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Tami Fincher dives into projects head first. Two years into a 5-year plan to retire early in Central America, her short list – so far – is Boca Chica and El Valle de Antón, in Panama, and Guanacaste Province, in northern Costa Rica.

She and husband Stephen Fincher are making their plans to join the growing number of Americans-turned-expatriate retirees. In 2016, more than 603,200 Social Security checks were mailed to retirees, their spouses and widows living abroad. They are moving as much for the adventure as for the lower cost many countries offer.

An exotic retirement isn’t for everyone. Even if they could save on living costs, people who’ve never been keen on international travel might prefer to remain close to home and grandchildren.   But the baby boomer wave is pushing up the number of U.S. retirees living abroad – by 11 percent in five years, according to the U.S. Social Security Administration, which tracks its pension checks sent overseas. Ex-pat’s favorite countries include Japan, Mexico, France, Thailand, and Colombia. (More are listed on the next page.)

To assess the pros and cons of Costa Rica vs. Panama, the Finchers made their first exploratory trips, to Costa Rica last June for their 20th anniversary and to Panama over the New Year’s holiday. If Tami, age 53, has her way, they’ll retire in about three years and sell their Houston home to relocate.

Steve, 57, would like to work at least one year after that.  He’s a dog person, so much so that he got a job 13 years ago selling invisible electronic fences to keep dogs from wandering away from home. He feels this is important work and wants to keep doing it.

But both agree on this: it would be fun to get away. Tami’s employer, an international oil company, once stationed her in Paris for a year. She also has worked for short periods in Belgium, Venezuela, Singapore and Bolivia.  As a world traveler, she knows it is essential to carefully plan such a dramatic change. “I read about people changing their minds after they move, because they didn’t plan.”

But it’s okay, too, if they move to Panama or Costa Rica and things don’t work out. They’ll try another country – why not Ecuador? Once they leave the United States, “we’re going to be gone,” Steve said, as will their Labradoodle, Labrador-Pit Bull mix, and Black-mouth curs.

While money is not their sole motivation, a much lower cost of living abroad will facilitate their early retirement. Experts generally encourage baby boomers to work as long as possible to put themselves in the best financial position in retirement.

Aware of the risk, the couple wisely consulted a financial adviser extensively to make a sound plan.  “If something catastrophic happens, I believe we can learn to live without,” Tami explained. “Some of the happiest people live with much less!”

She has a traditional pension, and together they’ve saved “more than the average American” in their 401(k)s and IRAs, she said. “We didn’t have kids or college or cars to buy.”  They’re being smart about Social Security and will delay filing for their benefits until they’re at least 68. Claiming benefits at 70, rather than 62, increases the size of monthly Social Security checks by 75 percent.

On the other side of the money equation is Central America’s low living costs, particularly for medical care. As International Living Magazine explains about Panama, “you can find the best of care at a fraction of what you’ll pay back in the U.S. Your doctors will often speak English, and they are far easier to access than back home, too.”

Tami’s research indicates they can buy health insurance for $80 a month in Costa Rica. In Panama, paying for medical care out-of-pocket would be cheaper than, for example, staying in Texas and signing up for post-employment COBRA health benefits for the 18 months allowed under federal laws.

The Fincher’s bottom line: lower expenses mean more fun. Steve expects to “drastically” cut their spending by relocating, without sacrificing a comfortable lifestyle. He likes to fish and belongs to a shooting club, activities he’ll continue overseas. Tami enjoys off-road cycling, and they both hike and want to “hop around to Ecuador or Columbia or Peru,” she said.

(Tami made a video of their Panama trip on YouTube.)

Steve does worry about getting bored in such small towns, after 18 years in Houston. While they are planning to stay abroad for the long term, they’ve agreed to come back together if either doesn’t like living overseas.

On their trip to Panama, they learned that the fishing village of Boca Chica is “nature’s haven. Beautiful, water, the scenery, the green,” Tami said. El Valle, nestled in the mountains, is cool though not cold. It’s also a larger town with amenities like coffee and bicycle shops and a two-hour drive to Panama City.

Panama is “completely different” from Costa Rica, she said. Whatever country they choose the Finchers view living abroad as their own version of paradise.

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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I was honored to be in the company of some excellent retirement writers recognized in a recent article in The Wall Street Journal, “My Favorite Writers on Retirement Planning.” Since I started writing this blog in May 2011 for the Center for Retirement Research, which is funded by the U.S. Social Security Administration (SSA), retirement writers have come out of the woodwork to help the swarms of retiring baby boomers – and many of us need it!

Others featured in the article by the Journal’s Glenn Ruffenach – some new, some veterans – include financial planner Michael Kitces, whom I’ve interviewed about tax strategies for retirement plan withdrawals. Most everyone knows Jonathan Clements, a former long-time Journal reporter now editing and writing a blog. Last but not least were Ruffenach’s No. 1 and No. 2 blogs: Mike Piper, a certified public accountant – someone to interview! – and Christine Benz of Morningstar, a Chicago firm that is a long-time source of data and information for this blogSquared Away came in at No. 3.

Each blogger is distinct. So, what do we try to do here at Squared Away?

  1. We’re part of a Boston College research institute, so research, including though not limited to SSA research by scholars around the country, is critical to our mission. At its best, research eliminates the mystery about things retirees and retirement planners care about to help ensure that we’re making the right decisions.
  2. Our research institute is fiercely independent, and so is this blog.

    Financial institutions, experts, and writers trying to sell retirement products and services inundate boomers with information online, on television, and in advertising. The desire to sell can get in the way of reliable advice, particularly in the personal finance blogosphere. Squared Away is not selling anything and does not accept advertising or paid content.
  3. Finally, thanks to being a veteran reporter who covered the economy and financial industry for The Boston Globe, I was able to meet Ruffenach’s requirement for writing “clearly and frequently.” Squared Away publishes every Tuesday and Thursday.

 
I hope you’ll sign up here for our once-weekly alerts with the week’s two headlines. For those who already have, thank you for reading!

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Baby boomers have limited time and only a few options to improve their financial prospects when they retire and give up a regular paycheck. Millennials have more time to do something about it.

They should start thinking about it, indicates a study by the Urban Institute’s Richard Johnson, Karen Smith, Damir Cosic, and Claire Xiaozhi Wang.

Their test of a comfortable retirement was set at a 75 percent replacement rate, meaning retirees need 75 cents in monthly income for every dollar earned in their final decade of working. For this analysis, the researchers estimated retirement income at age 70 – an age when most people have already retired – for every individual in the federal data sources used in their analysis.

They found that about a third of boomers and boomers’ parents don’t have enough retirement income to make that 75 percent cutoff. Millennnial households will be significantly worse off at age 70: nearly half are at risk.

The prospects for Millennials are “discouraging,” the researchers said.

A new analysis of Millennials’ current and future financial health by the Center for Retirement Research, which sponsors this blog, finds similar results about their retirement, concluding that they are “less well prepared” than older Americans.

To compare each generation’s financial outcomes, they plugged the myriad factors that determine personal wealth into an Urban Institute model – from marriage and homeownership rates to home equity levels. The analysis hinged on making a lot of difficult assumptions accurately.

One advantage Millennials have is higher rates of college graduation. This could improve their future labor market prospects and make it increasingly easy to save for retirement.

But here’s another concern: the researchers presented the case for the “typical” Millennial. Unfortunately, less-educated, low-income, single or minority Millennials are likely to do even worse.

The research reported herein was performed pursuant to a grant from the U.S. Social Security Administration (SSA) funded as part of the Retirement Research Consortium. The opinions and conclusions expressed are solely those of the author(s) and do not represent the opinions or policy of SSA or any agency of the federal government. Neither the United States Government nor any agency thereof, nor any of their employees, makes any warranty, express or implied, or assumes any legal liability or responsibility for the accuracy, completeness, or usefulness of the contents of this report. Reference herein to any specific commercial product, process or service by trade name, trademark, manufacturer, or otherwise does not necessarily constitute or imply endorsement, recommendation or favoring by the United States Government or any agency thereof.

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This milestone must be noted: about half of baby boomers are now over 62 and can claim their Social Security benefits.

The year 1955 was the midpoint for the post-World War II population explosion – boomers born in 1955 will turn 63 sometime this year.

This marks the time to take stock of differences between the old boomers (born 1946-1955) and young boomers (1956-1964).  Of course, Social Security eligibility doesn’t automatically mean retirement, and boomers of all ages are retiring later than their parents.  Today, only around a third of 62-year-olds file immediately for Social Security benefits – it was closer to half for the oldest boomers. The downward trend should continue.

But a yawning difference between the two boomer groups is their vastly different stages of life.  Those born in the late 1950s and early 1960s are still working full-time. Entrenched in work, they have several years to go to retirement – their big challenge is having enough time to prepare financially.

The oldest boomers, now in their late 60s and early 70s, are already retired. They can take great joy in their grandchildren, which most have. That’s a comforting antidote to sobering thoughts like whether my financial affairs are in order (just in case), who will take care of me when I no longer can, and how do I want to spend my final years or days?

The good news is that baby boomers are healthier than any previous generation and will live longer. Old and young boomers still have lots to enjoy.

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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Financial experts and writers often tout the Roth 401(k)’s main selling point: when the money is withdrawn in retirement, it won’t be taxed.

Well, that’s not entirely true.

An employee’s own money saved in his Roth account over the years is, indeed, shielded from income taxes when he retires and starts pulling out the money. That’s because the worker had paid the taxes before he put the money into the Roth – and the investment returns on those contributions.

But employer contributions to Roths are different. Employer contributions and any resulting investment earnings are taxed as income in the year that the money is withdrawn.

“Most everyone I talk to is shocked by this and surprised,” said CPA Sean Stein Smith, a business and finance professor at Lehman College in New York. Understanding the difference between the two types of savings plans offered to employees – Roth versus regular 401(k) – is already complicated enough, he said, and the tax distinction only adds to the confusion.

The reason withdrawals of employer contributions to Roths are not exempt from income taxes is because they are no different than employer contributions to regular 401(k)s. They are another form of income, just like your hourly wages. However, no taxes are deducted from a worker’s paycheck for Roth and regular 401(k) contributions when the employer puts them into the account. So the worker eventually has to pay the taxes – they are simply being delayed.

The next logical question is, how do you know how much you owe in taxes? What if you withdraw retirement income from both a Roth and a traditional 401(k) over the course of a year?

Figuring out the tax bite “is not your problem,” said Jaleigh White, CPA for a Louisville, Kentucky, investment firm and member of the National CPA Financial Literacy Commission for the American Institute of CPAs.

Retirees with two accounts decide which one to withdraw money from. But the investment firm administering and investing your 401(k) is responsible for tracking the returns and contributions to each account and can immediately estimate how much you would owe in income taxes, depending on which account the money comes out of. In the case of the Roth, the taxes hinge on whether it is coming out of the employer or employee side of the equation.

Smith nevertheless advises retirees to plan their 401(k) withdrawals ahead of time, to make sure they know what the taxes will be.  An accountant can estimate and compare the impact of different withdrawal strategies in the upcoming tax season, based on where the money comes from, he said.

If “you don’t want to be surprised” at tax time, Smith said, plan ahead.

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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Mothers often work less because, well, they’re also moms.

Still, they generally work consistently enough to qualify for Social Security pensions based on their own earnings records – rather than on their husbands’, as was common when more women were full-time housewives or worked just a few hours a week while the kids were at school.

Yet today’s working mothers do take a hit to their earnings when they temporarily reduce their hours or take a hiatus from work for childcare. The upshot of lower earnings is less Social Security income later for mothers, according to a new study by researchers for the Center for Retirement Research (CRR supports this blog).

The researchers, Matt Rutledge, Alice Zulkarnain, and Sara Ellen King, used data on all older women – married or single, mother or not.  First, they confirmed past studies showing that the typical mom earns about $2,760 per month – or 28 percent less than a childless woman earns. Having two children translates to nearly 32 percent less income, and three children, to 35 percent less. (The analysis adjusts for some things – education is one – but not all the factors that distinguish mothers from non-mothers.)

Mothers’ lower Social Security benefits reflect this earnings penalty, though by a smaller percentage.  Mothers’ benefit checks are 16 percent less than women who had no children to care for.  Benefits are also lower if they had more children – by 18 percent for two children and nearly 21 percent for three.

Mitigating the impact on mom’s benefits are the Social Security program’s progressive calculations for lower-income workers and the spousal benefit for moms who work part-time or not at all. A spousal benefit, equal to half of a working husband’s benefit, is almost like a bonus to them – even the stay-at-home moms receive it, though they don’t have a work history.  Nevertheless, mothers overall do receive lower benefits.

Many European countries have addressed this disparity.  Policies under the federal social security systems of Portugal, Spain, Austria, and Sweden, for example, give mothers (and sometimes fathers) earnings credits for time spent out of the labor force during pregnancy and child-rearing. The credits apply when it’s time to calculate their retirement benefits. Similar proposals for the United States haven’t gotten very far.

While nothing may be more rewarding than motherhood, smaller retirement benefits are a reality in this country.

The research reported herein was performed pursuant to a grant from the U.S. Social Security Administration (SSA) funded as part of the Retirement Research Consortium. The opinions and conclusions expressed are solely those of the author(s) and do not represent the opinions or policy of SSA or any agency of the federal government. Neither the United States Government nor any agency thereof, nor any of their employees, makes any warranty, express or implied, or assumes any legal liability or responsibility for the accuracy, completeness, or usefulness of the contents of this report. Reference herein to any specific commercial product, process or service by trade name, trademark, manufacturer, or otherwise does not necessarily constitute or imply endorsement, recommendation or favoring by the United States Government or any agency thereof.

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This New Yorker cartoon by Trevor Spaulding is cute, but – spoiler alert – it’s not quite right.

A company offering a 401(k) retirement savings plan to its workers is a good thing, but it’s no “favor,” noted my long-time editor Steve Sass, an economist with a hawk eye for inaccurate retirement information. Setting up and funding a 401(k) is a big expense for employers. But many think it is worthwhile, because 401(k)s – and, more so, employers’ matching contributions – help them attract and retain the sharpest, most productive, or most-skilled workers.

Another employer calculation is that the income tax deduction employees get for saving, which costs the employer nothing, is especially valuable for those on the payroll who earn the most money and, by definition, pay more taxes.  It’s a neat outcome that the tax deduction most helps those presumably doing the most for the bottom line, though the government does limit how much highly compensated employees can contribute based on how much the rank-and-file workers are contributing.

But, it’s no fun to criticize a cartoon!

To follow Squared Away in 2018, 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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Lenny Higginbottom

A social worker hands Lenny Higginbottom, 52, the keys to a 378-square-foot apartment, the first home of his own after 24 years on the streets.

“Try to fight the tears,” he says, gripping the keys during a video accompanying a story by Boston public radio (WBUR) reporter Lynn Jolicoeur. “Something I thought I’d never be able to do,” Higginbottom says.

His past issues are not uncommon among the homeless: a father who died when he was six, depression, substance abuse, and a failed marriage. He had a Section 8 housing voucher but couldn’t find a landlord willing to rent to him due to minor criminal activity in his past.

But, as the article explains, there are good things, including a childhood in the Dorchester neighborhood of Boston that was fun to grow up in.  He cut a record as a rap musician once, and a judge told him that his smarts could keep him out of prison.  Higginbottom, according to a staff person at a Boston homeless shelter quoted in the story, has done some serious personal work to qualify for the apartment. Housing for the homeless is in short supply and goes to the most deserving.

Like him, a friend of my family who has fallen in and out homelessness for at least a decade was recently given an apartment. But her self-destructive ways have sucked her back in, and she is losing the apartment – and her precious second chance.

It’s a good time of the year to appreciate what people like Higginbottom have accomplished and find ways to support them.

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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Disney War Propaganda - Donald Duck Tells You To Pay Your Taxes (1943) - YouTube

This Donald Duck cartoon, funded by the U.S. government in 1943, urged Americans to pay their income taxes to support the war effort. Paying taxes was a patriotic act, to build up the inventory of war planes and battleships to defeat the Nazis – “sink the Axis!” the narrator bellows.

Nobody liked paying taxes then, and they still don’t. Yet there was a growing awareness as the war played out in the 1940s that taxes – like saving your scrap metal – were necessary to advance the greater good.

Things are different today. There doesn’t seem to be as much room in the public conversation for the benefits that federal taxes bestow, such as Social Security, Medicare, Medicaid (nursing home funding) and the Part D prescription drug benefit for retirees, or for government investments in education, roads, and research – or about who would suffer more if deprived of these benefits.

“Most people who do in fact receive significant forms of economic security from the federal government don’t know it,” argued Molly Michelmore, an economic historian at Washington and Lee University, in a recent interview on New York public radio.

It might be more accurate to say we sometimes take our social programs for granted. After all, Congress passed Medicare way back in 1965, when baby boomers were in grade school or high school. The automatic annual cost-of-living increases for Social Security started in 1975 – the program was initially signed into law way back in 1935.

On the other hand, the public values its government benefits when lawmakers try to retrench, as seen during the recent debates over repealing the Affordable Care Act. The New York Times would soon report, health insurance enrollments “blow past prior years” on Healthcare.gov.

The bottom line: we value our benefits, but paying the price is a different matter. Indeed, three out of four Americans in a 2011 Gallup poll said the federal government “is spending too much on government programs.” Occasionally, a strong pro-spending consensus emerges. Echoing the 1940s war effort, President George W. Bush’s establishment of the Department of Homeland Security was a very popular response to terrorism on September 11, 2001, the worst attack on U.S. soil since Pearl Harbor.

Lawmakers and others have legitimate concerns about the increasingly expensive Medicare and Social Security programs, which are running long-term financing shortfalls. This brings us to the tax cuts winding through Congress now. Proponents advance a “supply side” argument: lower tax rates will put more money into investors’ and businesses’ hands and generate sufficient economic growth to offset the cuts.

But to the extent that the cuts increase the federal deficit, they will increase the pressure to curb Social Security and Medicare spending.

Perhaps the risk of reductions in these middle-class programs will shift the narrative back to more appreciation for how taxes, while unpleasant, benefit our lives.

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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Latinos Overcoming Barriers Toward Financial Empowerment | Javier G. Torrijos | TEDxWilmingtonSalon - YouTube

Reflecting a lofty ambition to educate Delaware residents about financial management, state government officials put together some terrific videos.

This is not high-level finance – the speakers tell stories about real people facing up to the dimensional challenges of money and retirement.  Viewers outside Delaware might find one of the 10 online Tedx talks valuable to them. Here are three:

Javier Torrijos, assistant director of construction, Delaware Department of Transportation:
His take on the immigrant experience in a nutshell: “The parents’ sacrifice equals the children’s future,” said Torrijos, who has two sons and whose own father left Columbia for a tough neighborhood in Brooklyn, New York, in 1964 so his children would have a shot at escaping poverty. Today’s immigrants are no different. But the pervasive ethos of family above all else, he argues, is responsible for some of the Latino immigrant community’s financial instability.

When required to make the impossible choice between going to college or straight to work to support family, family usually wins. “That mentality still exists” but needs to change if Latinos are to improve their lot, he said.

Susan Getman, deputy director, $tand By Me Delaware financial education program, and Anna Maria Chávez, chief strategy officer and senior vice president, National Council on Aging:
This blog’s readers should be familiar with the difficulties workers face in saving for retirement, from a shortage of employers offering 401(k)s to longer life spans and more time in retirement. Getman and Chavez give one piece of advice to workers and another to retirees: “start putting in time and effort” into retirement planning; and look for financial aid when retiring.

They described one older man who regained his independence after seeking help through his local senior center – these are “not just places where older people play bingo,” Getman said. After the man, a former Harlem Renaissance makeup artist, retired, he had reluctantly moved into his son’s place. But then his senior center connected him with an adviser in Delaware’s Stand by Me program who found him meal assistance and another $1,000 a month that he was eligible to receive from Social Security. The man moved back into his own apartment.

Karen Odom Walker, cabinet secretary, Department of Health and Social Services:
Credit card bills at the beginning of the school year, cable and Internet, car payments, the orthodontist, stagnation at the bottom of the wage scale, and expensive medical care – “your list,” Walker said.

Walker, a family physician, illustrated the strong links between health and money by recounting an extreme situation. Her former diabetes patient couldn’t always afford housing. When she couldn’t stay at a friend’s, she slept in a shelter that had no refrigerator available to store her insulin.

Poor people die younger. Debt is known to cause stress. Financial struggles cause blood pressure to rise. “Don’t let anyone tell you that your financial health doesn’t have anything to do with the health of your family,” the doctor says.

The remaining videos address the racial wealth gap, the job market, the path to homeownership and neighborhood revitalization, and “the three c’s of financial grit.”

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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