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Thursday, August 15, 2019

Retirement Catch-Up Strategies-Part 1

It is not uncommon for people to get a late start on their retirement savings. When they get older, or do an online calculation such as the Ballpark Estimate, they realize that they have a lot of catching up to do.

What to do? There are basically two courses of action: save more before retirement and/or spend less after retirement. Below, in Part 1 of this two-part blog series are six ways to save more before retirement:

¨      Increase Retirement Savings- Raise the percentage of your pay that is put into a tax-deferred retirement saving plan such as a 401(k). Even a 1% boost can make a big difference over time.

¨      Spend Less and Pay Off Debt- Reduce expenses, especially “discretionary” items such as food, clothing, and entertainment, and redirect this money to savings.

¨      “Moonlight” for Additional Income- Look for ways to earn extra income through “side hustles” and save all or part of this income for retirement.

¨      Invest More Aggressively- Increase the percentage of your investments in stock or stock mutual funds. You will take on more risk but will also have the potential for a higher long-term return vs. cash assets and bonds.

¨      Preserve Lump Sum Distributions- Reinvest lump sum distributions when you leave a job into a rollover IRA or a new employer’s retirement savings plan to keep this money tax-deferred until retirement.

¨      Work Longer Before Retiring- Decide to remain on the job longer than planned. Even 1-2 years can make a big difference by providing more years to save and accrue benefits and fewer years to withdraw savings.


Thursday, August 8, 2019

Current Events in Personal Finance-Part 2

Rutgers Cooperative Extension recently sponsored Financial Education Boot Camp (FEBC), a full-day conference designed to build the capacity of New Jersey educators to teach personal finance. FEBC featured a presentation about trends and current events about financial topics. Below are five more questions that were asked and a brief explanation of each answer:

What factor influences helps people make better spending decisions according to a 2019 study?

Peer pressure. Researchers found that people cut their spending- sometimes drastically- when they are told they are spending more than others in similar circumstances. Information was provided to respondents via a phone app with peer spending data.

What record number did outstanding consumer debt in the U.S. exceed for the first time ever in 2019?

The new consumer debt record was $4 trillion. Factors contributing to this staggering number included strong holiday spending in 2018 and a steady rise in student loan balances and automobile financing. Consumers, on average, are spending about 10% of their disposable income on non-mortgage debts.

Which type of retirement savings plan is being mandated (or at least considered) by an increasing number of states in 2019 for use in state-run retirement plans for workers in small and medium-sized companies?

Laws to establish state-run Roth IRA-like retirement plans for private sector workers are increasingly being passed (or considered) because large numbers of U.S. workers, particularly those in small or medium-sized companies, are not saving enough for retirement. Employees are automatically enrolled in the state-run plan but can “opt-out” if they want to.

What percentage of taxpayers filed their federal income tax returns electronically in 2018?

There has been a steady increase in the number of tax returns that are e-filed each year from 30.7% in 2001 to 92% in 2018. Taxpayers who e-file and use direct deposit typically receive a refund within 21 days. Paper filing adds another 6 to 8 weeks.

What happened in 2019 with respect to the CFPB’s payday lending rule that requires lenders to check borrowers’ ability to repay short-term loans including payday loans and car title loans?

The CFPB reversed course in 2019 and rolled back proposed protections that would have required lenders to ensure that borrowers could repay payday loans. Another rule to halt repeated withdrawals directly from borrowers’ accounts (often resulting in pricy overdraft fees and/or damaged credit scores) was delayed until at least November 2020.


Friday, August 2, 2019

Current Events in Personal Finance-Part 1

Rutgers Cooperative Extension recently sponsored Financial Education Boot Camp (FEBC), a full-day conference designed to build the capacity of New Jersey educators to teach personal finance. FEBC featured a presentation about trends and current events about financial topics. Below are five questions that were asked and a brief explanation of each answer:

Which 47-year old personal finance magazine ceased print publication in June 2019?

Established in 1972, Money magazine printed its last issue in June 2019. Two prime culprits for its demise were decreased advertising revenue and online personal finance content that is continually updated and often available free of charge.

Approximately how many Americans who received federal tax refunds in 2018 owed the government money in 2019?

Total tax refunds in 2019 were about $6 billion lower than during the 2018 tax filing season and about 1.6 million taxpayers who received refunds in the past owed the IRS. Many people who had planned to use their refunds to pay outstanding debt or buy “big ticket” items instead received an unwelcome “surprise.”

According to a 2019 government report, the Medicare program for older adults will become insolvent in what year?

Medicare’s hospital insurance fund is expected to be depleted in 2026 according to the 2019 annual report provided by Social Security officials. At that time, doctors, hospitals, and other medical providers would not receive full Medicare compensation and patients could face a greater financial burden for health care costs. Public policy solutions are needed.

According to the 2019 P-Fin Index survey, Americans’ personal finance knowledge is lowest on what topic?

 The third annual P-Fin survey by the TIAA Institute and GFLEC found that U.S. adults answered only 51% of the P-Fin Index questions correctly. Lack of knowledge was especially apparent about risk-related concepts and this is consistent with other research studies about financial literacy.

What percentage of Americans adults is not saving any money for retirement according to a 2019 report by the Center for Financial Services Innovation (CFSI)?

More than 4 in 10 workers (42%) are not saving anything for retirement. As a consequence of not saving for their “future self,” they are de facto counting on Social Security, alone, to pay their bills in retirement. However, Social Security- from the start- was always meant to be a base of income to build upon. In addition, its trust fund (surplus) is gradually decreasing.

Wednesday, July 24, 2019

Take-Aways from a Government Report on Financial Education

I recently read a new report from the U.S. Treasury Department titled Federal Financial Literacy Reform: Coordinating and Improving Financial Literacy Efforts. While the bulk of the report repeatedly encouraged federal government agencies to coordinate their financial education efforts more effectively, there were also some “nuggets” for everyday people. Below is some take-away information that stood out to me:

¨     Financial education helps to reduce “information asymmetry.” This is where the provider of a financial product or service knows more about it than consumers do. Individuals who are financially savvy are better able to avoid frauds and scams and sidestep risks that they do not fully understand.

¨     Financial education also helps society avoid “negative externalities” that result from a less financially capable population. Examples include lender write-offs of unpaid debt and the costs of a person’s poor financial decisions that is borne by friends and family, government agencies, and others. Stated another way, financial education plays an important role in the prosperity and financial health of the nation.

¨     About 6.5% of U.S. households are “unbanked.” This means that they lack a checking or savings account with a bank or credit union. One major reason that people are unbanked is bank account screening credit reporting agencies (CRAs). Over 80% of banks use account screening CRA reports to decide whether to allow consumers to open a checking or savings account.

¨     In April 2018, the average FICO credit score was 704 out of a possible maximum of 850. Less than 20% of consumers had a score of less than 600. An increasing number of Americans have free access to their credit score through their bank or credit card company. Only 36% of U.S. consumers obtained their credit report in 2018. Many report that they are not aware of the process for doing so through

¨     Studies have found that annual debt notification letters to students by higher education institutions are effective tools in communicating the cost of college and financing options. In fact, 12 states have passed laws to create mandates for student debt letters. Debt letters summarize the amount that students have borrowed to date and how much they can expect to pay once they graduate.

Thursday, July 18, 2019

When Are People Ready to Retire?

There is no simple answer to the above question. Many personal factors are involved and each individual is different. However, there are five key questions that people can ask themselves to make retirement decisions:

¨     Can I Afford It?- Take an inventory of retirement resources including Social Security, a defined benefit pension, an employer salary reduction plan (e.g., 401(k) plan), IRAs, tax-deferred annuities, other personal savings (e.g., taxable accounts), and other assets (e.g., rental property).


¨     Is This The Right Time?- Consider some of these key factors: ability to perform up to current job standards, the economics of working (e.g., Social Security earnings limit), early retirement incentives, and preferences for other ways to spend your time.


¨     How Will a Spouse or Family be Affected? Review the impact of a decision to retire on others. Key factors include an ability to share common activities with a spouse, a spouse’s retirement preferences, forgone salary, adequate financial benefits for a surviving spouse, and medical coverage for dependents.


¨     Do I Want to Retire?-Think about what you like about working and how central work is to your life. Then think about what you want to do next and how to smoothly transition to something else. Examples include a new job or small business, volunteer work, and spending more time with family and friends.


¨     When is It NOT a Good Time to Retire? Assess your finances and retirement plans honestly. Some signs that you might not be ready to retire are when you: have significant debt, have not obtained information about future Social Security benefits, have not prepared a later life budget, have a gap between an employer health insurance plan and Medicare, and have not made plans about what to do all day after you leave work.

Retirement Catch-Up Strategies-Part 1

It is not uncommon for people to get a late start on their retirement savings. When they get older, or do an online calculation such as the ...