MONEY retirement planning

3 Ways To Prevent Overconfidence from Derailing Your Retirement Plans

Proud Rooster
George Clerk—Getty Images

You need confidence to plan for the future, but unless you have a realistic view of your skills, you're likely to sabotage your own efforts.

Confidence can be a powerful force. RAND Corporation researchers have found that people who felt confident were more likely to plan for retirement than those who were more tentative. But confidence can cut both ways.

The rub is that confidence can too easily slip over the line to overconfidence. For example, EBRI’s 2014 Retirement Confidence Survey notes that Americans’ confidence in their ability to afford a comfortable retirement has been recovering from the lows of the financial crisis. Which is good, except the report then goes on to say that this rebound in confidence isn’t backed up by better planning for retirement: “Worker savings remain low, and only a minority appear to be taking basic steps to prepare for retirement.”

Psychologists and economists have long been fascinated by The Overconfidence Effect: the tendency for people to overestimate their judgment and abilities. Frenchmen think they’re better lovers than they are; university professors overrate themselves as teachers; investment analysts have an exaggerated view of their ability to forecast stock prices. Berkeley finance professor Terrance Odean has published numerous papers showing that overconfident individual investors sabotage their investment performance by trading too much.

So, how can you reap the advantages confidence can bestow without falling prey to overconfidence? Here are three tips:

1. Challenge yourself. The next time you’re about to make an investing or retirement-planning move—say, diversify into a new asset class or convert a big portion of a traditional IRA to a Roth IRA—ask yourself for a detailed rationale of why you believe this move is necessary, what evidence supports that view and what, exactly, you expect this move to achieve for you. Then come up with reasons this strategy might fall short of expectations and assess what the downside might be. And do it in writing, as this will force you to be more rigorous in your arguments. You might also go to one of the calculators in RDR’s Retirement Toolbox and plug in new investments or other strategies to see whether they enhance your retirement prospects.

If you go through this exercise and come away still convinced you’re doing the right thing, fine. Proceed with your plan. But if you raise issues that highlight potential weaknesses you hadn’t really thought through, you may want to hold off until you do more research, or just scale back your original plan (invest less than you’d originally intended in that ETF or convert a smaller amount to a Roth).

2. Keep a record. I don’t know about you, but I tend to remember clearly the times I was right about something and forget or gloss over the times I was wrong. That’s only natural. But to protect against this instinct—and give yourself valuable perspective on how often future events prove that your analysis (or gut instinct) was right or wrong—jot down your various predictions and date them. Believe that small-cap stocks are about to surge or inflation is poised to spike or the value of the dollar will fall? Write it down. That way you’ll be able to check back and see how good a financial seer you really are.

Here’s an exercise you can do right now. Think back to when the market was still on a roll before hitting the wall in 2008. Were you predicting stock prices were about to plummet? Did you act on that prediction? How about back in 2010 when everyone was absolutely convinced the bond market was in a bubble and prices were about to burst? Were you part of the bubble crowd? Bond prices did eventually drop and hand investors an annual loss. But that didn’t happen until three years later in 2013, and the loss was hardly devastating: about 2%. Meanwhile, people who fled bonds to hunker down in cash lost out on a gain of nearly 20% from 2010 through 2012, a three-year span during which money market funds and the like returned a total of less than 0.5%.

3. Put yourself on a short leash. It would be nice to think we act only after rationally thinking things through. But humans always have and always will also act impulsively and irrationally. So rather than trying (probably unsuccessfully) to completely stifle that impulse, you may be better off indulging it, but within strict limits. One way to do that: set aside a small amount of money in an “experimental” reserve account that you can invest or use however you please. The only stipulation is that this money remain separate from your regular savings and investments so you can easily see how well, or badly, your reasoned analyses, hunches, gut instincts, fliers (whatever you want to call them) turned out.

Who knows, if this account grows in value over the years, you may want to incorporate some of your “experiments” into your investing strategy. But if this account lags the growth of your regular portfolio or seems to be slowly seeping away, it may provide just the incentive you need to leaven your confidence with a little humility before you make your next financial decision.

Walter Updegrave is the editor of He previously wrote the Ask the Expert column for MONEY and CNNMoney. You can reach him at


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MONEY Medicare

What You Need to Know About Medicare Open Enrollment

You can shop for a new drug plan starting October 15. Getty Images—Getty Images

Your once-a-year chance to change your drug coverage or switch plans begins in two weeks. Here's what to expect.

Medicare beneficiaries who want to make changes to their prescription drug plans or Medicare Advantage coverage can do so starting Oct. 15 during the Medicare’s program’s annual open enrollment period. There will be somewhat fewer plans to pick from this year, but in general people will have plenty of options, experts say.

And although premiums aren’t expected to rise markedly overall in 2015—and in some cases may actually decline—some individual plans have signaled significantly higher rates. Rather than rely on the sticker price of a plan alone, it’s critical that beneficiaries compare the available options in their area to make sure they’re in the plan that covers the drugs and doctors they need at the best price.

The annual open enrollment period is also a once-a-year opportunity to switch to a private Medicare Advantage plan from the traditional Medicare fee-for-service plan or vice versa. Open enrollment ends Dec. 7.

Although the Centers for Medicare and Medicaid Services has released some specifics about 2015 premiums and plans, many details about provider networks, drug formularies and the like won’t be available until later this fall. Here’s what we know so far:

Standalone Prescription Drug Plans

The number of Part D standalone prescription drug plans (PDPs) will drop 14%, to 1001 plans. This is the smallest number of offerings since the Medicare Part D program began in 2006.

Even so, “seniors across the country will still have a choice of at least two dozen plans in their area,” says Tricia Neuman, director of the Program on Medicare Policy at the Kaiser Family Foundation (KHN is an editorially independent program of the foundation.)

The drug plan consolidations that are driving the reductions in choices will likely shift many beneficiaries into lower cost plans, resulting in an average premium decline of 2%, to $38.95, according to an analysis by Avalere Health.

But that overall average premium obscures significant price hikes by some of the biggest plans. The average premium for the WellCare Classic plan, for example, will increase 52% in 2015, to $31.46, while the Humana Walmart RxPlan premium will rise 24%, to $15.67, according to Avalere.

Insurers are expected to continue to shift more costs to beneficiaries next year. The percentage of PDP plans with no deductible will decline to 42% from 47%, and, once again, about three quarters of plans won’t offer any coverage in the “donut hole”— the coverage gap in which beneficiaries are responsible for shouldering a greater share of their drug costs.

Underscoring the importance of evaluating plan options, 70% of standalone drug plan members will likely see their premiums increase if they stick with the same plans in 2015, says Ross Blair, senior vice president for, an online vendor.

Seniors, though, have historically not voluntarily switched plans in great numbers during annual enrollment. Between 2006 and 2010, on average only 13% did so, according to a 2013 analysis by researchers at Georgetown University, KFF and the University of Chicago.

Medicare Advantage

Enrollment in Medicare Advantage plans continues to grow: 30% of Medicare beneficiaries are now in the private plans, which typically are managed care plans that often provide additional benefits such as vision and dental coverage. Concerns that Medicare Advantage plans would disappear in large numbers as the health law gradually reduces their payments to bring them in line with the traditional Medicare program have proven unfounded to date. In 2015, the number of plans will drop by 3%, to 2,450, continuing a gradual decline.

“You still have lots of plans and robust selection,” says Caroline Pearson, vice president at Avalere Health, a research and consulting firm. Some parts of the country appear to be harder hit by plan reductions than others, including the Southeast and mid-Atlantic regions, Pearson says.

Medicare Advantage coverage has always been concentrated in health maintenance organizations, and this trend will continue in 2015. The number of HMOs will increase by 1.5%, to 1,747, while the number of preferred provider organizations will drop by nearly 9%, to 541, according to Avalere. About two-thirds of Medicare Advantage beneficiaries are currently in HMOs, while 31% are in PPOs.

The average premium will increase by $2.94 to $33.90, but nearly two-thirds of beneficiaries won’t see any premium increase, according to CMS. Like standalone drug plans, however, fewer Medicare Advantage drug plans will offer no deductibles and gap coverage, according to Avalere.

“It’s one example of how plans are tightening up coverage,” and pushing more costs onto consumers, says Pearson.

Kaiser Health News is an editorially independent program of the Henry J. Kaiser Family Foundation, a nonprofit, nonpartisan health policy research and communication organization not affiliated with Kaiser Permanente.

MONEY 401(k)s

What Bill Gross’s Pimco Departure Means for Your 401(k)

The people who tell companies what retirement-plan investments to offer employees are questioning the value of the giant Pimco Total Return bond fund.

Bill Gross’s sudden departure from Pimco and the Total Return Fund he ran for 27 years was the last straw for Jim Phillips, president of Retirement Resources, a Peabody, Mass. firm that advises 401(k) plans with $50 million to $100 million in assets. He’s advising clients to head for the exits.

After 16 straight months of outflows and a 3.5% return over the past year, worse than 75% of its peers, the $222 billion Total Return Fund is failing Phillip’s standards when it comes to meeting the retirement needs of his customers.

“We do not have ongoing confidence in the way the fund is being managed,” Phillips said. “We are recommending to clients that we replace this fund with another one.”

Philips said he joined a conference call Monday with Pimco chief executive Doug Hodge and some of the company’s portfolio managers, but said the conversation “doesn’t change any actions that we have planned.”

About 27,000 of the largest corporate 401(k) plans in the country had money in the Total Return Fund as of the end of 2012, according to the most recent data from BrightScope, which ranks retirement plans. The roster includes Walmart’s $18 billion plan, the largest in the country by assets, as well as Raytheon’s and Verizon’s.

Total Return holds $88.3 billion of the $3 trillion in 401(k) assets listed in BrightScope’s database of more than 50,000 of the largest plans, the biggest mutual fund in the database.

Walmart didn’t return calls, and Raytheon and Verizon declined to comment for this article.

Phillips isn’t alone in his dissatisfaction with the fund — investors have pulled $25 billion from Total Return Fund so far this year. But a bad year that began with a public falling out between Gross and top deputy Mohamed El-Erian in January and has now seen the Pimco co-founder quit is causing many 401(k) plan consultants and advisers to put the Total Return Fund on their watch lists, and in some cases start replacing it.

Though companies usually make decisions about where to invest their retirement funds during investment committee meetings, which typically occur quarterly, Gross’ exit could prompt companies to have meetings or calls sooner than scheduled, said Martin Schmidt of H2Solutions, a Wheaton, Ill. consultant for 401(k) plans with assets from $150 million to $4 billion.

“I have sent out emails to clients telling them that we need to start looking at alternatives,” Schmidt said. He said he hasn’t heard from anyone at Pimco.

Once an employer decides to switch a fund out of its plan, it can take three to five months to make the change and give employees the required 30-days’ notice.

Jump Ship

Gross’s new fund, the $13 million Unconstrained Bond Fund from Janus Capital, is unlikely to be the destination for any funds that decide to jump ship on Total Return, given that it’s only been in operation since May and has produced a negative 0.95% return since inception, according to Morningstar.

“We have to see at least a three-year track record and we actually prefer five,” said Troy Hammond, president and chief executive officer of Pensionmark Retirement Group, a Santa Barbara, Calif. adviser that serves over 2,000 small 401(k) plans across the country.

There is also the question of whether Gross will have the same level of support and resources at Janus as he did at Pimco.

“If Bill were leaving with the top 10 people from Pimco, like Jeffrey Gundlach did when he left TCW, that would be different,” said Mendel Melzer, chief investment officer for the Newport Group, a Heathrow, Fla. consultant to institutional investors, including 401(k) plans with assets between $20 million and $1.5 billion. “But this is just Bill Gross leaving on his own, and it is hard to say that the track record he accumulated at Pimco should translate into the Janus fund.”

Melzer is advising clients to see how the new Pimco team does with the Total Return Fund, which has been on Newport’s watch list since earlier this year.

“We will keep it on a very short leash,” Melzer said. “If it does not improve in the next two quarters we will look at alternatives.”

MONEY Social Security

The Social Security Mistake Even Its Reps Are Making

The rules surrounding claiming requirements are so complicated that the official source of information doesn't always get them right. Here's some guidance that will save you money—and keep you from settling for bad advice.

Claiming Social Security benefits is an exercise in timing. Benefits are pegged to what the agency calls your Full Retirement Age, or FRA, 66 for those now near retirement. Claim too early—or too late—and you could be out truly big bucks.

First, there are early retirement reductions. For example, if you file at the earliest claiming age of 62, your benefits will be reduced by up to 25 percent. Early claiming reductions are even greater for spousal benefits: up to 30 percent if a spouse files at 62 versus 66.

The agency also has rules affecting the maximum benefits that qualifying family members may receive based on a person’s earnings record. So if a worker files early, the whole family stands to lose benefits.

The effects of early claiming don’t end there. If a person files for spousal benefits before reaching their FRA, Social Security deems them to be filing at the same time for their own retirement benefits. They will receive the greater of the two amounts, but will not be able to file a restricted application for just the spousal benefit.

Further, they will not be able to suspend their own retirement benefit and take advantage of Social Security’s delayed retirement credits, which add 8% a year to someone’s benefits, adjusted for inflation, between the ages of 66 and 70.

When someone has reached their FRA, however, such deeming no longer applies. The claimant can file for just the retirement or spousal benefit, receiving its full value while letting the second benefit rise in value until they switch to it at a later date.

These are complicated rules. Even if you understand them, Social Security representatives may not, or there may be communications and misunderstandings.

That’s what happened to Steve Hirsh, from Ridgeland, Miss. After reaching his FRA, Hirsh filed for his retirement benefit. His wife, who is younger, has not reached her FRA and has not yet filed for any benefit. The couple’s plan, Steve wrote, is for his wife to claim a spousal benefit at age 66, which would equal half of Steve’s benefit at his FRA.

At the same time, she would suspend her own retirement benefit for four years. Then, when she turned 70, she would stop receiving spousal benefits and begin taking her own retirement benefits, which would have risen during four years of delayed retirement credits and reached their maximum amount.

Steve’s plan is sound, but he said that Social Security didn’t see it that way. “I have been told repeatedly by various Social Security reps that she cannot file for the spousal option because her [earnings] base is more than half of mine,” he wrote to me via email. In other words, her retirement benefit from her own work record would be larger than her spousal benefit from Steve’s work history. “Is the Social Security office correct that we can’t do this because of the relative values of our full base amounts?”

Steve got bad advice from Social Security. Repeatedly. The relative values of a couple’s Social Security earnings can come into play if either spouse files for benefits before reaching FRA and is deemed to be filing for multiple benefits. But deeming ends at FRA, and the relative values of a couple’s covered earnings does not restrict their ability to collect a benefit.

I asked Steve to take another crack at Social Security, and he did. This time, the agency got it right. He sent me the agency’s response, which said in part, “Please note that deemed filing is not applicable for a claimant who is full retirement age (FRA). If an individual is FRA, he or she can file for a spousal benefit and delay filing for his or her own retirement benefit until a later time.”

Steve was delighted. “This will make a significant difference in our overall retirement strategy,” he said.

Beyond congratulating him for being persistent, we should read this as a cautionary tale. Even the official source of Social Security information can make mistakes, and what you don’t know can hurt you. So, do your homework and understand Social Security benefits. If Steve and his wife had taken the agency’s earlier responses at face value, they would have lost a lot of retirement income.

Philip Moeller is an expert on retirement, aging, and health. He is an award-winning business journalist and a research fellow at the Sloan Center on Aging & Work at Boston College. Reach him at or @PhilMoeller on Twitter.

MONEY Ask the Expert

How to Live Well on Less by Retiring Overseas

Robert A. Di Ieso, Jr.

Q: I hear a lot about people retiring overseas to make their retirement savings go further. My wife and I are pretty adventurous. But can we really save money retiring in another country?

A: Retiring abroad isn’t for everyone—but more and more people are doing it. Nearly 550,000 Americans receive their Social Security benefits abroad, up from nearly 400,000 in 2000, according to the Social Security Administration. That’s a small number compared to the 43 million people over 65 receiving Social Security benefits. Still, 3.3 million of America’s 78 million Baby Boomers say they are interested in retiring abroad, according to Travel Market Report.

The growing interest in overseas living isn’t all that surprising, considering the worries of many pre-retirees about making their money last. There’s no question that you can live well on less in many countries. But to make that happen, you’ll need to plan carefully, says Dan Prescher, an editor at International Living, which publishes guides on the best places to retire overseas.

For most Americans, the biggest savings are a result of the lower prices for health care and housing overseas, says Prescher, who lives in Ecuador with his wife Suzan Haskins. The couple co-authored a book. The International Living Guide To Retiring Overseas On A Budget.

Most countries have a national healthcare system that cover all residents, and monthly premiums are often less than $100. It’s relatively easy to become a resident of another country, which typically involve proving you’ll have at least a modest amount of income, perhaps $1,000 a month.

But quality of health services varies, so research carefully, especially if you have medical problems. Even in countries with well-rated health care systems, the best services are centered around metropolitan areas. “Larger cities have more hospitals and doctors. The farther out you go, the quicker the quality falls off,” says Prescher.

Though Medicare doesn’t cover you if you live abroad, it’s still an option, and one that you should probably keep open. If you sign up—you’re eligible at age 65—and keep paying your premiums, you can use Medicare when you are back in the U.S.

Home prices, property taxes and utilities can be significantly lower in Mexico and countries in Central and South America, which are popular with U.S. retirees. In Mexico, you can find a nice three-bedroom villa near the beach for as little as $150,000, says Prescher.

But you’ll pay a premium for many other needs. Gas and utilities can cost a lot more than in the U.S. And you will also pay far more for anything that needs to be imported, such as computers and electronics or American food and clothing. “A can of Campbell soup can easily cost $4.50,” says Prescher. “You have to ruthlessly profile yourself, and see what you can or can’t live without, when you are figuring out your spending in retirement.”

Then there are taxes. As long as you’re a U.S. citizen, you have to pay income taxes to the IRS, no matter where you live or where your assets are located. Even if you don’t owe taxes, you must file a return. If you have financial accounts with more than $10,000 in a foreign bank, you must file forms on those holdings. In addition, the new Foreign Accounts and Tax Compliance Act (FATCA), which requires foreign banks to file U.S. paperwork for ex-pat accounts, has made many of them wary of working with Americans. You may also need to pay taxes in the country where you reside if you own assets there.

Check out safety issues too. Use the State Department’s Retirement Abroad advisory for information for country-specific reports on crimes, infrastructure problems and even scams that target Americans abroad.

The best way to find out if retiring abroad is for you is to spend as much time in your favorite city or village before you commit. Go during the off-season, when it may be rainy or super hot. See how difficult it is to get the things you want and what’s available at the grocery store. Read the local papers and check out online resources. In addition to International Living’s annual Best Places to Retire Overseas rankings, AARP writes about retiring abroad and publishes relocation guides.

The most valuable information will come from talking to other ex-pats when you’re visiting the country, as well a through message boards and online communities. “You’ll find that ex-pats have to have a sense of adventure and patience to understand that things are done differently,” says Prescher. “For many people, it’s a retirement dream come true.”

MONEY mutual funds

Here’s What You Need to Know About the Pimco Stampede

The headquarters of investment firm PIMCO is shown in Newport Beach, California.
The headquarters of PIMCO, in Newport Beach, California. Lori Shepler—Reuters/Corbis

$10 billion left mutual fund giant Pimco in one day after "bond king" Bill Gross announced his departure. Should you head for the exits too?

The Wall Street Journal has reported that investors on Friday pulled out $10 billion from funds run by Pacific Investment Management Co., or Pimco. The redemptions came after news of the departure of Bill Gross, the company’s chief investment officer and manager of the $220 billion Pimco Total Return bond mutual fund.

For a sense of scale: Pimco is a huge, $2 trillion money manager, so that’s 0.5% of its assets. Even so, it’s a lot of money to go out the door in one day, and the company has been struggling to hang on to investors for some time, largely as a result of Total Returns’ recent mediocre performance.

Pimco’s funds are widely held in many 401(k) retirement plans. If you don’t watch Wall Street regularly, but are tuning in now because there’s a Pimco fund in your plan, don’t be too alarmed. Mutual funds don’t necessarily decline in value just because a lot of people sell.

A fund is designed to allow investors to redeem shares each day for the value of underlying assets, and its shares don’t rise and fall based on investors’ demand for the fund. You shouldn’t worry about getting out of Pimco “too late,” and nor is there any opportunity to be had in buying “on the dip.” (A nerdish caveat: A wave of redemptions can impact performance if it forces a fund to sell investments at a bad time in order to raise cash, but managers generally design their portfolios to handle the possibility of redemptions.)

Analysts expect even more money to leave Pimco. Thomas Seidl, who follows Pimco’s parent company Allianz for Bernstein Research, predicts that between 10% and 30% of the money Pimco runs for outside clients (that is, not related to Allianz) may eventually leave the company. That adds up to $170 billion to $530 billion.

Why is the departure of one man, even a star once known as the “bond king,” triggering so many to get out Pimco?

One reason for people to go is quite rational. As Money’s Penelope Wang argued on Friday, there isn’t a great case for buying an actively managed bond fund such as Pimco Total Return, as opposed to a low cost index fund that simply tracks the wider market.

The returns on bonds don’t vary as widely as they do on stocks, which gives even the best funds less room to outperform the market average. That means a fund that keeps annual expenses low, as index funds do, starts with a big built-in advantage. Gross’s departure from Pimco is a good time for current Total Return shareholders to reassess whether they want to spend the extra money for a manager who tries to outwit the rest of the market.

But not everyone running from Pimco is going the index route. DoubleLine funds, run by Jeff Gundlach, is reporting big inflows. Gundlach is the bond world’s new hot manager. The institutional share class of his DoubleLine Total Return Bond fund earned over 5% in the past 12 months, vs. 3.5% for the comparable Pimco Total Return fund. Other investors may go to Janus, Gross’s new employer.

Bernstein’s Seidl thinks most of the outflows he anticipates will come from retail investors concerned about performance. Although Pimco has a deep management bench and impressive research capabilities, most investors picking a bond fund are making a bet on a manager’s judgement and feel for the markets. With Gross leaving Pimco, investors may not feel they have much to go on in deciding whether to hold Pimco Total Return. “Performance builds up over time — it takes a number of years,” says Seidl.

Of course, that’s assuming even performance is a helpful guide. Gross built up a brilliant record, and then misjudged the bond market in 2011, and then again in 2013. Bad luck for him, but even more so for the typical Pimco Total Return investor. As the Journal‘s Jason Zweig observes, much of the money in Gross’s fund came in after his best years, and just in time for his mediocre ones.

In short, it may make sense to go now, if you want to get costs down and taxes aren’t an issue. (Your trade won’t trigger taxes if the fund is inside a 401(k) or IRA). But think twice about trying to find the next new bond star.

MONEY mutual funds

What Investors in Pimco’s Giant Bond Fund Should Do Now

One-time star manager Bill Gross is leaving. The case for choosing an index fund for your bonds has never looked better.

For many bond fund investors, star fixed-income manager Bill Gross’s sudden leap from Pimco to Janus is a moment to rethink. Gross’s flagship mutual fund, Pimco Total Return long seemed like the no-brainer fixed-income choice. Over the past 15 years, Gross had steered Total Return to a 6.2% average annual return, which placed it in the top 12% of its peers. And based on that track record it became the nation’s largest fixed income fund.

But much of that performance was the result of past glory. Over the past five years, Pimco has fallen to the middle of its category, as Gross’s fabled ability to outguess interest rates faded. It ranks in the bottom 20% of its peers over the past year, and its return of 3.9% lags its largest index rival, $100 billion Vanguard Total Bond Market, by 0.5%.

Nervous bond investors have yanked nearly $70 billion out of the fund since May 2013. Those outflows are driven not only because of performance but also because of news stories about Gross’s behavior and personal management style. Still, Pimco Total Return holds a massive $222 billion in assets, down from a peak of $293 billion, and it continues to dominate many 401(k)s and other retirement plans as the core bond holding.

If you’re one of the investors hanging on to Pimco Total Return, you’re probably wondering, should I sell? Look, there’s no rush. Your portfolio isn’t in any immediate trouble: Pimco has a lot of other smart fixed-income managers who will step in. And even if you can’t expect above-average gains in the future, the fund will likely do okay. The bigger issue is whether you should hold any actively managed bond fund as your core holding.

The simple truth is most actively managed funds fail to beat their benchmarks over long periods. Gross’s impressive record was an outlier, which is precisely why he got so much attention. That’s why MONEY believes you are best off choosing low-cost index funds for your core portfolio. With bond funds, the case for indexing is especially compelling, since your potential returns are lower than for stocks, and the higher fees you pay to have a human guiding your fund can easily erode your gains.

Our MONEY 50 list of recommended funds and ETFs includes Harbor Bond, which mimics Pimco Total Return, as an option for those who want to customize their core portfolio with an actively managed fund. When issues about Pimco Total Return first began to surface, we recommended hanging on. But with Gross now out of the picture, we are looking for the right replacement.

If you do choose to sell, be sure to weigh the potential tax implications of the trade. Here are three bond index funds to consider:

*Vanguard Total Bond Market Index, with a 0.20% expense ratio, which is our Money 50 recommendation for your core portfolio.

*Fidelity Spartan U.S. Bond, which charges 0.22%

*Schwab Total Bond Market, which charges 0.29%

All three funds hold well-diversified portfolios that track large swaths of the bond market, including government and high-quality corporate issues. Which one you pick will probably depend on what’s available in your 401(k) plan or your brokerage platform. In the long-run, you’re likely to get returns that beat most actively managed bond funds—and without any star manager drama.

MONEY Social Security

How Student Loans Are Jeopardizing Seniors’ Retirements

Senior overwhelmed with debt
Chris Fertnig—Getty Images

Old debts are haunting retirees, as the federal government goes after their Social Security checks for repayment.

It’s a rude awakening for a growing number of seniors: They file for Social Security, then discover that the federal government plans to take part of their benefit to pay off delinquent student loans, tax bills, child support or alimony.

This month the U.S. Government Accountability Office (GAO) released findings on the problem of rising student debt burdens among retirees—and how the government goes after delinquent borrowers by going after wages, tax refunds and Social Security checks.

Under federal law, benefits can be attached and seized to pay child support and alimony obligations, collection of overdue federal taxes and court-ordered restitution to victims of crimes. Benefits also can be attached for any federal non-tax debt, including student loans.

It seems the student loan crisis isn’t just for young people. The GAO found that 706,000 of households headed by those aged 65 or older have outstanding student debts. That’s just 3% of all households, but the debt they hold has ballooned from $2.8 billion in 2005 to about $18.2 billion last year. Some 27% of those loans are in default.

If you’re among the 191,000 households that GAO estimates have defaulted, your Social Security benefits can be attached and seized.

“When that happens, the federal government pays off the creditor, and now it’s a debt to the federal government,” says Avram L. Sacks, an attorney who specializes in Social Security law. “So they can go after you for the loans—and now that students are reaching retirement age, long-forgotten debts are coming back to haunt them.”

The amounts that can be seized are limited, and the maximum amounts vary. In the case of any federal non-tax debt, including student loan debt, the government can take up to 15% of your monthly Social Security check. That’s a painful bite for low-income seniors living primarily on their benefits.

The law prohibits any attachment due to a federal non-tax debt that reduces a monthly benefit below $750. (Federal tax debt is not subject to this limitation.) Retirement and disability checks can be attached, but Supplemental Security Income—a program of benefits for low-income people administered by the Social Security Administration—is exempt.

In alimony or child support situations, garnishment is limited to the lesser of whatever maximums are set by states or the federal limit. The federal limits vary from 50% to 65% depending on how much the debt is in arrears and on whether the debtor is supporting a spouse or child. In victim restitution cases, the limit is 25% of the benefit.

Benefits can be deducted through an “administrative offset” against the amount the government sends you or through garnishment. In the case of garnishment, banks are required to protect the two most recent months of benefits that have been paid into your account, and the bank must notify you within five days that benefits have been attached.

Sacks advises people who have had benefits attached to establish stand-alone bank accounts for their Social Security deposits. “It’s much more simple and safe, and makes it much easier to trace funds,” he says.

Sacks says the government has been going after benefits more often because of changes in federal law and court rulings that have widened its powers. He urges people in their pre-retirement years to make every effort to pay off delinquent debts.

“It can be painful, but consider going to legal aid or finding a non-profit debt counselor who can help negotiate repayment. The worst thing is to ignore it.”

The government can go after delinquent debt while you’re working—but that requires a court judgment. ” are a known asset over which the federal government has total control,” says Sacks.

He adds that people sometimes are blindsided by garnishment for unpaid debts they had forgotten about. If you’re not sure about a federal debt, contact the U.S. Department of the Treasury’s Bureau of the Fiscal Service (800 304-3107), which serves as a clearinghouse for debts.

If the bureau shows a debt that you dispute, contact the agency that is owed. Do the same if your benefits already have been tapped. “Don’t try to deal with the Social Security Administration,” says Sacks. “They don’t have direct responsibility for the attachment.”

Finally, Sacks notes funds not in the bank can’t be garnished. Most people don’t hang on to Social Security benefits for long—they’re used to meet living expenses. “I hate to urge people to keep money under the mattress, but money that’s been sitting in a bank account for more than two months is exposed to attachment.”

MONEY climate change

Why It’s Hard to Divest From Fossil Fuels (Even If You Want To)

Man looking at oil rig in silhouette
Roger Milley—Getty Images

Climate change activists are pushing for investors to get out of carbon polluters. What are the options for individuals using mutual funds?

This has been a big week for climate-change activists. Some 400,000 people marched in New York on Sunday ahead of a United Nations summit on curbing carbon emissions and global warming. And the news coverage brought attention to a new protest tool: Divestment.

In recent years, college students—taking a page from campus anti-apartheid activists in the 1980s—have been pushing their schools to stop investing in fossil fuel-producing companies. The movement has spread to other kinds of nonprofits and investors. This week, the Rockefeller Brothers Fund, a philanthropy built on the Standard Oil family fortune, announced that it was already divested from coal and tar sands and was moving out of other fuels. Earlier, Stanford University said it wouldn’t put money in coal, and several cities have joined the divestment charge.

So let’s say you too want to join this burgeoning movement and get fossil fuels out of your own investment portfolio. How would you do it? It’s not going to be easy. If you have your 401(k) or IRA invested in a diversified U.S. stock fund, there’s a good chance Exxon Mobil EXXONMOBIL CORP. XOM -1.2653% and Chevron CHEVRON CORP. CVX -1.3996% are among your biggest individual stocks holdings. Those two oil giants alone represent 4% of the S&P 500 index, a standard market benchmark. Most professional fund managers think they simply have to hold energy stocks.

There’s a niche of mutual funds and ETFs that invest with the environment in mind. You have to look at them carefully to make sure they fit both your social and investment goals. Some are way too specialized and risky to use as a core piece of your portfolio. The PowerShares WilderHill Clean Energy ETF, for example, invests specifically in firms that use or develop alternative energy sources or technology. It lost an annualized 7.8% over the past five years, compared to an annualized gain of over 16% for the broad market. In short, says Morningstar analyst David Kathman, such specialty industry funds are “not something that should take up too much of portfolio.”

Other funds consider climate change alongside several other environmental and social issues in their selection of stocks, and manage not to veer too far from what you’d get in, say, a plain-vanilla S&P 500 index fund. If you have a low-cost, well-diversified index investing approach—and you should— some of these mutual funds and ETFs can indeed be a sound choice.

Just know that they won’t necessarily get you totally out of fossil fuels. The Vanguard FTSE Social Index mutual fund, which charges a low 0.28% management fee and follows an index of 376 U.S. stocks, doesn’t hold Exxon Mobil or Chevron, and is relatively light on energy stocks in general. Nonetheless, it recently included Occidental Petroleum OCCIDENTAL PETROLEUM CORP. OXY -1.9345% and Anadarko Petroleum ANADARKO PETROLEUM CORP. APC -2.1491% , both of which are on the Carbon Underground 200, a list of coal, oil and gas producers cited by many divestment activists.

Occidental and other fossil fuel companies can also be found in another solid-looking fund, TIAA-CREF Social Choice Equity. It’s not an index fund, but cuts a similar profile to one: It has low expenses of 0.48%, and doesn’t try to beat the market, but instead to get as close as possible to replicating the benchmark while removing companies that don’t pass its social and environmental screens. It’s actually done a much better job than the Vanguard fund at keeping pace with the gains of the broad stock market—over the past decade it has earned an annualized 8.4% to the S&P’s 8.3%. (Vanguard earned 7%. ) But also similar to the general market, the fund has about 10% of assets in energy companies, though again minus Exxon Mobil and some other big energy companies.

Both TIAA-CREF and FTSE, the company that runs the custom index Vanguard tracks, say that even though they own some fossil-fuel extractors, they hold significantly less than you’d get in similar funds.

The point isn’t necessarily that these funds aren’t green enough, but that they are trying accomplish something different from the aims of the new divestment ethos. TIAA-CREF, for example, will give an energy company credit for improving its environmental profile. Divestment, on the other hand, is tightly focused on spreading the idea — popularized by the writer and organizer Bill McKibben — that if the carbon reserves held by the world’s coal, oil, and gas companies were actually burned, climate change would go catastrophic. “The focus of the divestment movement is on [fossil-fuel] reserve ownership, because most of that has to stay in the ground,” says Stuart Braman of Fossil Free Indexes, which maintains the Carbon Underground 200 list.

If you really want pure fossil-free right now, there’s a handful of smaller funds that avoid fossil fuels. But they tend to have higher annual fees and most are actively managed, so you’ll have to make a judgment about managers’ stock picking skills alongside your social criteria. It’s hard to find managers who beat the market in general—all the more so when you are choosing from a small set of green funds.

More options may be coming. Braman’s company recently launched an index that is basically the S&P 500 minus the Carbon Underground list. The new index is now being used by an asset manager for institutions and high-net worth individuals. Meanwhile, FTSE has also built several indexes that exclude fossil fuels as an investment tool for the Natural Resources Defense Council, and the asset management giant BlackRock is offering strategies based on the indexes to institutions.

Neither of these new indexes are available to ordinary investors right now. But given how how many new index strategies are being tuned into exchange-traded fund these days, it may not be long before a low-cost, fossil-free ETF hits the market.

For now, though, the fact that investing fossil-free is a bit difficult isn’t entirely a bad thing for divestors. After all, their end goal isn’t to create a convenient new option for the investment equivalent of Whole Foods shoppers. Selling your stock in Exxon Mobil, by itself, doesn’t take any money away from that company. If all that happens is that some people quietly shift their IRAs to fossil-free funds, it will merely swap assets from one set of investors to another.

The point of divestment isn’t just to do it, but to fight over it. As Matt Yglesias argued at this week, divestment will be most effective if it changes the conversation. It aims to draw attention to oil, gas, and coal companies and to stigmatize them, chipping away their social and political power. (“Revoking their social license,” McKibben has called it.) New fund options could help the divestment movement mainly by making their demands on schools and institutions more plausible.

MONEY Investing

Why We Feel So Good About the Markets—and So Bad—at the Same Time

Investor and retirement optimism is at a seven-year high. Yet most people believe their personal income has topped out. What gives?

Investors are feeling better about the markets than at any time since the financial crisis, a new poll shows. But most also believe they have topped out in terms of earning power, and that the Great Recession continues to weigh on their finances.

Buoyed by stronger GDP growth, record high stock prices, and a falling unemployment rate, investors in the third quarter pushed the Wells Fargo/Gallup Investor and Retirement Optimism index to its highest mark since December 2007. Yet 56% of workers expect only inflation-rate pay raises the rest of their career, and half believe they are destined to end up living on Social Security benefits.

“At the macro level, people are feeling pretty good,” says Karen Wimbish, director of Retail Retirement at Wells Fargo. “But at the personal level, the Great Recession left a deeper wound than a lot of us realize.” The average worker believes that wage growth, which has been stagnant for decades, won’t rebound before they retire. This feeling is especially acute among the upper middle class, those making more than $100,000 a year.

The gloom is partly attributable to the national discussion about wage inequality and some evidence that only the top 1% is getting ahead. It may also reflect a sense that the U.S. is losing ground to the faster growing developing world and experiencing an inevitable relative decline in standard of living.

The Federal Reserve has been battling anemic growth for seven years through an aggressive stimulus program that includes rock-bottom short-term interest rates. This week, the two Fed governors most outspoken and critical of this policy confirmed that they would retire next year, essentially putting the Fed all-in on a growth and jobs agenda with diminishing concern over inflation and underscoring the sense of stagnation so many feel.

Most investors polled (58%) said they are doing about as well or worse than five years ago. Similarly, 63% said they are saving about the same or less than five years ago. These figures are essentially unchanged from two years ago, suggesting that investors have not made much financial headway in the recovery. Roughly half said they are still feeling the effects of the recession.

“Is it real?” Wimbish says. “Or is it emotional?” If our prospects are really so dire, how do you explain record high stock prices, strong quarterly growth, a pickup in consumer borrowing, and an improving jobs picture?

Whatever is causing the gloom, one result is that nearly a third of investors continue to shun the stock market. Those with less than $100,000 in assets avoid stocks at twice the rate as those with more than that level of savings. Arguably, those with fewer assets are precisely the ones who need to be in stocks to take advantage of their superior long-run gains and build a nest egg.

They may be worried that they have missed the rally and that it is too late to get in. But the overriding concern—expressed by 60%—is that stocks are just too risky. So as the average stock has more than doubled from the bottom and recovered all its losses, and as those who remained true to their 401(k) contribution plan through thick and thin have become flush with gains, the truly risk averse have lost valuable time. Seeing this now may be part of what makes them so glum.

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