MONEY Investing

Why Wary Investors May Keep the Bull Market Running

running bull
Ernst Haas—Getty Images

Retirement investors are optimistic but have not forgotten the meltdown. That's good news.

Six years into a bull market, individual investors around the world are feeling confident. Four in five say stocks will do even better this year than they did last year, new research shows. In the U.S., that means a 13.5% return in 2015. The bar is set at 8% in places like Spain, Japan and Singapore.

Ordinarily, such bullishness following years of heady gains might signal the kind of speculative environment that often precedes a market bust. Stocks in the U.S. have risen by double digits five of six years since the meltdown in 2008. They are up 3%, on average, this year.

But most individuals in the market seem to be on the lookout for dangerous levels of froth. The share that say they are struggling between pursuing returns and protecting capital jumped to 73% in this year’s Natixis Global Asset Management survey. That compares to 67% in 2013. Meanwhile, the share of individuals that said they would choose safety over performance also jumped, to 84% this year from 78% in 2014.

This heightened caution makes sense deep into a bull market and may help prolong the run. Other surveys have shown that many investors are hunkered down in cash. That much money on the sidelines could well fuel future gains, assuming these savers plow more of that cash into stocks.

Still, there is a seat-of-the-pants quality to investors’ behavior, rather than firm conviction. In the survey, 57% said they have no financial goals, 67% have no financial plan, and 77% rely on gut instincts to make investing decisions. This lack of direction persists even though most cite retirement as their chief financial concern. Other top worries include the cost of long-term care, out-of-pocket medical expenses, and inflation.

These are all thorny issues. But investing for retirement does not have to be a difficult chore. Saving is the hardest part. If you have no plan, getting one can be a simple as choosing a likely retirement year and dumping your savings into a target-date mutual fund with that year in the name. A professional will manage your risk and diversification, and slowly move you into safer fixed-income products as you near retirement.

If you are modestly more hands-on, you can get diversification and low costs through a single global stock index fund like iShares MSCI All Country or Vanguard Total World, both of which are exchange-traded funds (ETFs). You can also choose a handful of stock and bond index funds if you prefer a bit more involvement. (You can find good choices on our Money 50 list of recommended funds and ETFs.) Such strategies will keep you focused on the long run, which for retirement savers never goes out of fashion.

Read next: Why a Strong Dollar Hurts Investors And What They Should Do About It

MONEY 401(k)s

1 in 3 Older Workers Likely to Be Poor or Near Poor in Retirement

businessman reduced to begging
Eric Hood—iStock

Fewer Americans have access to a retirement plan at work. If you're one of them, here's what you can do.

A third of U.S. workers nearing retirement are destined to live in or near poverty after leaving their jobs, new research shows. One underlying cause: a sharp decline in employer-sponsored retirement plans over the past 15 years.

Just 53% of workers aged 25-64 had access to an employer-sponsored retirement savings plan in 2011, down from 61% in 1999, according to a report from Teresa Ghilarducci, professor of economics at the New School. More recent data was not available, but the downward trend has likely continued, the report finds.

This data includes both traditional pensions and 401(k)-like plans. So the falloff in access to a retirement plan is not simply the result of disappearing defined-benefit plans, though that trend remains firmly entrenched. Just 16% of workers with an employer-sponsored plan have a traditional pension as their primary retirement plan, vs. 63% with a 401(k) plan, Ghilarducci found.

Workers with access to an employer-sponsored plan are most likely to be prepared for retirement, other research shows. So the falling rate of those with access is a big deal. In 2011, 68% of the working-age U.S. population did not participate in an employer-sponsored retirement plan. The reasons ranged from not being eligible to not having a job to choosing to opt out, according to Ghilarducci’s research.

She reports that the median household net worth of couples aged 55-64 is just $325,300 and that 55% of these households will have to subsist almost entirely on Social Security benefits in retirement. The Center for Retirement Research at Boston College and the National Institute on Retirement Security, among others, have also found persistent gaps in retirement readiness. Now we see where insufficient savings and the erosion of employer-based plans is leading—poverty-level retirements for a good chunk of the population.

At the policy level, we need to encourage more employers to offer a retirement plan. On an individual level, you can fix the problem with some discipline. Even those aged 50 and older have time to change the equation by spending less, taking advantage of tax-deferred catch-up savings limits in an IRA or 401(k), and planning to stay on the job a few years longer. That may sound like tough medicine, but it’s nothing next to struggling financially throughout your retirement.

MONEY Financial Education

Kids and Money: The Search for What Really Works

piggy banks with chalkboard saying "savings 101"
Getty Images

A new study aims to understand the effectiveness of the money lessons kids learn in school.

Those who oppose integrating financial education into our nation’s classrooms have long argued money lessons don’t actually change behavior. Slowly, evidence to the contrary is emerging. But much more proof is needed before personal finance will be taken as seriously as math, science, or history.

That line of thinking underlies a new $30 million commitment from professional services firm PwC, which in 2012 launched its Earn Your Future program, designed to help educators gain the tools and knowledge they need in order to teach kids about money. PwC pledged $100 million worth of service hours from its employees and $60 million in cash over five years.

This new commitment is all cash, and a good chunk of it takes aim at a research void: finding what teaching methods and strategies result in lasting behavior change among students who study personal finance. PwC has teamed with two major universities to analyze financial education programs in grade schools and colleges with the goal of understanding how students learn and apply money lessons.

“Financial capability techniques are still evolving,” says Shannon Schuyler, corporate responsibility leader at PwC. “We need to make sure that as we are implementing them into classrooms, we are measuring their effectiveness and adjusting our strategy and approach based on the findings from sound research.”

Critics say this may all be a waste of resources. They argue that marketing messages overwhelm the common sense you might learn as a young student, and that the financial landscape changes so fast that anything you learn about, say, bank fees and cell phone packages quickly becomes obsolete.

Such issues have been studied for years. We have a global library of some 1,400 papers on the subject. But only recently has this research begun to hone in on what really works. In a groundbreaking study in February, researchers at the University of Wisconsin Center for Financial Security tied personal finance lessons in school to higher credit scores among young adults. Other recent research sponsored by H&R Block found remarkable attitude changes in students following a nine-week personal finance course, including that 92% said learning about money management was very important and 80% wanted to learn more.

The new PwC commitment will also fund research into how iPads and other mobile technologies can speed learning of financial concepts—even as the firm sets aside more funds for good old-fashioned learning from print. A colorful six-page magazine through Time for Kids, Your $, spotlights financial literacy for kids. The print version is being distributed in New York schools and will roll out in Chicago this month. It is also available online.

Policymakers in the U.S. and around the world are embracing financial education as a way to help prevent or minimize the effects of another financial crisis. In the U.S., the Obama administration has made its priorities clear—it wants clean data that can be analyzed and used to find proof of financial education strategies that work. We seem to be moving that direction.

MONEY wall street

Shhh…E.F. Hutton Is Talking Again

A storied financial brand far removed from its glory days makes a comeback, modeled after...Uber?

Bring back shoulder pads and the mullet. E.F. Hutton, another 1980s throwback, is in the financial services business again. The big question: Is this once iconic brand worth anything?

Hutton is launching the website Gateway to connect investors with independent financial advisers, estate lawyers, accountants, and insurance agents. The firm will vet its roster of financial pros, which individuals can access for free.

But this is really about helping advisers find clients. The advisers will pay Hutton a fee based on revenue they collect from clients that find them on the site. Stanley Hutton Rumbough, the grandson of legendary founder E.F. Hutton, is leading the brand’s revival from within a relatively new entity called E.F. Hutton Financial, which was incorporated in Colorado in 2007 and has no legal relationship with the old E.F. Hutton. The new firm likens itself to car service Uber in that it takes a small cut of the business it generates for advisers.

Hutton was a Wall Street heavyweight 40 years ago and is best known for its advertising slogan: “When E.F. Hutton talks, people listen.” The firm’s ads ran for years and typically featured crowds of people leaning in to hear the advice of a Hutton broker. (That’s one in the video above.) This was a powerful image during the bull market that started in 1982. After the lost decade of the 1970s, investors were getting excited about stocks again. The Hutton ad suggested that only through a broker could you gain an investing edge.

In some ways, the suggestion was ironic—coming just ahead of the massive insider trading scandals of the late 1980s, when dozens of Wall Street players, including Ivan Boesky and Michael Milken, were found to have skirted the rules for their own advantage. So much for the broker edge, which in those cases anyway was about illegal stock tips sometimes in exchange for suitcases full of cash.

Hutton became embroiled as well, and in 1985 pleaded guilty to 2,000 counts of mail and wire fraud, and paid more than $10 million in penalties in connection with a check-kiting scheme. The firm would make bank withdrawals and deposits in such a way that it gained illegal access to millions of dollars interest free for days at a time while waiting for the checks to clear.

A further irony lies in reams of new data that show that over the long haul stock pickers tend to underperform simple, low-cost index funds. Over time, the fees that active fund managers charge overwhelm their ability to pick winning stocks. This is now so well understood that the good old-fashioned stockbroker is a dinosaur. Today, industry leaders like Merrill Lynch and Morgan Stanley employ financial advisers or wealth managers who counsel clients in all aspects of their money life.

Founded in 1904, Hutton ran into capital issues following the 1987 stock market crash and disappeared in 1988 amid a spate of mergers that included Shearson Lehman Bros., American Express, Smith Barney, Primerica, and Citigroup. Former Hutton executive Frank Campanale tried reviving the brand three years ago. Campanale ditched the effort for a job with the established asset manager Lebenthal and Co., but continues to have a financial stake in the Hutton brand.

With a checkered past and four decades removed from glory, you have to wonder how much the Hutton name is worth. Then again, Michael Milken has resurfaced as a philanthropist and neon is back in style. Power up the flux capacitor, Doc. We’re going back the future.

Editor’s note: This article was updated to clarify that: 1) E.F. Hutton Financial is a different company from the original E.F. Hutton brokerage that ran into legal troubles in the 1980s; and 2) Mr. Campanale has retained a financial interest in E.F. Hutton Financial since his departure.

 

MONEY retirement planning

Why Your Empty Nest May Be Hazardous to Your Retirement

150317_RET_CutSpending
Alamy—© Mode Images / Alamy

You may want to live a little when your kids leave home. But what you do with that money can make or break your retirement, a new study finds.

How well prepared you are for retirement may come down to one simple question: what do you do with money that once would have been spent on your kids?

In recent years, two common models of retirement preparedness in America have begun to draw vastly different pictures. The optimal savings model, which looks at accumulated savings, concludes that only 8% of pre-retirees have insufficient resources to retire comfortably. The income replacement model, which looks at the level of income that savings will generate, concludes half the working age population is in deep trouble.

These two models incorporate many different assumptions, which is why they can reach contradictory conclusions. For one thing, the optimal savings model assumes savings are held in something like a 401(k) plan and drawn down over time. The income replacement model assumes savings are converted to lifetime income through an annuity at retirement.

Accounting for these and many other differences, researchers at the Center for Retirement Research at Boston College have concluded that the key variable in retirement readiness is empty nest spending patterns. “If households consume less once their kids leave home, they have a more modest target to replace and they save more between the emptying of the nest and retirement,” the authors write. This creates a financial comfort level that those who spend the same amount—most likely on themselves—have greater difficulty achieving.

When the more conservative empty nest spending assumptions of the optimal savings model are applied to the income replacement model, the level of retirement preparedness is similarly optimistic. What the paper cannot answer, however, is which model accurately reflects the way empty nesters behave.

“Do parents cut back on consumption when kids leave, or do they spend the slack in their budgets?” the authors write. “No one really knows the answers.” How households react when kids leave the fold is not well understood, they say.

Yet that’s a problem for academics. You can control the way you act. The upshot is that if you resist the temptation to spend instead of save the money your kids were costing you, retirement readiness may be at your fingertips.

Read next: 5 Ways to Know If You’re on Track to Retire Early

MONEY Retirement

Don’t Save for College If It Means Wrecking Your Retirement

150311_RET_SaveRetNotCollege
Mark Poprocki—Mark Poprocki

When you short-change retirement savings to pay for the kids' college, they may end up paying way more than the price of tuition to support you in later life.

Making personal sacrifices for the good of your children is Parenting 101. But there are limits, and financial advisers roundly agree that your retirement security should not be on the table.

Still, parents short-change their retirement plans all the time, often to set aside money for Junior to go college. More than half of parents agree that this is a worthwhile trade-off, according to a T. Rowe Price survey last year. Digging into the reasons, the fund company followed up with new results this month. In part, researchers found:

  • Depleting savings is a habit. Parents say it is no big deal to steal from retirement savings. Some 58% have dipped into a retirement account at least once—most often to pay down debt, pay day-to-day living expenses, or tide the family over during a period of underemployment.
  • Many plan to work forever. About half of parents say they are destined to work as long as they are physically able—so why bother saving? Among those who plan to retire, about half say they would be willing to delay their plans or get a part-time job in order to pay for college for their kids.
  • Student debt scares them. More than half of parents say spending retirement money is preferable to their kids graduating with student debt and starting life in a hole. They speak from experience. Just under half of parents say they left college with student debt and it has hurt their finances.

We love our kids, and the past seven years have been especially tough on young adults trying to launch. So we shield them from some of life’s financial horrors, indulging them when they ask for support or boomerang home—to the point that we have created a whole new life phase called emerging adulthood.

Yet you may not be doing the kids any favors when you rob from your future self to keep them from piling up student loans today. Paying for college when you should be paying for your retirement increases the likelihood that they will end up paying for you in old age, and that is no bargain. They may have to sacrifice career opportunities or income in order to be near you. You’ll go into assisted living before you become a burden on the kids? Fine. At $77,380 per person per year for long-term care, it could take a lot more resources than the cost of borrowing for tuition.

It sounds cold to put yourself first. But the reality is that your kids can borrow to go to school; you cannot borrow to retire. So get rid of the guilt. Some 63% of parents feel guilty that they cannot fully pay for college and 58% feel like a failure, T. Rowe Price found. Nonsense. Paying for college for the kids is great if it does not derail your savings plan. But if it does that burden must become theirs. That’s Parenting 101, rightly understood.

Read next: Don’t Be Too Generous With College Money: One Financial Adviser’s Story

MONEY Savings

5 Signs You Will Become a Millionaire

150304_EM_MILLIONAIRES
Martin Barraud—Getty Images

A million isn't what it used to be. But it's not bad, and here's how you get there.

A million bucks isn’t what it used to be. When your father, or maybe you, set that savings goal in 1980 it was like shooting for $3 million today. Still, millionaire status is nothing to sniff at—and new research suggests that a broad swath of millennials and Gen-Xers are on the right track.

The “emerging affluent” class, as defined in the latest Fidelity Millionaire Outlook study, has many of the same habits and traits as today’s millionaires and multimillionaires. You are in this class if you are 21 to 49 years of age with at least $100,000 of annual household income and $50,000 to $250,000 in investable assets. Fidelity found this group has five key points in common with today’s millionaires:

  • Lucrative career: The emerging affluent are largely pursuing careers in information technology, finance and accounting—much like many of today’s millionaires did years ago. They may be at a low level now, but they have time to climb the corporate ladder.
  • High income: The median household income of this emerging class is $125,000, more than double the median U.S. household income. That suggests they have more room to save now and are on track to earn and save even more.
  • Self-starters: Eight in 10 among the emerging affluent have built assets on their own, or added to those they inherited, which is also true of millionaires and multimillionaires.
  • Long-term focus: Three in four among the emerging affluent have a long-term approach to investments. Like the more established wealthy, this group stays with its investment regimen through all markets rather than try to time the market for short-term gains.
  • Appropriate aggressiveness: Similar to multimillionaires, the emerging affluent display a willingness to invest in riskier, high-growth assets for superior long-term returns.

Becoming a millionaire shouldn’t be difficult for millennials. All it takes is discipline and an early start. If you begin with $10,000 at age 25 and save $5,500 a year in an IRA that grows 6% a year, you will have $1 million at age 65. If you save in a 401(k) plan that matches half your contributions, you’ll amass nearly $1.5 million. That’s with no inheritance or other savings. Such sums may sound big to a young adult making little money. But if they save just $3,000 a year for seven years and then boost it to $7,500 a year, they will reach $1 million by age 65.

An emerging affluent who already has up to $250,000 and a big income can do this without breaking a sweat. They should be shooting far higher—to at least $3 million by 2050, just to keep pace with what $1 million buys today (assuming 3% annual inflation). But they will need $6 million in 2050 to have the purchasing power of $1 million back in 1980, when your father could rightly claim that a million dollars would make him rich.

Read next: What’s Your Best Path to $1 Million?

MONEY Careers

The Suddenly Hot Job Market for Workers Over 50

Barclay's bank
Dominic Lipinski—PA Wire/Press Association Images

More companies are recognizing the value of mature workers—and they're starting to hire them.

Things are finally looking up for older workers.

The latest data show the unemployment rate for those over age 55 stands at just 4.1%, compared with 5.7% for the total population and a steep 18.8% for teens. The ranks of the long-term unemployed, which ballooned during the recession as mature workers lost their jobs, are coming down. Age-discrimination charges have fallen for six consecutive years. And now, as the job market lurches back to life, more companies are wooing the silver set with formal retraining programs.

This is not to say that older workers have it easy. Overall, the long-term unemployment rate remains stubbornly high—31.5%. And even though age-discrimination charges have declined they remain at peak pre-recession levels. Meanwhile, critics note that some corporate re-entry programs are not a great deal, paying little or no salary and distracting workers from seeking full-time gainful employment.

Still, the big picture is one of improving opportunity for workers past age 50. That’s welcome news for many reasons, not least is that those who lose their job past age 58 are at greater health risk and, on average, lose three years of life expectancy. Meanwhile, older workers are a bigger piece of the labor force. Two decades ago, less than a third of people age 55 and over were employed or looking for work. Today, the share is 40%, according to the St. Louis Federal Reserve.

AARP and others have long argued that older workers are reliable, flexible, experienced and possess valuable institutional knowledge. Increasingly, employers seem to want these traits.

This spring, the global bank Barclays will expand its apprenticeship program and begin looking at candidates past age 50. The bank will consider mature workers from unrelated fields, saying the only experience they need is practical experience. The bank says this is no PR stunt; it values older workers who have life experience and can better relate to customers seeking a mortgage or auto loan. With training, the bank believes they would make good, full-time, fairly compensated loan officers.

Already, Barclays has a team of tech-savvy older workers in place to help mature customers with online banking. The new apprenticeship program builds on this effort to capitalize on the life skills of experienced employees.

Others have tiptoed into this space. Goldman Sachs started a “returnship” in the throes of the recession. But the program is only a 10-week retraining exercise, with competitive pay, and highly selective. About 2% of applicants get accepted. It is not designed as a gateway to full-time employment at Goldman, though some older interns end up with job offers at the bank.

The nonprofit Encore.org offers mature workers a one-year fellowship, typically in a professional capacity at another nonprofit, to help mature workers re-enter the job market. Again, this is a temporary arrangement and pays just $25,000.

But a growing number of organizations—the National Institutes of Health, Stanley Consultants, and Michelin North America, among many others—embrace a seasoned workforce and have programs designed to attract and keep workers past 50. Companies with internship programs for older workers include PwC, Regeneron, Harvard Business School, MetLife and McKinsey. Find a longer list at irelaunch.com. And get back in the game.

Read next: These Workers Landed Cool and Unusual Retirement Jobs—Here’s How

MONEY Kids and Money

The High School Class That Makes People Richer

Graduates with $$ on their caps
Mark Scott—Getty Images

Kids really do benefit from learning about money in school, new data show

Most experts believe students who study personal finance in school learn valuable money management concepts. Less clear is how much they retain into adulthood and whether studying things like budgets and saving changes behavior for the better.

But evidence that financial education works is beginning to surface. Researchers at the Center for Financial Security at the University of Wisconsin recently found a direct tie between personal finance classes in high school and higher credit scores as young adults. Now, national results from a high school “budget challenge” further build the case.

Researchers surveyed more than 25,000 high school students that participated in a nine-week Budget Challenge Simulation contest last fall and found the students made remarkable strides in financial awareness. After the contest:

  • 92% said learning about money management was very important and 80% wanted to learn more
  • 92% said they were more likely to check their account balance before writing a check
  • 89% said they were more confident and 91% said they were more aware of money pitfalls and mistakes
  • 87% said they were better able to avoid bank and credit card fees
  • 84% said they were better able to understand fine print and 79% said they were better able to compare financial products
  • 78% said they learned money management methods that worked best for them
  • 53% said they were rethinking their college major or career choice with an eye toward higher pay

These figures represent a vast improvement over attitudes about money before the contest, which H&R Block sponsored and individual teachers led in connection with a class. For example, among those surveyed before and after the contest, those who said learning about money was very important jumped to 92% from 81% and those who said having a budget was very important jumped to 84% from 71%. Those who said they should spend at least 45 minutes a month on their finances jumped to 44% from 31%.

The budget challenge simulates life decisions around insurance, retirement saving, household budgets, income, rent, cable packages, student loans, cell phones, and bank accounts. Teachers like it because it is experiential learning wrapped around a game with prizes. Every decision reshapes a student’s simulated financial picture and leads to more decision points, like when to a pay a bill in full or pay only the minimum to avoid fees while waiting for the next paycheck.

Block is giving away $3 million in scholarships and classroom grants to winners. The first round of awards totaling $1.4 million went out the door in January.

The new data fall short of proving that financial education leads to behavior improvement and smarter decisions as adults, and such proof is sorely needed if schools to are to hop on board with programs like this in a meaningful way. Yet the results clearly point to long-term benefits.

Once a student—no matter what age, including adults—learns that fine print is important and bank fees add up she is likely to be on the lookout the rest of her life. Once a student chooses to keep learning about money management he usually does. Added confidence only helps. Once students develop habits that work well for them and understand pitfalls and mistakes, they are likely to keep searching for what works and what protects them even as the world changes and their finances grow more complex. Slowly, skeptics about individuals’ ability to learn and sort out money issues for themselves are being discredited. But we have a long way to go.

 

MONEY Aging

Pop Goes the Age Discrimination Bubble

senior man blowing bubble out of gum
Getty Images

Age discrimination charges have returned to pre-recession levels—another sign we're getting back to normal

The popular narrative holds that age discrimination is off the charts and employers can’t shed workers past 50 quickly enough. Yet age-related complaints filed with the federal government fell for the sixth consecutive year in 2014, and the percentage of cases found to be reasonable have been trending lower for two decades.

Certainly, there remains cause for concern. The 20,588 charges filed under the Age Discrimination in Employment Act are higher than in any year before the recession. But the number is down from 21,396 in 2013 and from a peak of 24,582 in 2008, according to new data from the Equal Employment Opportunity Commission.

Meanwhile, the EEOC found reasonable cause in only 2.7% of the cases filed. That is up from 2.4% in 2013 but otherwise the lowest rate since at least 1997. Monetary awards hit a five-year low of $78 million.

Just about everyone past 50 knows someone who believes they were discriminated against in the workplace because of their age. In a 2012 survey, AARP found that 77% of Americans between 45 and 54 said employees face age discrimination. Clearly, in many cases older workers command higher wages. Organizations can cut costs and make room for younger workers by moving older workers out—even though doing so on the basis of age is against the law.

This helps explain the rise in age discrimination charges during and since the recession, when companies undertook vast reorganizations and laid off millions of workers to cut costs and adjust to the slow economy. Older workers who lost their job have had a difficult time finding employment, further driving them to seek relief wherever possible.

Now age-related charges in the workplace are roughly at pre-recession levels. Charges ranged between 16,008 and 19,124 from 2000 through 2007. Returning to near this level is the latest sign—along with more jobs and rising wages—that the economy is getting back to normal.

Age discrimination is a serious issue. It is more difficult to prove than discrimination based on race, sex, religion, or disability. It also takes a heavier toll than other forms of discrimination on the health of victims, research shows. Boomers who want to stay at work typically need the income or the health insurance that comes with full-time employment. Turning them away places a greater burden on public resources.

Meanwhile, older workers have a lot to offer, including institutional knowledge, experience, and reliability. Some forward-thinking organizations including the National Institutes of Health, Stanley Consultants, and Michelin North America, among many others, embrace a seasoned workforce and have programs designed to attract and keep workers past 50.

None of this is to say age discrimination is no longer a problem. One alarming aspect of the EEOC state data is that warm climates popular with older people have a high rate of age-discrimination complaints. No state had a higher percentage of EEOC age-related complaints last year than Texas (9.2%). Florida had 8.5% of all cases and Arizona had 3%.

Federal officials note that the government shutdown last year contributed to a falloff in cases filed. So official complaints may be understated last year. And an overwhelming number of age-related sleights at the office never get reported. Still, the bubble in recession-related age discrimination cases appears to have been popped. That’s a start.

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