Squared Away Blog

Some college graduates are so overburdened with student loan payments that they struggle just to stay afloat.  But for those who can make their payments and even save some money, the logical next question might be: when can I buy a house? This is a weighty question for 20-somethings new to the labor force and carrying unprecedented levels of student debt, which puts them at greater financial risk than previous generations of graduates.  Squared Away asked two financial planners from the sensible Midwest – Danielle Schultz and Mark Zoril – to help young adults work through the difficult financial tradeoffs they’ll face as they juggle student loan and car payments, retirement saving, and homeownership. Here’s their advice: Danielle L. Schultz,…

It’s fairly easy to withdraw money prematurely from 401(k)s and IRAs – a practice that depletes roughly one-fourth of account balances over a worker’s lifetime. U.S. workers on average withdraw 1.5 percent annually from their retirement account assets.  When they do, they forgo years of investment gains they could have earned had they left their money alone. Early withdrawals can pose a problem for many Americans at a time financial security in retirement increasingly hinges on these defined contribution plans.  The potential for leakages has also grown in recent years, in part due to the shift away from traditional employer pensions to 401(k)s that place control in employees’ hands.  Further, the assets being held in IRAs, which have more libera…

The Greek poet Hesiod, circa 700 B.C. Saving for retirement is a modern-day imperative, but even the ancient Greek poet Hesiod – quoted in a new study – advised us not to tarry: Do not put off till tomorrow and the day after; for a sluggish worker does not fill his barn. So what about procrastinators, who place more importance on today’s enjoyment than on preparing for the future?  The new study asked whether people with this personality trait make different decisions about retirement saving than non-procrastinators and found that they do. Up to one in five people were procrastinators in the study’s data base of more than 155,000 workers at numerous employers.  The researchers identified procrastinators in the sam…

My financial adviser is smart. She’s ethical. And her special IRS tax certification has come in handy at tax time. So why did I drop her? Fees. Every year, her firm extracted 1 percent of my modest retirement account balance. This is less than some advisers charge, but on top of that I pay between 0.8 percent and 1.2 percent in fees to various mutual fund firms for the mostly stock funds she selected for my investments. These aren’t exorbitant fees, either, for actively managed funds. But when you add this up, I was shelling out at least 2 percent of my account every year. Thanks to fees and my penchant for some international stocks, which were sluggish or declined…

If so many human characteristics are universal, why does something so basic as the household saving rate vary from 10 percent in Belgium to 4 percent in the United States? Traditional economic explanations point to built-in retirement account defaults, government mandates or financial incentives. But UCLA behavioral economist Keith Chen mines the study of linguistics for an unorthodox explanation of the wide global disparities in saving. Discussing his early findings in this new field in the video above, Chen explains one aspect of grammar that may influence saving. To find out what that is, watch the video. This Ted talk was filmed in Edinburgh, Scotland in 2012. ……

Ken Osborne with his mother. Ken Osborne became vigilant about safeguarding his 81-year-old mother’s savings as her memory loss set in. She often failed to recall what she’d said during frequent, unsolicited phone calls from people prying into her personal life and financial affairs. “She’s vulnerable,” Osborne, a resident of Jacksonville, Florida, says about his mother who lives 140 miles away. Osborne took preventive action. He signed his mother up for a debit card funded by, but segregated from, her primary bank account.  Osborne maintains a $500 balance in the card account, giving his mother the freedom to spend her own money – whether for groceries or a church excursion to North Carolina – while giving him control of t…

The tax landscape shifts suddenly when most Americans leave the labor force to retire.  The single most important thing to remember is that income taxes can fall dramatically, because retirement incomes are typically lower and because all or a portion of your Social Security benefits will be tax-exempt. This was among the tax insights supplied by Vorris J. Blankenship, a retirement tax planner near Sacramento, California, who has just finished the 2015 edition of his 5-inch thick “Tax Planning for Retirees.”   The following is an edited version of tax information he supplied to Squared Away: Lower taxes in retirement. Brian and Janet are a hypothetical couple renting an apartment in Nevada, a state with no income tax. In 2013, Brian…

The interactive chart above illustrates the increasing U.S. disparity over the past 50 years between how much wealth the rich own – shown on the right side of the chart – and everyone else on the left. The vast majority of Americans build wealth week by week, saving a little bit of their paychecks. Workers set aside wealth in less obvious ways too, by contributing some of that paycheck to Social Security and possibly paying down a mortgage. Differences in earnings add up over a lifetime and contribute to how much wealth people are able to accumulate.  This is explored in the Urban Institute’s series of nine charts, including the one above. Take the earnings trend over a half century…

Retirement is a joint project for married couples, but remarkably only 43 percent of couples plan for it together. Are wives to blame? Some husbands expressed frustration that their wives don’t engage in planning during a focus group conducted by Hearts & Wallets. One man reported that his wife “is not interested in investing,” and another said “all my wife cares about is if we’re going to have the money.” A San Francisco man volunteered this worst-case scenario: “If I were to get hit by BART on the way home, she would be clueless about what to do with whatsoever there is or how to handle anything.” Hearts & Wallets cofounder Laura Varas calls it the issue of the “uninvolved…

In this video by KUTT-TV in Anchorage, Alaska, Fred Keller and Judy Foster show off their retirement project: they transformed a 1976 pickup truck into an oversized replica of a Radio Flyer wagon they can drive around town. While a new red wagon isn’t for everyone, it illustrates an important point: retirees need to find ways to remain active. Older people warn that retirement shouldn’t be viewed exclusively as a time to “relax,” a well-deserved break.  People who enter retirement expecting nirvana often find they’re bored stiff, or even depressed, due to an abrupt drop in productivity after decades of working. Retirees also spend a lot of time alone or watching television. This blog often promotes the benefits of financia…

Americans build wealth as they age, and this pattern of accumulation has been similar over three decades of U.S. Survey of Consumer Finances data collected by the Federal Reserve. In the chart below, net wealth is expressed in terms of annual incomes for ages 20 through 64; for example, someone with $150,000 in wealth and $50,000 in income has a wealth-to-income ratio of 3. Net wealth equals financial assets such as 401(k)s and housing, minus debt and mortgages; income includes employment earnings and investment gains.  This measure does not include Social Security or defined benefit (DB) pensions. The stability of this wealth-to-income ratio over 30 years may, at first glance, be comforting.  But it shouldn’t be – wealth should hav…

Anger, frustration, confusion, and regret – high emotion permeates the nearly 8,500 complaints about student loans posted last year on the Consumer Financial Protection Bureau (CFPB) website. A college education can pay dividends in the form of higher lifetime earnings and more opportunities, and millions of graduates repay their loans without incident. But many of the one in three borrowers facing extreme difficulty with repayment have legitimate reasons. The job market, while improving, is not robust for recent graduates. And interest rates on student loans are higher than mortgage rates, so the amount of debt accumulated – and the monthly payments – can be substantial. Borrowers report that lenders and the firms hired by lenders to service customers are often unwilling to renegotiat…