing the tenure requirement or retirement age applied to new employees’ future pensions to trimming the cost-of-living adjustment on all pensions.

To gauge their impact, the researchers used U.S. Census Bureau interviews to follow individuals’ employment movements from one year to the next. They then looked at the average private-sector wages of both the new government recruits and the people who’d left the public sector.

Oklahoma City teachers

The thinking behind their approach was that pension cuts might discourage private-sector employees with their relatively high wages from switching to public service. On the flip side, the pension reductions might also make it more difficult for the public sector to keep its own highest-paid employees, if, by migrating to the private sector, they could increase their pay.

It turns out that the impact was on the recruiting side. Pension cuts “appear to reduce the ability of public-sector employers to compete with the private sector,” the researchers said.

Squared Away writer Kim Blanton invites you to follow us on Twitter @SquaredAwayBC. To stay current on our blog, please join our free email list. You’ll receive just one email each week – with links to the two new posts for that week – when you sign up here.  

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Seven years ago this month, this personal finance and retirement blog debuted. How things have changed.

For one thing, back in 2011, a lot more people were reading blogs and newspapers on their clunky desktop computers. In recognition of the now-ubiquitous smart phone – more accurately, a computer that happens to have a phone – we just redesigned how Squared Away looks on phones to enlarge the type and make the articles easier to read.  Our older readers will appreciate this update.

Year 7 is also an opportunity to restate the blog’s mission, which, frankly, was not fully refined in the early years.  In some ways, our mission has not changed: we continue to emphasize retirement security and personal finance, with a bent toward the evidence-based research that provides a clearer understanding of the financial, economic, and behavioral issues that are critical to a high quality of life.

We regularly report on research by scholars around the country, including studies produced by members of the U.S. Social Security Administration’s Retirement Research Consortium: the NBER Retirement Research Center in Cambridge, Mass., the University of Michigan Retirement Research Center, and the Center for Retirement Research at Boston College, which also is the blog’s home.

But it’s natural for a new publication to find its sweet spot over time, and Squared Away is no different. One theme that has emerged very clearly is that the threads of retirement saving are shot through the fabric of our financial lives.

The predicament of Millennials is an obvious example. Immediately after beginning their careers, 20- and 30-somethings – so much more than their parents and grandparents – are under the gun to save for retirements that no longer are likely to include a pension.

They’re struggling to save at the same time that they’re paying off burdensome student loans.  Sadly, the research shows they aren’t making much progress on the retirement front – and neither are Generation Xers.

We’ve also expanded the definition of the U.S. money environment, or “culture,” in the blog’s Money Culture section. This section still looks at culture and society in the literal sense – whether an art exhibit highlighting class distinctions in 17thcentury Dutch paintings or a growing movement by baby boomers to retire overseas.  More in line with the blog’s central purpose, however, Money Culture explores the financial impact of our economic environment – inequality, homeownership, rising health insurance costshigh rents, access to a college education, even sexual preferences.  Individuals have limited or no control over these.

Squared Away also recently added an on-going series of articles – “Baby Boomers: Rewriting Retirement – exploring how the Me Generation is coming up with its own unique definition of retirement.

To keep evolving in the future, we’ll need your help. I’d especially love to hear more from young adults. So feel free to email me about the personal finance issues you’d like to see covered: kimberly.blanton@bc.edu.

You can also sign up for our free weekly emails with that week’s headlines. And thanks for reading!

Squared Away writer Kim Blanton invites you to follow us on Twitter @SquaredAwayBC.

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For the sheer simplicity they bring to 401(k) investment decisions, retirement experts have been big fans of target date funds for years.

Now, their popularity is soaring with the people who really count: employees.

Last year, 401(k) participants poured a record $70 billion into target date funds (TDFs), an investment option that automatically shifts the asset allocation in the portfolio to reduce risk as employees approach a designated retirement date. TDFs have become the first choice for people who, rather than go it alone and pick their own mutual funds, like having their employer’s mutual fund manager do it.

According to a new report by Morningstar, the Chicago research firm, the new money flowing in has averaged $66 billion annually over the past three years, a 28 percent increase over the prior three-year period. The inflows exclude new money from investment returns.

The surge in new invested money has been more about the intensity of baby boomers’ efforts to save for an impending retirement, Morningstar said, than the fact that strong returns usually pull investors into the stock and bond markets.

In another major development, TDFs invested in passive index funds are now investors’ predominate choice. This is a full reversal from a decade ago, when most TDFs were invested by stock pickers.  (Although more money is now flowing into passively invested TDFs, actively managed TDFs still hold more in total assets.)

Investors of all ages are moving into TDFs, but the biggest inflows come from baby boomers in their late 50s and early 60s who’ve picked a TDF with a designated 2025 retirement date.

Boomers are doing so for two reasons. Many have hit their peak earnings levels and can contribute more to their retirement plans. Second, said Morningstar’s Jeff Holt, they are “more conscientious” – and no doubt more concerned – about preparing for their fast-approaching retirement than are young adults.

TDFs are now a permanent feature of the retirement plan landscape.

Squared Away writer Kim Blanton invites you to follow us on Twitter @SquaredAwayBC. To stay current on our blog, please join our free email list. You’ll receive just one email each week – with links to the two new posts for that week – when you sign up here.  

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Karen Dobson

Kay Dobson is 68, and it’s time to retire from her job as the jack of all trades at the Augusta Circle Elementary School in Greenville, South Carolina.

But she isn’t quite as ready for her June retirement as she could’ve been. She recently learned that an admitted unfamiliarity with Social Security’s arcane rules cost her about $31,000 for two years of foregone spousal benefits based on her husband’s earnings.

“I had not the vaguest idea that I would be eligible for that,” she said.

Dobson is hardly the first person to make a painful mistake like this. People have all kinds of misconceptions about Social Security, or they lack a basic understanding of how it works – that the government calculates benefits using their 35 highest years of earnings, that the size of the monthly checks depends on the age the benefits start, and that working women, like Dobson, are often entitled to a spousal benefit based on their husband’s work record and earnings.

Two years ago, Dobson could have applied for this benefit, because she’d reached her full retirement age – 66.  But since she didn’t know this at the time, Social Security recently sent her a check for $7,800 for only six months retroactively – typically the maximum period for retroactive spousal benefits.

Her $1,300 monthly checks are starting to come in now too.  When she turns 70, she’ll start collecting a larger benefit based on her own earnings from a long-time career in the school system.

This particular strategy – file for spousal benefits and delay your own – is now available only to people who turned 62 prior to Jan 2, 2016.  The unintended loophole was eliminated, because it subverted the original intent of the spousal benefit, which was designed with an eye to retired households with a low-earning or non-working spouse. (The spousal benefit, in and of itself, remains intact and can be a big help to older households in which a working wife earned less than her husband. If that’s the case, her Social Security benefit would be increased until it is equal to half of his full retirement benefit if she claims at or above her own full retirement age.)

The central point here is that ignorance of program rules can mean substantial losses for retirees.  For low- or middle-income retirees, the consequences can be especially dire since they’re already scraping by.

Dobson had to do her retirement planning all on her own, after her husband, Dan, was diagnosed with a neurological condition.  She only happened to learn about the spousal benefit during a pension consultation with W. Dave Erwin, a Greenville financial adviser and consultant that the school district has made available to employees who want help with their retirement finances.

The mistake isn’t going to make or break the Dobson’s finances. Kay describes herself as upper middle class – her husband was a banker – and they have savings and a good long-term care policy, which few people do. But it would’ve been nice to have enjoyed that extra money or put it in the bank.

Erwin said that his experience advising other clients confirms what the research shows: big gaps in older Americans’ Social Security knowledge – even among smart, well-educated people like Dobson. “They know 25 percent of what they need to know,” he said.

To prevent lost opportunities and get the most out of Social Security, it’s critical to know all the rules that apply to you.

Squared Away writer Kim Blanton invites you to follow us on Twitter @SquaredAwayBC. To stay current on our blog, please join our free email list. You’ll receive just one email each week – with links to the two new posts for that week – when you sign up here.  

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Diane Taylor

Betty Taylor is 74 and retired from a job she held for more than a decade filling Spiegel catalog orders and packing them up for shipping – she left in 1984. Diane Taylor, 70, was a packer and then a keypunch operator there between 1982 and 1995.

But the sisters, who live together in their late mother’s house on Chicago’s Southwest Side, couldn’t track down anyone who could confirm that their low-paying jobs entitled them to Spiegel pensions.

This is more common than one might think.

When a single employer or union has continued to maintain its pension plan over several decades, retiring workers know where to go to sign up for their benefits. But the sisters’ pensions got lost amid the confusion and paperwork shuffle around a series of mergers, bankruptcies, and name changes at Spiegel.

Betty Taylor

The confusion dates back to 1988, when the catalog company, which was founded by Joseph Spiegel after the Civil War, purchased Eddie Bauer. By 2003, Spiegel, loaded down with debt, was filing for bankruptcy protection and was subsequently acquired by the investors in Spiegel’s sole remaining asset, Eddie Bauer. The investors later transferred Spiegel’s pensions to Eddie Bauer’s corporate entity. In 2009, Eddie Bauer also went into bankruptcy, sending the pension funds to their final resting place: the federal Pension Benefit Guaranty Corporation (PBGC), which insures the pensions of failing companies.

Diane felt that a pension, if it existed, could really help out with her precarious finances. And she was pretty certain she remembered a pension from her years at Spiegel. So she started calling around.

“I got the runaround for four years,” she said. “I was persistent, and I was going to keep on until I had one foot in the grave,” Diane said.

First, she said she called Eddie Bauer, who told her to call someone representing the former Spiegel, who sent her right back to Eddie Bauer. She inquired at her Teamsters office, which agreed that her long tenure should entitle her to a pension. She researched the matter on a friend’s computer – nothing. She made a little progress after finding the name of another person to call at Eddie Bauer. He said he saw her name on a list and referred her to someone else inside Eddie Bauer, who said sorry no pension.

Last year, Diane’s and, later, Betty’s pensions were finally located after Diane sought out a Chicago legal services agency, which referred her to the Pension Action Center (PAC) at the University of Massachusetts Boston.

The PAC assists people in Illinois and New England with all types of pension problems, but tracking down missing pensions is one of its main missions. The organization has recovered more than $58 million in pension benefits for some 9,000 clients since 1994.

On May 5, 2017, the PAC opened Diane’s and Betty’s cases, after Diane mentioned that her sister had worked at Spiegel too. A few months later, Diane received a $11,000 retroactive check in the mail for unpaid benefits, along with her first $200 monthly pension check. Three months after that, PAC resolved Betty’s case, resulting in a $23,000 lump sum and $217 a month.

It took some detective work at the PAC to confirm the pensions and begin the payments. Sophie Esquier, the PAC attorney who handled the Taylors’ case, had to go over the same ground Diane did – but she knew what to ask for. She called the PBGC, which frequently coordinates with PAC investigators to establish retired employees’ pension eligibility and begin paying them.

The PBGC needed proof. As a first step, one of PAC’s summer interns called the Teamsters’ Chicago local to get Diane’s, and, later, Betty’ work records. Armed with the information, Esquier called the PBGC. The same answer came back again: “the PBGC had no record” of the Taylor sisters’ pensions, Esquire said.

The PBGC’s denial of the pension didn’t make sense to her, because “both women worked there for over 10 years.” At that point, she decided to open the sisters’ cases.

The PAC contacted the PBGC again and asked officials there to look into it further. The PBGC went to the U.S. Social Security Administration and was able to establish the sisters’ detailed employment and earnings record on file there. The documents were what the PBGC needed to grant the Taylors their pensions.

Things are still tight for Betty. But the pension, on top of her $1,300 Social Security check, helps. “As long as I pay exactly the bills” and no more, she said, “$217 gives more wiggle room.”

Squared Away writer Kim Blanton invites you to follow us on Twitter @SquaredAwayBC. To stay current on our blog, please join our free email list. You’ll receive just one email each week – with links to the two new posts for that week – when you sign up here.  

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Eldercare: Dealing with Dementia- March 6, 2018 - YouTube

Caregiver in a nursing home can be grueling work, but my aunt loved it. In one of life’s cruel ironies, she died soon after retiring to take care of her husband, who is developing dementia.

The great responsibility for his care fell suddenly on his children and grandchildren, and they’re struggling with it.

I texted this video to a couple of my uncle’s daughters because it provides invaluable information and insight into the myriad causes of Alzheimer’s and the unique way its symptoms manifest in each individual. It also explains why diagnosis by a physician is critical – turns out, some people appear to have dementia, but the cause of their cognitive decline isn’t Alzheimer’s and may be reversible.

The speaker, Tammy Pozerycki, owns Pleasantries, which operates adult day care centers in the greater Boston area. In 1906, Dr. Alois Alzheimer, a brain researcher, first identified and described the disease. “It’s 2018, and we have no cure,” said Pozyercki – placing the burden on caregivers to manage the disease.

Full disclosure: her presentation was sponsored by Boston College’s human resources department for the benefit of employees. This blog is based at the Center for Retirement Research at Boston College.

Squared Away writer Kim Blanton invites you to follow us on Twitter @SquaredAwayBC. To stay current on our blog, please join our free email list. You’ll receive just one email each week – with links to the two new posts for that week – when you sign up here.  

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Different people, different strategies.

Myra Hindus and Jewell Jackson

Myra Hindus of Boston, semi-retired at 68, had her financial adviser estimate the 401(k) withdrawals necessary to support her $4,500 monthly budget, which the adviser also prescribed. But Hindus isn’t fully at ease about her finances, despite the professional advice, a paid-off mortgage, and a good bit more savings than most people have.

“It’s a bunch of guesswork,” said the former diversity administrator and consultant to major universities who hedges her bets by teaching college social work courses.

What overwhelms her are the many unknowns that will determine whether her money lasts as long as she does. What if her adviser is wrong? Or what if she lives well into her 90s – like her mother did? She’s also uncertain of the impact of her younger partner’s coming retirement, which isn’t sorted out yet.

“No one knows when you’re going to die so you can’t base it on that. We’re all in the stock market, and we don’t know what will happen to that,” she said.

Brian Jarvis and Connie O’Brien

Brian Jarvis and Connie O’Brien of Beavercreek, Ohio, also have advantages most baby boomers don’t: small pensions from their former employer, Northrop Grumman, and a mortgage paid off with their private-sector salaries. But they got lucky too. The odds that their withdrawal strategy would succeed improved a few months after they retired, in 2010, when President Obama signed the Affordable Care Act.  The couple, who are too young for Medicare, no longer had to buy expensive private health insurance – access to the government health exchange drastically reduced the expense.

Jarvis feels confident they will continue to be able to fund their $55,000 yearly budget for groceries, dinner with friends, taxes, utilities, vacations, and trash pickup. The predictability of these expenses dictates the withdrawal strategy. “Take out what we need” and no more, he said.

Wrestling with how much to spend is a good problem to have. And although the well-laid plans in the Hindus and Jarvis households could still be derailed by unanticipated events, at least they have a plan – and savings to worry about. More than half of boomers approaching retirement have no money in a 401(k).

For those who do have savings, paralysis is the more common reaction. Much is at stake for typical boomers, who have accumulated just $135,000 in their 401(k) and IRA accounts combined. Is this even enough money to support their standard of living after retiring? If deciding how much of the 401(k) to spend and how fast can be a headache for people in good financial shape, it’s a migraine for boomers with less.

Miscalculations can wreak havoc on retirement finances too. And not many people can do the complex calculations required to find an optimal rate of withdrawal. There’s also the possibility of a devastating event that’s impossible to predict: after the 2008 stock market crash, boomers who’d planned to retire in a few years watched helplessly as a third of their stock nest eggs were wiped out.

One solution to these myriad issues is using retirement savings to buy an annuity, which guarantees a set amount of monthly income for life – but few do it.

To preserve their finite resources, retirement experts recommend that boomers planning their retirement use the strategies that the two households profiled here are using. (Full disclosure: Hindus is a friend of this blogger.)

  • Track spending and review sources of retirement income. The first step, before retiring, is getting an accurate estimate of how much will be required to maintain one’s standard of living into retirement. The second step is calculating whether income from savings plus Social Security and perhaps a pension will be enough to pay basic expenses.
  • Delay Social Security. A monthly Social Security check grows a whopping 76 percent for people who wait to sign up for their benefits at age 70, rather than 62, the earliest age of eligibility. Benefits also increase incrementally for each year they’re postponed.One option is to work longer before filing for Social Security.  Both Hindus and Jarvis decided on a different strategy, albeit one that is unaffordable for most retirees: retire and live off of savings for a few years in order to delay Social Security. Hindus postponed her benefits until last year, after turning 68; Jarvis and O’Brien, 63, will wait until their late 60s.
  • Carefully plan a withdrawal strategy. Ad hoc or reactive 401(k) withdrawals can get retirees into trouble. Many financial advisers recommend the 4-percent rule of thumb for withdrawals. Retirees have decent odds that their money will last if they withdraw an annual amount equal to 4 percent of their initial account balance at retirement, adjusted for inflation.

These steps won’t eliminate the uncertainties but they should reduce the guesswork.

Squared Away writer Kim Blanton invites you to follow us on Twitter @SquaredAwayBC. To stay current on our blog, please join our free email list. You’ll receive just one email each week – with links to the two new posts for that week – when you sign up here.  

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