MONEY Aging

Why Confidence May Be Your Biggest Financial Risk in Retirement

portrait of aging woman
F. Antolín Hernández—Getty Images

Seniors lose ability to sort out financial decisions but hold on to the confidence they can get it right.

You think it’s tough managing your 401(k) now, just wait until you are 80 and not quite as sharp as you once were—or still believe yourself to be.

Cognitive decline in humans is a fact. It starts before you are 30 but picks up speed around age 60. A slow decline in the ability to think clearly wasn’t an issue years ago, before the longevity revolution extended life expectancy beyond 90 years. But now we’re making key financial decisions way past our brain’s peak.

Managing a nest egg in old age is the most pressing area of financial concern, owing to the broad shift away from guaranteed-income traditional pensions and toward do-it-yourself 401(k) plans. Older people must consider complicated issues surrounding asset allocation and draw-down rates. They also must navigate an array of mundane decisions on things like budgets, tax management, and just choosing the right cable package. Some will have to vet fraudulent sales pitches.

About 15% of adults 65 and older have what’s called mild cognitive impairment—a condition characterized by memory problems well beyond those associated with normal aging. They are at clear risk of making poor money decisions, and this is usually clear to family who can intervene. Less clear is when normal decline becomes an issue. But it happens to almost everyone.

Normal age-related cognitive decline has a noticeable effect on financial decision making, the Center for Retirement Research at Boston College, finds in a new paper. Researchers have followed the same set of retirees since 1997 and documented their declining ability to think through issues. Despite measurable cognitive decline, however, these retirees (age 82 on average) demonstrated little loss of confidence in their knowledge of finance and almost no loss of confidence in their ability to manage their financial affairs.

Critically, the survey found, more than half who experience significant cognitive decline remain confident in their money know-how and continue to manage their finances rather than seek help from family or a professional adviser. “Older individuals… fail to recognize the detrimental effect of declining cognition and financial literacy on their decision-making ability,” the study concludes. “Given the increasing dependence of retirees on 401(k)/IRA savings, cognitive decline will likely have an increasingly significant adverse effect on the well-being of the elderly.”

Not everyone believes this is a disaster in the making. Practice and experience that come with age may offset much of the adverse impact from slipping brainpower, say researchers at the Columbia Business School. They acknowledge inevitable cognitive decline. But they conclude that much of its effect can be countered in later life if problems and decisions remain familiar. It’s mainly new territory—say mobile banking or peer-to-peer lending—that prove dangerously confusing.

In this view, elders may be just fine making their own financial decisions so long as terms and features don’t change much. They will be well served by experience and muscle memory—and helped further by smart, simplified options like target-date mutual funds and index funds as their main retirement account choices. The problem is that nothing ever really stays the same. Seniors who recognize the unfamiliar and seek trusted advice have a better shot at keeping their finances safe throughout retirement.

Read next: Why Your Employer May Be Your Best Financial Adviser

MONEY Personal Finance

Turns Out (Gasp) Millennials Do Want to Own Cars

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Jamie Grill—Getty Images

Young adults want to share everything--except maybe their car

Millennials have spurred the rise of the sharing economy by embracing the notion that renting is almost always better than buying. But even they want to own their own set of wheels, new research shows. Could homeownership, a diamond ring and other traditional purchases be far behind?

Some 71% of young adults would rather buy a car than lease one and 43% are likely to purchase a vehicle in the next five years, according to a survey from Elite Daily, a social site, and research consultants Millennial Branding. This finding suggests young adults that have popularized car-sharing options like Zipcar and RelayRides—and all sorts of other sharing options from wedding dresses to leftover meals—may be warming to traditional ownership.

Could it be that the kids are growing up and want something of their own? Other research shows that millennials, widely regarded as an idealist generation that favors flexibility and personal fulfillment over wealth, have begun backtracking there as well. Increasingly, they link financial health to life satisfaction.

For now, though, home ownership remains largely off their radar: 59% would rather rent a house than buy one and only one in four millennials are likely to purchase a house in the next five years, the survey found. “This shows that millennials don’t know anything about investing, even though they say they do,” says Dan Schawbel, managing partner at Millennial Branding. “A home is a much better investment than a car.”

Schawbel believes millennials are more eager to buy cars because they are delaying marriage and children, and they don’t want to be tied down with real estate. Plenty of research supports that view—and the trend toward delayed family formation. Yet it seems only a matter of time before this generation embraces marriage and homeownership too. The oldest are just 35 and, the survey found, three in five can’t afford to buy a home anyway.

The survey also found that millennials might be struggling less with student debt than is widely believed. Yes, student debt now tops $1.3 trillion. But young adults have money to spend. They are using their income to pay off their loans and getting support from their parents to pay for other things, Schawbel says. That may mean a car now or in the near future, and it seems increasingly clear that eventually it will include real estate. This generation is carving its own path, for sure. But the path may wind up looking more traditional than they know.

MONEY 401(k)s

Why Your Employer May Be Your Best Financial Adviser

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Thomas Barwick—Getty Images

Employers are offering more than 401(k) advice. They are adding financial wellness programs that help workers budget, save for a home, and more.

Large employers are taking on the roles of retirement adviser and financial educator in increasing numbers, new research shows. This is welcome news, because the federal government and our schools have not done a great job on this front, and individuals generally have not been able to manage well on their own.

Employers have been tiptoeing into retirement planning for workers for years as part of their 401(k) plan benefits. Typically, the advice has been offered in the form of printed materials and online informational websites. More recently, personalized advice has become available through call-in services and, in some cases, face-to-face meetings with planners arranged through work.

But what started as help with, say, settling on a contribution rate and choosing appropriate investment options has evolved into a more rounded service that may offer lessons in how to budget and save for college or a home. A breathtaking 93% of employers intend to beef up their efforts at helping workers achieve overall financial wellness in a way that goes beyond retirement issues, according to an Aon Hewitt survey.

This effort promises to fill a deep void. Just five states require a stand-alone personal finance course in high school, and just 13 require money management instruction as part of some other class. Meanwhile, the Social Security and pension safety net continues to grow threadbare. Someone has to take charge of our crisis in financial know-how.

Employers don’t relish this role. It comes with lots of questions about fiduciary duty and liabilities related to the advice that is proffered. Yet legal obstacles are slowly being cleared away to encourage more employer involvement, which is coming in part out of self interest. Financially fit workers are more productive and more engaged, research shows.

A company that offers a financial wellness benefit could save $3 for every $1 they spend on their programs, according to a Consumer Financial Protection Bureau report. These programs also reduce absenteeism and worker disability costs. That’s because money problems may cause stress that leads to ill health. So helping employees improve not just their retirement plan but their entire financial picture makes sense.

Among the upgrades most popular with employers, Aon found:

  • 69% offer online investment guidance, up from 56% last year, and 18% of the rest are very likely to add this feature in 2015.
  • 53% offer phone access to financial advisers, up from 35% last year.
  • 49% offer third-party investment advice, up from 44% last year.

Aon also found that 34% of employers have cut their 401(k) plan’s administrative and other costs, compared with just 27% a year ago. This echoes a BrightScope study, which found that employers generally are beefing up investment options while reducing fees in their 401(k) plans. In all, it seems employers are embracing their role as financial big brother—for their own good as well as the good of their workers.

MONEY Millennials

Millennials Increasingly Link Money With Fulfillment

money jigsaw puzzle
VisualField—Getty Images

Focused on purpose and meaning, millennials nonetheless wind up more satisfied when their finances are in order, a new study suggests.

Millennials define success more broadly than older generations, seeing it as less about wealth and more about a healthy and fulfilling life. But even as this generation tries to change the world through jobs and investments with purpose, among other things, it may be finding that financial success and personal satisfaction often go hand in hand.

Millennials who describe themselves as successful—whatever that may mean to them as individuals—report more healthy finances across the board than those who do not, new research shows. For example, 31% of millennials who say they are satisfied with their current lifestyle report annual income over $75,000, while just 24% of all millennials earn that much.

Might their healthier income be part of the reason? That seems likely, based on a broad range of findings in a new survey from MoneyTips.com, an online personal finance community geared at 18-to-34 year olds. Young adults describing themselves as satisfied with their current lifestyle, or successful, not only had more income but less debt, more savings, and more confidence in their ability to retire comfortably.

None of this would feel surprising if not for the widely espoused view that millennials favor quality of life issues including job flexibility, social impact, and personal experiences over career and earning power. Maybe they are growing up and realizing that money may help—or at least not hinder—such pursuits. Or maybe their worldview is evolving at a subconscious level as the real world bears down on them.

Either way, a generation that grew up with participation trophies and helicopter parents—and unbridled optimism—seems to be waking to the connection between a satisfying life and healthy finances. Nothing in this survey suggests millennials have lost their zeal for meaning. But financial security has a creeping sense of place.

Asked what financial concerns keep them up at night, 46% of millennials who call themselves successful cite being able to earn enough to secure their future. That compares with 55.6% of all millennials. Likewise, just 23.7% of self-described successful millennials worry about their ability to pay day-to-day expenses, and 33.6% worry about their ability to live within their means. That compares with 41.2% and 42.2%, respectively, for all millennials. A higher percentage who feel satisfied also say they are on track to meet their financial goals, have calculated how much they will need in retirement, and stick to a monthly budget.

About 40% of self-described successful millennials owe at least $15,000 while 45% of all millennials owe that much. When it comes to money in the bank, 58% of successful millennials have at least $10,000, while just 46% of all millennials have that much. Certainly, savings and income aren’t everything. But this next generation has come a long way from thinking finances matter little at all.

MONEY retirement planning

Why Your Dream Retirement City May Pose a Surprising Health Risk

Retirees walking outdoors in sunny weather
Mark Bowden—Getty Images

The destinations most popular with retirees have the most dangerous streets for people on foot.

One thing you won’t find in most reports on the best places to retire: a measure of pedestrian deaths. But it turns out that many sunny climates popular with retirees are where you’ll find the most perilous roadside shoulders, crossings and sidewalks in America.

The four most dangerous cities in the U.S. for pedestrians are located in Florida, according to a recent AARP Bulletin. The top 10 are all in the South or Southwest. Leading the pack is Orlando with 2.75 pedestrian deaths per 100,000 people each year, according to a report from Smart Growth America. Tampa has a higher rate of 2.97 per 100,000, but because it has more walkers than Orlando it ranks second on the group’s Pedestrian Danger Index.

By contrast, the sharply chillier cities Seattle, Pittsburgh and Boston rank 49, 50, and 51 on the list. All three have less than one pedestrian death per 100,000 each year. Nationally, the average is 1.56 pedestrian deaths per 100,000 people.

The Florida cities Jacksonville and Miami round out the top four most dangerous cities for pedestrians, followed by Memphis, Tenn., Birmingham, Ala., Houston, Tex., Atlanta, Ga., Phoenix, Ariz., and Charlotte, N.C. in the top 10. These and other warm cities often make the cut on popular lists of the best places to retire. (For MONEY’s best places to retire coverage, click here.)

Now you might be thinking that these cities are dangerous to pedestrians simply because they are laden with old fogies wandering into the streets. Not at all. The real explanation is that these sunbelt regions have generally enjoyed a huge growth spurt during the last 60 years, when city planning centered on the automobile. The least-friendly streets for pedestrians tend to be those with wide boulevards and faster-moving traffic designed to connect homes, shops and schools. More than half of all pedestrian deaths occur on such arterial roads.

Alarmed by the state’s rate of pedestrian deaths, Florida officials have been sponsoring awareness campaigns and promoting safer streets by putting in sidewalks and midpoint waiting areas, as well as slowing traffic. Pedestrians hit by a car traveling 20 miles per hour have a 90% survival rate; at 45 miles per hour, the survival rate drops to 35%. And nationally there is a push to make all streets safer for both walkers and cyclists by changing traffic designs, lengthening signal crossing times and other reforms.

When collisions happen, older people bear the highest risk. Adults aged 65 and older make up 13% of the population but account for 20% of pedestrian fatalities. Their fatality rate is 3.19 per 100,000, and past age 75 that rate rises to 3.96. Meanwhile, older people who survive are far more likely to have serious injury.

“The elderly don’t tolerate simple injuries very well,” Dr. John Promes, trauma medical director at Orlando Regional Medical Center, told AARP. A young person with fractured ribs might be discharged from the hospital within a day, he says, “but someone who is 75 years old may end up in the intensive care unit on a ventilator.”

None of this should discourage retirees from seeking the sunny climate they desire—or from taking to the streets and sidewalks for exercise or transportation. Walking helps maintain bone and muscle strength, as well as mobility and agility. And research shows regular walks help fight chronic ailments and preserve independence. This is partly why cities generally are trying to make streets easier to get around on foot.

Aside from safety, transportation and accessibility are always important considerations when scouting a place to retire. Check out your town’s walk score. And if you plan to you walk for exercise, as many boomers do, or just to get to the local grocery store, take a test stroll though your dream neighborhood. It may not be as easy to get around as you might think.

Read next: Retire to One of these Great Small Cities

MONEY Savings

Why Illinois May Become a National Model for Retirement Saving

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Chris Mellor—Getty Images/Lonely Planet Image

Illinois will automatically enroll workers who lack an employer retirement plan into a state-run savings program

In what may emerge as a standard for all states, Illinois is introducing a tax-advantaged retirement savings plan for most residents who do not have such a plan at work. The program echoes one that President Obama has endorsed at the federal level, and it boosts momentum that has been building for several years at the state level.

Beginning in 2017, Illinois businesses with 25 or more employees that do not offer a retirement savings plan, such as a 401(k) or pension, must automatically enroll workers in the state’s Secure Choice Savings Program, which will enable them to invest in a Roth IRA. Workers can opt out. But reams of research suggest that inertia will keep most employees in the plan.

Once enrolled, workers can choose their pre-tax contribution rate and select from a small menu of investment options. Those who do nothing will have 3% of their paycheck automatically deducted and placed in a low-fee target-date investment fund managed by the Illinois Treasurer.

The plan may sound novel, but at least 17 states, including bellwethers like California, Connecticut, Massachusetts and Wisconsin, have been considering their own savings plans for private-sector employees. Many are taking steps to establish one. In Connecticut, lawmakers recently set aside $400,000 to set up an oversight board and begin feasibility studies. Wisconsin and others are moving the same direction. Oregon may approve a plan this year.

But Illinois appears to be the first set to go live with a plan, and for that reason the program will be closely watched. If more workers open and use the savings accounts, more states are almost certain to push ahead. The estimate in Illinois is that two million additional workers will end up with savings accounts.

The Illinois plan may serve as a model because there is little cost to the state—that’s crucial at a time when many states face budget problems. (The budget shortfalls in Illinois, in particular, led to a pension crisis.) All contributions come from workers, and employers must administer the modest payroll deduction. Savers will be charged 0.75% of their balance each year to pay the costs of managing the funds and administering the program.

About half of private-sector employees in the U.S. have no access to retirement savings plans at work, which is one key reason for the nation’s retirement savings crisis. Those least likely to have access are workers at small businesses. The Illinois program addresses this issue by mandating participation from all but the very smallest companies.

These state savings initiatives have been spurred by the lack of progress in Washington to improve retirement security. President Obama promoted a federally administered IRA for workers without an employer plan in his State of the Union address last year, but bipartisan bills to establish an automatic IRA have long been stalled in Congress. Still, the U.S. Treasury unveiled a program called myRA for such workers to invest in guaranteed fixed-income securities on a tax-advantaged basis. Clearly, there is broad support for these kinds of programs. Now Illinois just has to show they work.

Read next: 5 Simple Questions that Pave the Way to Financial Security

MONEY Financial Planning

5 Simple Questions that Pave the Way to Financial Security

Analyzing 20 years of data, the St. Louis Fed found that five healthy financial habits are the key to future wealth.

Want to know how your bank account stacks up against that of your neighbors? You’ll get an idea by asking yourself five simple questions, new research shows.

The St. Louis Fed examined data from the Federal Reserve’s Survey of Consumer Finances between 1992 and 2013 and found a high correlation between healthy financial habits and net worth. In the surveys, the Fed asked:

  • Did you save any money last year? Saving is good, of course. Just over half in the survey earned more than they spent (not counting investments and purchases of durable goods).
  • Did you miss any credit card or other payments last year? Missing a payment isn’t just a sign of financial stress; it may trigger late fees and additional interest. An encouraging 84% in the survey made timely payments.
  • After your last credit card payment, did you still owe anything? Carrying a balance costs money. In the survey, 44% said they carried a balance or recently had been denied credit.
  • Looking at all your assets, from real estate to jewelry, is more than 10% in bonds, cash or other easily sold, liquid assets? If you don’t have safe assets to sell in an emergency, you are financially vulnerable. Just over a quarter of those in the surveys have what amounts to an emergency fund.
  • Is your total debt service each month less than 40% of household income? This is a widely accepted threshold. A higher percentage likely means you are having trouble saving for retirement, emergencies, and large expenses.

The average score on the 5 questions was 3, meaning that the typical respondent—perhaps your neighbor—had healthy financial habits 60% of the time. That equated to a median net worth of $100,000. Those who scored higher had a higher net worth, and those who scored lower had a lower net worth.

In general, younger people and minorities scored lowest, while older people and whites scored highest. Education was far less relevant than age. “This may be due to learning better financial habits over time, getting beyond the financial challenges of early and middle adulthood and the benefit of time in building a nest egg,” the authors wrote.

It should come as no surprise that healthy financial habits lead to greater net worth over time. But the survey suggests a staggering advantage for those who ace all five questions. One of the lowest scoring groups averaged 2.63 out of 5, which equated to median net worth of $25,199. One of the highest scoring groups averaged 3.79 out of 5, which equated to a median net worth of $824,348. So these five questions not only give you an idea where your neighbors may stand—they pretty much show you a five-step plan to financial security.

MONEY Savings

Why a New Year’s Resolution to Save More May Actually Work

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Benne Ochs—Getty Images

The economy is up, and New Year's Resolutions are on the decline. Too bad, because making a financial commitment can really help you reach your goals.

Most New Year’s resolutions are pointless. Only one in 10 people stick with them for a year, and many folks don’t last much more than a month. But as 2015 approaches, you might consider a financial New Year’s resolution anyway. Those who resolve to improve their money behavior at the start of the year get ahead at a faster rate than those who do not, new research shows.

Among those who made a financial resolution last year, 51% report feeling better about their money now, according to a new survey from Fidelity Investments. By contrast, only 38% of those who did not make a money resolution said they felt better.

Meanwhile, New Year’s financial resolutions seem to be easier to stay with: 42% find it easier to pay down debt and save more for retirement than, say, lose weight or give up smoking. Among those who made a financial resolution last year, 29% reached their goal and 73% got at least half way there, Fidelity found. Only 12% of resolutions having to do with things like fitness and health do not end in failure, other research shows.

So it is discouraging to note that the rate of people considering a New Year’s financial resolution is on the decline: just 31% plan to make one this year, down from 43% last year. A fall financial pulse survey from Charles Schwab is slightly more encouraging: 36% say they want to get their finances in order and that working with a financial planner would most improve their life. But a bigger share say they are most concerned with losing weight (37%) and would like to work with a trainer (38%). Topping the financial resolutions list in the Fidelity survey, as is the case nearly every year, are saving more (55%), paying off debt (20%) and spending less (17%)—all of which are closely connected. The median savings goal is an additional $200 a month.

Why are financial resolutions on the decline? The stock market has been hitting record highs, unemployment has dipped below 6% and the economy is growing at its fastest pace in years. So the urgency to tighten our belts felt during the Great Recession and immediate aftermath may be lifting.

But no matter how much the economic climate has improved, Americans remain woefully under saved for retirement and paying off debt is almost always a smart strategy. In the Schwab survey, 53% said if they were given an unexpected gift this year their top choice would be cash to pay down credit cards. One key to sticking to your New Year’s pledge: track progress and check in often. Two-thirds of those who set a goal find progress to be motivating, Fidelity found. That’s true whether you are trying to lose 20 pounds or save $20 a week.

More on saving and budgeting from Money 101:

How can I make it easier to save?

How do I set a budget I can stick to?

Should I save or pay off debt?

MONEY working in retirement

This Is the Toughest Threat to Boomers’ Retirement Plans

Most employers say they support older workers. But boomers don't see it, and age discrimination cases are on the rise.

As the oldest boomers begin to turn 70 in just over a year, an important workplace battleground already has been well defined: how to accommodate aging but productive workers who show few signs of calling it quits.

Millions of older workers want to stay on the job well past 65 or 68. Some are woefully under saved or need to keep their health insurance and must work; others cling to the identity their job gives them or see work as a way to remain vibrant and engaged. At some level, almost all of them worry about being pushed out.

Those worries are rooted in anecdotal evidence of workers past 50 being downsized out of jobs, but also in hard statistics. Age discrimination claims have been on the rise since 1997, when 15,785 reports were filed. Last year, 21,396 claims were recorded. Not every lawsuit is valid. But official claims represent only a fraction of incidents where older workers get pushed out, lawyers say.

One in five workers between 45 and 74 say they have been turned down for a job because of age, AARP reports. About one in 10 say they were passed up for a promotion, laid off or denied access to career development because of their age. Even those not held back professionally because of age may experience something called microaggressions, which are brief and frequent indignities launched their direction. Terms like “geezer” and “gramps” in the context of a work function “affect older workers” and erode self-esteem, write researchers at the Sloan Center.

These are serious issues in the context of a workforce where many don’t ever plan to retire. Some 65% of boomers plan to work past age 65, according new research from the Transamerica Center for Retirement Studies. Some 52% plan to keep working at least part-time after they retire. In a positive sign, 88% of employers say they support those who want to stay on the job past 65.

But talk is cheap, many boomers might say. In the Transamerica survey, just 73% of boomers said their employer supports working past 65. One way this skepticism seems justified: only 48% of employers say they have practices in place to enable older workers to shift from full-time to part-time work, and just 37% say they enable shifting to a new position that may be less stressful. Boomers say the numbers are even more dismal. Only 21% say their employer will enable them to shift to part-time work, and just 12% say their employer will facilitate a move to a position that is less stressful.

These findings seem at odds with employers’ general perceptions about how effective older workers are. According to the survey:

  • 87% believe their older workers are a valuable resource for training and mentoring
  • 86% believe their older workers are an important source of institutional knowledge
  • 82% believe their older workers bring more knowledge, wisdom, and life experience
  • Just 4% believe their older workers are less productive than their younger counterparts

The reality is that most of us will work longer. The Society of Actuaries recently updated its mortality tables and concluded that, for the first time, a newborn is expected to live past 90 and a 65-year-old today should make it to 86 (men) or 88 (women). The longevity revolution is changing everything about the way we approach retirement.

Employers need to embrace an older workforce by creating programs that let them phase into retirement while keeping some income and their healthcare, by offering better financial education and planning services, and by declaring an age-friendly atmosphere as part of their commitment to diversity.

For their part, employees must take steps to remain employable. Most are staying healthy (65%); many are focused on performing well (54%), and a good number are keeping job skills up to date (41%), Transamerica found. But painfully few are keeping up their professional network (16%), staying current on the job market (14%) or going back to school for retraining (5%). Both sides, it seems, could do better.

Read next: How Your Earnings Record Affects Your Social Security

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