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Guest Blog Author: Tom Hawkins, Retirement Clearinghouse

As May ends and we observe the close of Older Americans Month, a time to recognize the role that older adults play in society and their many contributions. This year for the first time, the U.N. released figures showing the world has more older people than younger children -confirming the arrival of a long widening global trend.

For younger working women, Older Americans month offers a rare reminder and planning opportunity to consider how certain life defining decisions will determine how they will pay for their increasing longevity. Today by age 85+, two-thirds of the elderly are women, and many are living alone.

It’s an ideal time for younger women to consider if their future as “older Americans” is financially secure or may be filled with regret. Unfortunately, regret will likely haunt millions of younger women who prematurely cash out their 401(k) savings.  Not only are these women potentially sacrificing their retirement security, but research also reveals they’ll regret these decisions more than men, and that regret will continue to grow over their longer lifespans.

Each year, 5.9 million American women enrolled in 401(k) plans will change jobs.  2.4 million, or 41%, will cash out completely.  For younger women, the outcomes are worse.  According to the Employee Benefit Retirement Institute (EBRI), women ages 25-34 will change jobs every 2.7 years, and for women with 401(k) balances less than $5,000, cash out rates soar to 71%.

For example, a typical 25-year old woman could change jobs three times prior to age 34 and cash out two of her first three 401(k) balances.  At 34, she would preserve only $5,100 in retirement savings, which will yield just $13,900 in savings by age 67.  In contrast, had she avoided cashing out, she would have $83,700 at retirement.

Figure 1: Illustration of the Effects of Cashing Out, Women Ages 25-34

Source: Retirement Clearinghouse / EBRI Webinar (EBriefing: Trends in Employee Tenure, 4/10/19)

In 2015, a survey by Boston Research Technologies revealed that cash out regret is real and increases over time.   36% of Millennials who’d cashed out already regretted their decisions, rising to 46% for Gen-Xers, and to 53% for Baby Boomers.  The survey also found that women experience much higher levels of cash out regret than men, particularly among Millennials, where 46% of women regretted cashing out, vs. 30% of men.

Cashing out a 401(k) balance is one that women should avoid unless you’re facing a true financial emergency.  Consolidating your retirement savings as you move from job-to-job, will not only preserve your savings, but will simplify your retirement planning, reduce fees and motivate you to save even more.  Finally, auto portability, is a new plan feature designed to automatically move small-balance retirement savings forward, and should help 401(k) participants changing jobs.

Preserving retirement savings in your 20’s and 30’s will put you on the way to a secure, and comfortable retirement, and ensure that you don’t have to live with those regrets.

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Half a century ago, President Lyndon Johnson signed the nation’s first formal recognition of Latino/Latina culture, history, and contributions by declaring Hispanic Heritage Week in the United States. Twenty years later, President Ronald Reagan reaffirmed the importance of this celebration by expanding it to a full month, from September 15th through October 15th. Today, nearly 59 million people in the U.S. – over 18% of the total population – are of Hispanic origin.[1]

As we honor the extraordinary cultural and historic contributions of Latinos/Latinas, however, it’s important to acknowledge the many social and economic barriers that exist – particularly Latinas. For example:

*  Nearly one in three (30.9%) Latinas works in service occupations, which traditionally are lower paid;[2]

*  A Latina worker earns just 53 cents for every dollar earned by a White man[3]

*  Roughly two-thirds (65%) of Latinas work for employers that don’t sponsor retirement savings plans[4]

*  Just one in five Latinas is covered by a private pension[5]

*  Almost three-fifths (58%) of Latinas have no retirement income from savings and assets.[6]

The result? Nearly one in five (19.8%) of Latinas aged 65 and over lives in poverty.[7]

And, because Latinas age 65+ have longer life expectancies than the majority of the U.S. population, they are likely to experience worse poverty, for a longer period, than most other Americans. Retirement planning is important for all of us, and it is especially essential for Latinas.

The Latina Savings Project

That is why WISER is collaborating with MANA—A National Latina Organization on the Latina Savers Project. With funding from the AARP Foundation, the demonstration project is designed to support low- and moderate-income Latinas in developing a habit of saving for retirement through education and hands-on access to savings accounts. WISER and MANA are partnering with community-based Latina organizations in Baytown, Texas; Albuquerque, New Mexico; and Topeka, Kansas, with plans to expand to other communities.

The project helps participants open savings accounts and begin to contribute what they can afford, with added opportunities for matched savings contributions. The project also provides culturally-specific workshops that focus on the importance of saving and offer practical advice about how to get started.

The goal of the project is to help improve the long-term financial security for its participants. Ideally, a successful outcome will help jump-start other efforts to increase Latinas’ retirement savings. More information about the project will be available soon at www.wiserwomen.org.

[1] https://www.census.gov/newsroom/facts-for-features/2018/hispanic-heritage-month.html

[2] https://factfinder.census.gov/faces/tableservices/jsf/pages/productview.xhtml?src=bkmk

[3] https://iwpr.org/publications/gender-wage-gap-2017/

[4] WISER, “Latinas and Retirement: Just the Facts”

[5] WISER, “Latinas and Retirement: Just the Facts”

[6] WISER, “Latinas and Retirement: Just the Facts”

[7] https://nwlc.org/wp-content/uploads/2017/09/Poverty-Snapshot-Factsheet-2017.pdf

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Did you become eligible for Medicare Part A on or after March 1, 2013?  Did you keep your Affordable Care Act (ACA) health coverage instead of enrolling in Medicare Part B and then discover there were penalties for keeping that coverage?

You have until September 30, 2018 under a special program which lets Medicare Part A beneficiaries sign up for Medicare Part B without late enrollment penalties.

Who is eligible?

Medicare beneficiaries who were covered by a qualified health insurance plan and who are not enrolled in Medicare Part B are eligible. Perhaps you turned down Medicare Part B coverage or dropped it because you thought ACA qualified health coverage was more affordable.  If so, what you did not realize is that you would lose the benefits of ACA coverage because of your Medicare eligibility.  And, you will face Part B higher coverage costs for life.

What does the special relief provide

It provides a special enrollment period that allows individuals to enroll in Medicare Part B without facing lifelong enrollment penalties. This ends September 30, 2018

If individuals have Part B coverage now but are paying late enrollment penalties, special relief would end the penalties.

Apply for special equitable relief to enroll in Medicare Part B and/or to eliminate your Part B enrollment penalties.

Call the Social Security Administration (SSA) at 800-772-1213 or go to www.ssa.gov to find a local Social Security office that you can visit in person

Once at the office or on the phone with a representative, request special “equitable relief” to enroll in Part B and/or eliminate your Part B penalties.

Do this BEFORE SEPTEMBER 30, 2018!

Visit the Center for Medicare and Medicaid Services to learn more about enrolling in this special program.

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Guest author: Tom Hawkins, vice president of sales and marketing with Retirement Clearinghouse

At a recent Women’s Institute for a Secure Retirement (WISER) roundtable addressing strategies, choices and decisions for women’s retirement income, important new data was presented that highlights the challenges faced by women in preserving their 401(k) savings when changing jobs – particularly for women with balances less than $5,000.

Compiled by Retirement Clearinghouse (RCH) and presented to the WISER roundtable by RCH EVP Tom Johnson, the data indicates that women with small 401(k) balances cash out much more frequently than their male counterparts.  However, as women’s 401(k) balances grow, they become more likely than men to preserve their retirement savings.

These behaviors, along with the results of the Auto Portability Simulation, suggest that a program of retirement savings portability could incubate women’s small 401(k) balances, allowing them to more effectively grow their savings to higher balance levels, where more virtuous behaviors prevail.

An infographic summarizing the statistics is available for download at this link.

Women’s Cashout Leakage By-the-Numbers

Using a multi-disciplinary approach that incorporated industry research on cashout leakage, women’s representation in defined contribution plans, participant turnover rates, the Auto Portability Simulation, the EBRI/ICI 401(k) database and the EBRI Retirement Security Projection Model®, the results provide a model of women participants’ post-separation job-changing and cashout behaviors.

  • Based on Vanguard research, women collectively represent about 40% of all defined contribution plan participants.
  • Each year, an estimated 5.9 million women participants will change jobs.
  • Of these 5.9 million women job-changers, approximately 2.4 million, or 41% will cash out $28 billion in retirement savings, paying taxes and penalties.
  • 2.1 million, or 36% will have balances less than $5,000. Of these, 1.5 million – a whopping 71% — will cash out $2.6 billion in savings.
  • Over a generation, 104 million women will cash out almost $800 billion in retirement savings, in today’s dollars.

Drawing upon a 2015 survey by Boston Research Technologies, the RCH data also revealed that, at sub-$5,000 levels, women of all ages tended to cash out at much higher-levels than their male counterparts, as indicated in the graph below.

 

Chart 1 – Women’s Odds of Cashing Out Small Balances
Source: Actionable Insights for America’s Mobile Work Force, Boston Research Technologies (2015)

The Promise of Portability

A more promising data point was revealed in a 2011 study by Aon Hewitt, indicating that women – at higher balance levels – were more likely than their male counterparts to preserve their retirement savings from job-to-job.  This finding seems to mirror other research (ex. – The $10,000 Hurdle, Northern Trust, 2017) suggesting that efforts to move participants’ balances to higher thresholds can act as an effective deterrent to cash outs.

In preserving and incubating women’s small 401(k) balances, auto portability delivers.

Incorporating the results of the Auto Portability Simulation, the RCH figures show that, on an annual basis, auto portability would preserve the savings of 1 million women participants.  Over a generation, 42 million women would preserve their retirement savings, worth about $365 billion in today’s dollars.

While the systemic results of auto portability are impressive, its effect at an individual level is equally impactful.

The RCH analysis depicts the individual impact of preserving 1-3 $5,000 balances over the course of a career.  As the figure shows below, preserving just one $5,000 balance at age 25 can result in $70,000 in retirement savings, whereas three $5,000 balances preserved over the course of a career could result in an additional $123,600 in retirement savings.

Figure 1 – Value of Preserving $5,000
Source: Retirement Clearinghouse

Taken together, the new data presented at the WISER roundtable demonstrate that by reducing cashouts, consolidating balances and achieving higher balance levels, women could benefit disproportionately from the widespread adoption of auto portability.

Tom Hawkins is vice president of sales and marketing with Retirement Clearinghouse, and oversees all key operational aspects of this area, including RCH’s web presence, digital marketing and plan sponsor proposals. In other roles for RCH, Hawkins has performed product development, helped lead the company’s re-branding, evaluated and organized industry data and makes significant contributions to RCH thought leadership positions.

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Every May, WISER is pleased to partner with organizations across the country for Older American’s Month, led by the Administration on Aging, part of the Administration for Community Living. The 2018 theme, Engage at Every Age, emphasizes that you are never too old (or young) to take part in activities that can enrich your physical, mental, and emotional well-being. It also celebrates the many ways in which older adults make a difference in our communities.

Here at WISER, we believe wholeheartedly in the message of Older Americans’ Month—that no matter your age, you have unique benefits to offer to society, your loved ones and yourself. Even if you are no longer working, there are ways to stay engaged with the world around you. Doing so keeps you connected to others and keeps you alert—which is a good thing for your finances. The more isolated you are, the more susceptible you can become to financial scammers, who are likely to prey on older Americans.

A great way to stay engaged with others is by sharing the financial lessons you’ve learned throughout your life. WISER’s website is filled with resources that make doing so easy. For example, WISER has dozens of fact sheets that cover the basics on many topics. They can be a helpful guide for talking to others about money. For example, here’s a list of 5 things mothers should tell daughters about money and retirement. Other resources are aimed at younger people, like “The Beginner’s Guide to Saving and Investing.” It can provide a framework for an initial conversation talking to the teenagers and young adults in your life about the importance of long-term planning. If you know a young person planning for college, talk them through“Student Loans 101” to make sure they know exactly what to expect if they plan to take out loans.

For those who aren’t quite ready for more advanced money topics, WISER created a storybook called Sonja Meets Her Future Self.  The book is available for free download or can be ordered directly from WISER.  In the story, a young girl named Sonja travels forward in time and meets future versions of herself. Along the way she learns about the importance of saving and what it means to be retired. This booklet provides a multi-generational look at retirement planning and the valuable lesson of save, spend and give.

In addition to teaching others about financial lessons, another great way to stay engaged is through volunteer work. Doing so can keep you busy during retirement and is often an activity that is free of cost. Websites like volunteermatch are a great starting point. Your local library is another great resource to find community groups that will keep you engaged.

WISER believes that financial security is tied to better physical, mental and emotional well-being. Stay engaged during Older Americans Month (and year-round) with our resources.

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