Financial education at the office is booming—and none too soon.
Like it or not, the job of educating Americans about how to manage their money is falling to the corporations they work for—and new research suggests that many of those employers are responding.
Some 83% of companies feel a sense of responsibility for employees’ financial wellness, according to a Bank of America Merrill Lynch Workplace Benefits Report, which found the vast majority of large companies are investing in financial education programs. Among other things, companies are using the annual fall benefits re-enrollment period to talk about things like 401(k) deferral rates and asset allocation, and enjoying impressive results.
Workers are responding to other programs too. Another Merrill report found that retirement advice group sessions in the workplace rose 14% last year and that just about all of those sessions resulted in a positive outcome: employees enrolling in a 401(k) plan, increasing contributions, or signing up for more advice. Calls to employer-sponsored retirement education centers rose 17.6% and requests for one-on-one sessions more than doubled.
So a broad effort to educate Americans about money management is under way, including in government and schools—and none too soon. This year, Millennials became the largest share of the workforce. This is a huge generation coming of age with almost no social safety net. These 80 million strong must start saving early if they are going to retire. Given this generation’s love of mobile technology, it’s notable that Merrill found a 46% increase in visits to its mobile financial education platform. That means employers are reaching young workers, who as a group have shown enormous interest in saving.
“There is not a single good reason—none—that should prevent any American from gaining the knowledge and skills needed to build a healthy financial future,” writes Richard Cordray, director of the Consumer Financial Protection Bureau, in a guest blog for the Council for Economic Education. His agency and dozens of nonprofits are pushing for financial education in grades K-12 but have had limited success. Just 17 states require a student to pass a personal finance course to graduate high school.
That’s why it’s critical that corporations take up the battle. Even college graduates entering the workplace generally lack basic personal money management skills. This often translates into lost time and productivity among workers trying to stay afloat in their personal financial affairs. So companies helping employees with financial advice is self serving, as well as beneficial to employees. Some argue it helps the economy as a whole, too, as it lessens the likelihood of another financial crisis linked to poor individual money decisions.
Carlos Gomez and Jessica Grimmett-Gomez are building multiple income streams.
MONEY writer and first-time dad Taylor Tepper asks some financial pros for help prioritizing his competing financial goals.
No one aspect of parenting is in itself particularly difficult.
What makes it the hardest thing I’ve ever done in my life, however, is that one discrete task continuously leads into another and another, until you’re ground down and raw. Bedtime follows a bath, which follows dinnertime, which follows a walk, which follows a trip to the playground, which follows…which follows…which follows…
It’s exhaustion by a thousand baby steps.
Family budgeting presents a similar Sisyphean sequence. I know I should have a healthy emergency fund and contribute up to the match in my 401(k) and save for Luke’s college education. But in which order? And how am I supposed to do those things while also paying for child care, Brooklyn rent and the occasional whisky ginger?
Each financial responsibility can be fixed easily enough. In aggregate, though, it’s nearly impossible to see the forest through the trees.
One of the small advantages of reporting on personal finance, however, is that financial planners will take my calls and answer these questions for me for free. So I took advantage. What I learned may help you, too.
First: Start On Emergency Savings
“Emergency savings is about avoiding an immediate cash flow problem,” says Leesburg, Va.-based financial advisor Bonnie Sewell. “It’s the number one thing you should focus on.”
Here’s why, she explains: Without a sufficient rainy-day fund, your family is vulnerable to the vicissitudes of life (see: layoffs and car repairs and illnesses).
Now for the scariest part. Depending on your obligations and savings, and from whom you solicit advice, you should have anywhere from three to 12 months worth of expenses sitting in a bank account.
That’s madness. Between child care, rent, transportation and food, we spend at least $4,500 a month, or more than $50,000 a year. I can’t envision a world where I have $50,000 in cash, much less putting it to no use in a near-zero-rate savings account.
Pensacola, Fla. financial planner Matt Becker helped quell my panic.
He recommends tackling emergency savings in two steps: First, get about a month’s worth of expenses stowed away and then turn my attention to other priorities (see below). After I’ve found firm footing with those, I can try to build up my fund.
Next Step: Get a Start on Retirement
The next thing for me to consider is retirement.
Every expert I spoke with noted the costs of procrastinating on this one are significant. That’s because, by putting money aside for use at a later date, I’m giving up the power of compounding returns. To end up with $1 million in my 401(k) by 65, I’ll need to save almost $15,000 starting at age 30. If I wait to begin until I’m 40, I’ll need to put away around $23,500 more a year.
Of course, retirement accounts are illiquid by nature. They’re designed to reward people who wait to tap them until they’re nearing the end of their career.
Since I could also use liquid funds for things like a down payment on that house Mrs. Tepper hopes we’ll one day buy and savings for the college degree we hope Luke will one day get, Sewell says I should contribute up to my employer match and deploy the rest as follows…
Third: Set a Course for College
After I’m set up on retirement, Luke’s college savings comes into focus.
Everyone tells me to fund a 529, which allows me to invest tax-free so long as the money is used for higher education. I can also get a break on my state taxes. (Check out this article to see if you get a break on yours.)
As Melville, NY financial planner James J. Burns points out, every little bit I contribute for Luke’s college will go a long way.
For example, let’s assume that I contribute $200 a month and enjoy an average annual return of 8%. After 16 years, I’ll have amassed more than $73,000.
“That’s pretty darn good,” says Burns, who estimates that will go along way toward paying for two years of in-state tuition by the time Luke goes off to school.
Of course there’s a reason the 529 comes after retirement. “You can borrow money for college,” says Burns. “You can’t borrow money for retirement.”
Last: Grow Some Liquid Savings
Burns also recommends going over my budget annually, seeing if I can’t find more to save. If I do, I can divide that money between my emergency fund, retirement, Luke’s 529 and a taxable account through a portfolio of broadly diversified, low-cost funds for the house and our other goals.
Now that I’ve heard from the experts, I’m willing to take a more holistic approach as they suggested—patiently building up our anemic rainy day fund, contributing as much to our retirement accounts as we can afford, and making incremental additions to Luke’s college account. Whenever we earn a raise or unburden a significant cost like child care, we’ll judiciously target those extra dollars into the different buckets that will fund our lives.
But we’ll also set aside money for vacations and a few fancy dinners, even if that money could be leveraged elsewhere. The universe may be infinite, but our lives are short, and I intend to relish the occasional whisky ginger without pangs of guilt.
More From the First-Time Dad:
- Why Millennials Are in for a Worse Midlife Crisis than their Parents
- The One Benefit All Millennials Should Consider Before Accepting a Job
- Read This Before Taking a Road Trip with a Baby
- How to Cook a Real Dinner for Your Family…and Finish Before 9 p.m.
- Why Work-Life Balance is Just as Impossible for Dads
If you think about how many years you have to reach long-term savings goals, it's easy to procrastinate. A simple tweak to your thinking will get you started saving much sooner.
Human nature being what it is, probably the best strategy to ensure you’ll sock money away and achieve long-term savings goals is to involve your fickle, easily distracted brain as little as possible. As renowned economist Richard Thaler explained in a recent Q&A with MONEY, it’s very difficult for humans to control our impulses, and therefore the wisest approach to saving is to remove it as a choice. Invariably in our lives, stuff comes up, and if it’s an option, we’ll find more pressing and seemingly good uses for money other than incrementally trying to hit goals that won’t be realities for decades.
“Here’s a model of saving for retirement that’s guaranteed to fail: Decide at the end of every month how much you want to save. You’ll have spent a lot of the money by then,” Thaler said. “Instead, the way to really save is to put the money away in a 401(k) even before you get it, via a payroll deduction.”
A new study published by Psychological Science has other insights about how to boost savings. In this instance, the trick isn’t turning your brain off but tweaking the way you think about savings goals. The gist is that you must think about the future as now, rather than, well, way off in the future. And the way to go about this is to consider deadlines for your goals in terms of days rather than years.
“The simplified message that we learned in these studies is if the future doesn’t feel imminent, then, even if it’s important, people won’t start working on their goals,” said Daphna Oyserman, co-author of the study and co-director of the USC Dornsife Mind and Society Center. “If you see it as ‘today’ rather than on your calendar for sometime in the future, you’re not going to put it off.”
In one part of the study, hundreds of participants were asked about when they would start saving for their (theoretical) newborn child’s college education. Some were told they had 18 years to reach this goal, while others heard their deadline would arrive in 6,570 days. These are the exact same amounts of time, yet the people who thought about the deadline in terms of days said they would start saving four times sooner than those who considered the event in years. A similar experiment concerning retirement savings yielded equally compelling results, indicating that thinking in days makes goals seem more imminent—and kicks people into action much, much sooner.
The takeaways don’t apply just to savings, but to sidestepping procrastination in order to reach goals at work or school as well. Tricking yourself into thinking about goals in terms of days rather than years, Oyserman said, “may be useful to anyone needing to save for retirement or their children’s college, to start working on a term paper or dissertation, pretty much anyone with long-term goals or wanting to support someone who has such goals.”
Easy enrollment procedures and automatic escalation of contributions dramatically increase 401(k) participation rates and savings.
Nearly four decades into the 401(k) experiment, employers and policymakers may finally understand how to get the most from these retirement accounts—and it all boils down to a principle that Warren Buffett has long espoused: Keep it simple.
Nothing promotes participation and sound investment practices in 401(k) plans more than simple plan choices, according to a report from Bank of America Merrill Lynch. Last year, 79% of workers offered Express Enrollment in Merrill-administered plans followed through and began contributing to their plan. That compares to just 55% who enrolled after being offered a more traditional experience requiring choices about investment options and deferral amounts, Merrill found.
These findings jibe with other research that has found that inertia is most workers’ biggest obstacle to saving for retirement. A TIAA-CREF survey found that Americans spend more time choosing a flat-panel TV or a restaurant than they do setting up a retirement account. The Merrill report underscores the inertia factor, noting that, when considering how much of each paycheck to contribute, workers typically just choose the first rate listed.
Features like automatic enrollment and automatic escalation of contributions, with an opt-out provision, turn inertia into an asset. These features are now broadly employed and have greatly boosted both participation and deferral rates. Among companies with a 401(k) plan, 70% have some kind of auto feature, reports benefits consultant Aon Hewitt. Merrill found that plans with auto enrollment had 32% more participants, and those with an auto escalation feature had 46% more participants increasing their contributions.
Merrill oversees $138 billion in plan assets for 2.5 million participants and credits simplified enrollment for big gains in the number joining a plan or contributing more. The number of employers adopting Merrill’s simplified Express Enrollment more than doubled last year. Meanwhile, the number of participants raising their contribution rate jumped 18%.
A key feature of any simplified enrollment system is that workers are put into a diversified and age-appropriate target-date mutual fund, or some other option with similar characteristics, and that they begin deferring 5% or more of pay—generally enough to fully capture any employer match. Many employers also add auto escalation of contributions to keep up with raises and inflation—or to catch up if the initial deferral rate was lower. In many plans, the default rate is just 3% of pay.
Merrill found that 64% of employers now have plans with both auto enrollment and auto escalation. One in four employers who did not have both plan features in 2013 did last year.
Taking simplification further, more employers are now using the annual health benefits enrollment period to educate workers about 401(k) plans, Merrill found. As a result, twice as many workers enrolled in a plan or raised their contribution rate the second half of 2014 vs. the first half—a trend that Merrill says has been in place for several years.
If a prenuptial agreement is not in the cards, you can still keep your cash secure.
Prenuptial agreements can be a great tool for protecting assets for married couples who ultimately end up divorcing. But what happens when you don’t have a prenup? Or if you wanted one but your spouse refused to sign and you decided it wasn’t worth the aggravation? Can you still protect your assets? The answer, as is so often the case in law, is that it depends. Certain assets can absolutely be protected. Others not so much. Here is the list of ways you can protect (at least some of) your money and assets without a prenup.
1. Keep your own funds separate.
The word “commingling” is often synonymous with “lottery winnings” to one spouse; and “gambling losses” to the other. If you have an account that has funds in it that you either 1) owned prior to the marriage; or 2) received during the marriage as inheritance or a non-marital gift; and then mixed in your earnings from your pay, or joint funds from another bank account – then poof! The entire account becomes marital. Why? Because the courts consider money to be “fungible” meaning that once that marital dollar goes in, you can’t tell which dollar is coming back out. So Rule #1 – Keep your separate funds separate!
2. Keep your own real estate separate.
Many people own a home prior to getting married. Oftentimes, especially if that home becomes the home for the married couple, the homeowner decides to throw the other person’s name onto the deed. What harm could that be? Right? I mean what happens if the owner died – wouldn’t you want your spouse to have it? The answer is that once the non-owning spouse’s name is on that deed, even if it is removed again down the road, the result is that the court will presume that you have given half the value to that spouse as a gift. And yes, you can sit on the stand and testify that it was only done for “estate planning” purposes, but most times that kind of testimony just comes off as self-serving and falls flat. So, you can always create a will or trust that leaves your property to your spouse. Rule #2 – do not put your spouse’s name on the deed unless you are prepared to hand over half the value of it in a divorce.
3. Use non–marital funds to maintain non-marital property.
Here’s where the waters get murkier. It is easy enough to decide to keep your own property in your own name. The rub comes when it comes to maintaining that property. This is where the couple is using their paychecks to pay the mortgage on that property, or to make renovations or improvements to that property. Now the court is going to be faced with trying to carve out which part of the value of the property might be marital and which part of the value has remained non-marital – a tedious and tortuous task. To keep it all clean, just use your funds from your premarital or inherited account to maintain your non-marital property, too.
4. Keep bank statements for retirement accounts issued at the date of marriage.
Unlike other accounts that are commingled, if you have retirement account assets at the date of marriage, and at the time of divorce, you can produce a statement that shows what you had in that account, then the court may let you carve off that amount and divide the rest. The challenge is finding those statements sometimes. Make sure you keep statements that show if the custodian changes.
5. Get a valuation of your business around the date of the marriage.
Also unlike bank accounts that are commingled, the court has the ability to potentially carve off the appreciated value of a non-marital business. So for example, if your business was worth $1 million on the date of your marriage and worth $2 million on the date of your divorce, your spouse would be entitled to the one half of the difference or $500,000. (Or you could have just had the spouse sign a prenuptial agreement that waived any and all appreciation — but assuming you didn’t, this is the next best option).
While a prenuptial agreement is the ideal way for specifying how assets are to be divided should there be a dissolution of marriage, all is not lost if there isn’t one. By following these five steps, you can still protect some, if not all, of your premarital or non-marital assets.
The financial effects of divorce can also have an impact on your credit. So both during and after your divorce, it’s important to keep an eye on your credit reports and credit scores to watch for inaccuracies or any other problems that need your attention. You’re entitled to a free annual credit report from each of the three major credit reporting agencies through AnnualCreditReport.com. You can also get your credit scores for free from many sources, including Credit.com.
More from Credit.com
- 5 Tips for Managing Your Credit Through a Divorce
- Do You Need a Wedding Loan?
- What Happens to Your Credit When You Get Married?
- How to Save Big Without Feeling Deprivec
This article originally appeared on Credit.com.
61% of Americans expect to continue working past the age of 65
Only 21% of Americans say they plan to stop working at the age of retirement, according to a new survey.
The Transamerica Center for Retirement Studies (TCRS) surveyed 4,550 full-time and part-time workers about their retirement and savings plans. One in five said they would continue working as long as possible and 41% planned to reduce their hours. The study also found that 61% of Americans expect to continue working past the age of 65 or do not plan to retire at all.
“Today’s workers recognize they need to save and self-fund a greater portion of their retirement income,” said Catherine Collinson, president of TCRS. “The long-held view that retirement is a moment in time when people reach a certain age, immediately stop working, fully retire, and begin pursuing their dreams is more myth than reality.”
Use this tool to see how livable your town or city is for retirees.
Should you stay or should you go? That will be a key question in an aging America, as people try to decide if their homes and communities still work for them as they grow old.
A new online tool from AARP can help with answers. The free Livability Index grades every neighborhood and city in the United States on a zero-to-100 scale as a place to live when you are getting older.
There is no shortage of lists and rankings of places to live in retirement. Many are superficial, measuring factors such as sunshine, low tax rates or the number of golf courses. More thoughtful studies reframe the question to consider quality-of-life issues that affect everyone—affordability, health care, public safety, public transportation, education and culture (See Reuters’ version at reut.rs/13Bcl4h).
The new AARP tool adds value by making it possible to score any neighborhood and community in the country – and drill down into the details. Just plug in an address to see how a location scores for seven key attributes: housing, neighborhood, transportation, environment, health, civic engagement and opportunity.
Overall, the highest-ranking large city is San Francisco with a score of 66 and rose to the top due to its availability and cost of public transportation, walkability and overall levels of health. The top medium city is Madison, Wisconsin (68) and the top small town is La Crosse, Wisconsin (70).
It is telling that even the top-ranked locations get just mediocre scores. “The numbers are telling us that no community is perfect – and most are far from perfect,” says Rodney Harrell, director of livable communities at the AARP Public Policy Institute. “The goal here is to provide a tool that helps people make their communities better.”
The timing is right for discussions to get under way about making communities better places to age. The number of households headed by someone age 70 or older will surge 42% by 2025, according to the Joint Center for Housing Studies of Harvard University. Most of those households will be aging in place, not downsizing or moving to retirement communities.
What exactly is aging in place? The Centers for Disease Control and Prevention defines it as “the ability to live in one’s own home and community safely, independently, and comfortably, regardless of age, income or ability level.”
Of course, that definition does not oblige you to age in your current place. The smart move is to assess your current location – and make a move if necessary.
That is the plan recommended by gerontologist Stephen M. Golant in his new book Aging in the Right Place (Health Professions Press, February 2015).
He challenges the orthodoxy about aging in place, explaining why it is not always realistic to stay where you are. In particular, he makes the case that a home must get a cold-eyed assessment as a financial asset, with an eye toward the cost of living in it (mortgage, taxes, and insurance) and any possible repairs or remodeling that might be needed to adapt the home as you age.
But that can be a tall order, considering the emotional ties to place that we all develop.
“It’s one of the biggest issues people face, and they don’t have a lot of information about these issues,” Harrell says. “People do build emotional ties to friends and community, but they also need information to help them make sound choices.”
46% of Americans had less than $10,000 in financial assets in the last year of their life
It’s the biggest financial worry for anyone saving for retirement: will I outlive my savings and die broke?
Based on surveys repeatedly pointing to dismally low levels of retirement savings, most American households have reason to be concerned. The latest report on how many Americans die broke comes from an analysis by the Employee Benefits Research Institute based on data from the University of Michigan’s Health and Retirement Study.
Of those 85 or older who died between 2010 and 2012, roughly one in five had no assets other than a house, according to the analysis. The average home equity was…