This is a repost from Forbes.

A reader contacted me this week having just finished How to Retire with Enough Money. He is proud of saving a nice nest egg, gleeful tax rates are low, but worried about the stock market. How should he spend down is money?

So, you’ve done everything right. You saved enough money for retirement – at age 65 that is about eight times the amount you want to live on annually. What can go wrong? Under our do-it-yourself retirement system, many Americans worry about the same things. Many worry about the small things – like how to spend down the money to avoid taxes – when the significant ways to maximize your income are ignored.

Also, you are likely wondering how to make your money last until you die. Money puzzles involving death are complicated and personal. Having your money managed by Vanguard will supply you with a financial advisor. They won’t be independent, but you will be in good funds with low costs.

Or, you can go to a truly independent advisor, but watch for the fees and the advisor’s incentives. I agree with Professor Zvi Bodie of Boston University, an advisor who is a fiduciary; a fiduciary is the only kind of advisor you should have. A fiduciary must disclose how the advisor is compensated along with any related conflicts of interest. You can find an advisor that upholds fiduciary standards at NAPFA, the National Association of Personal Financial Advisors.

Planning how to spend down your retirement funds is easy under our crazy system! All you have to do is know when you and your partner are going to die, what Congress will do with tax rates, and what will happen to the financial markets here and abroad. Sarcasm aside, these general rules of thumb about deaccumulation will help you:

  1. Tax rates are low, so withdraw tax-deferred 401(k)s first. But rebalance your entire portfolio of taxed and tax-deferred assets and don’t forget about your debts.
  2. Delay claiming Social Security. People want to have their money last. We are less likely to be depressed and anxious if we have guaranteed income for life, like from a traditional pension or defined benefit (DB) plan. Those of us without a DB plan still have Social Security and the present value of delaying claims is much higher than you think.
  3. Don’t worry about taxes. I know you are worried about taxes reducing the income coming out of your 401(k) or IRA. Did you know that 13 states do not tax retirement income? My big picture advice is that you can’t game the tax thing very well. You got a big break on taxes when you contributed to your retirement account and you built up assets free of tax. And, as you know, the tax rate was much higher when you were getting the tax break than it is now. Assets spent outside of your tax qualified accounts only are charged the now historically-low capital gains taxes.
  4. Use indexed funds to get a diverse overall portfolio. Instead of worrying about the “IRS monster,” worry about the next economic downturn. Diversify! You may have only stocks in your account. Instead, your account should be rebalanced to about 60 percent stocks, the other 40 in safer assets, and all should be in index funds.
  5. Do your best to smooth out your consumption over your life. The best website I can refer to you are the calculators on Dinkytown. Spend down assets in your 401(k) or taxed accounts so that you can delay claiming Social Security.
  6. Reconsider early retirement. My reader told me he was only 60 and his wife is 50. If you have normal health and longevity, you should plan to live to 90. If you are a young wife, maximize your survival benefits. Consider staying in the workforce longer. I worry about aging women. Older women’s risk of poverty skyrockets after age 80.

Here is the bottom line: ignore the taxes game and the gyrating stock market. Instead, focus on a diversified portfolio, avoiding high management fees, your long life and the very good deal you have in Social Security.

This is a repost from Forbes.

There are two kinds of dads: that in-control, flat-belly dad featured on Father’s Day ads and the American dads facing real economic anxiety. Your older dad may need that tie after all, even if he is over 60. If he is an average older man, he will try to stay in the labor market and will continue to look for work if he loses his job.

The stark truth is American men have inadequate retirement balances. The average married middle-class household in the middle 40% of the income bracket – an annual income of $79,00-$115,00 – has an average of $130,000 in their retirement accounts. This would yield about $700 per month for the rest of their life starting at age 65.

Even the average high-income married household with an older worker has just $250,000 in their retirement account. This is a fraction of what Dad needs to keep the house and living standards intact.

Did you know that men are not more likely to have pension plans than women? Over one-third of men and women approaching retirement have no retirement plan (401k) or Individual Retirement Account Plan at all. And high-income men aren’t exempt from low retirement account balances; it is shocking that among the highest earning men, 15% have no retirement savings at all.

Even if they want to, men are not likely to work much past 65 to make up for inadequate retirement savings. In fact, about 40% leave their jobs before they wanted to. Studies find that a large majority of these men say they retired. But, it wasn’t because they had enough money or because they wanted to stop work. They retired because they said work became too difficult or unpleasant. They felt pushed out because of a younger supervisor or a feeling that it was time.

Being pushed out might be on the rise for older workers. Prudential Insurance is helping employers see the importance of pushing people out for fear they will stay “past their time.” Every year an older worker stays on the job, the higher the risk that seniority salaries and health benefits cost more than the value added of the employee. They reckon that on average older workers hanging on because they can’t afford to retire could cost over $50,000.

When the next recession hits, I fear older men will be more likely to be pushed out of their jobs. That tie may be appreciated after all. Though women are almost as likely to work as men, men are more attached to their jobs. Older men feel the need to earn. The feeling of being the primary breadwinner is especially true of the third or so men with college and advanced degrees.

Most older men are married. Researchers at the Census Bureau and University of Houston found marriage has different effects on men and women. Married men work longer, married women are more likely to retire earlier.

Many people thought that less educated men retired earlier because they were less likely to be married. But another reason is that their jobs have become very hard to do. Men who retire early are more likely to be represented in manufacturing, construction, and transportation and warehousing. Older men have more physical job demands than women do. In 2014, the latest data we have, 35% of men between the ages of 55-64 have physically demanding jobs.

Dad's attachment to work is not just physically demanding. If he loses his job, he may also need a therapist. Men with little wealth men tend to become depressed if they lose their jobs after age 60. That said, older men are less likely to be depressed than women. They are less likely to die with morbidities and illness. It's unlikely he will die in his boots and not have a retirement may be lower than you think. 14% of men die without retiring.

I don’t want to be glum, just realistic. Love and connection to family makes a huge difference on elderly well-being! Really, money alone does not determine happiness.

So, be kind to Dad on Father’s Day. Listen carefully to his concerns about working at older ages.


Data from the New School

This is a repost from Forbes.

In the daily flood of claim and counter-claim about lawbreaking by President Trump and members of his Administration, on June 14 the New York State Attorney General filed suit against the state-chartered Donald J. Trump Foundation. The complaint said the foundation engaged in “persistently illegal conduct” through “repeated and willful self-dealing transactions,” treating the charity as “little more than a checkbook” for Trump’s business interests, while “directors failed to meet basic fiduciary duties,” making the foundation “little more than an empty shell.” (You can read the entire filing here.)

The suit is a sharp blow to the President, as it will be argued by New York state lawyers in state court, where Trump has no direct administrative authority. The claimed violations are severe, and if true, violate many of the most basic rules of tax-exempt charity. But perhaps even more shocking, such activities are by no means confined to just a few bad actors. Many small family foundations effectively have no regulation whatsoever, making them attractive vehicles for tax dodging, illegal self-dealing, and using tax-exempt funds for self-interested economic and political purposes.

The Trump Foundation allegedly committed many violations. Annual board of director meetings are required by law, but the foundation’s last recorded board meeting was in 1999. Foundation expenditures are required to be separate from donors’ business interests, but the suit says Trump repeatedly used tax-exempt money to cover business expenses—covering the prize costs at a golf tournament, resolving fines against Trump’s Mar-A-Largo resort, and even paying $10,000 for a portrait of Trump hung at his for-profit Doral golf club. And foundations must stay out of politics, but the suit says Trump’s campaign was assisted by direct control of charitable donations intended for veterans. (You can find details from Washington Post reporter David Farenthold, who was awarded a 2017 Pulitzer Prize for his persistent reporting on Trump’s charities and other business dealings.)

All of this will now play out in court, and also on television and Twitter. But as bad as the allegations are, they are not unique to the Trump Foundation. Experts believe that many small foundations would flunk the procedural and fiduciary tests administered here, with conduct including donations to their children’s private schools in return for favorable treatment, employing (at high salaries) donors’ relatives in foundation jobs, and paying for personal travel and other expenses disguised as charitable activity.

While some commentators argue that these charity abuses don’t amount to much, others disagree. But others disagree, seeing abusive foundation practices as eroding trust in charities while costing taxpayers billions of dollars in inappropriate foundation expenditures. The last major legislation trying to fix charitable abuses was too long ago -- 2002 Sarbanes-Oxley Act, aimed at private corporate abuses, led to some concerns among non-profit directors, but ultimately resulted in little change of regulations, behavior, and sadly norms. Perhaps the tired shibboleth that there is little appetite for increased federal oversight is wrong. Charitable organizations get substantial tax breaks at the federal, state, and local level – their tax breaks means higher taxes for us. At the federal level the tax break for charities is $64 billion in revenue not collected in 2017. To put that number in perspective, the tax expenditures for retirement plan contributions and earnings is over $140 billion. Tax breaks for the under scrutinized charities is one of the largest in our budget.

If the federal government won’t investigate, states, like New York have the responsibility to oversee private foundations, uphold the public trust, and attack tax dodging and self-dealing done behind the protective screen of charity. Let’s hope the New York effort succeeds, but let’s all advocate that such oversight not be confined to politically appealing targets like the Trump Foundation, all charities need this much scrutiny.

New School Professor Rick McGahey assisted with this blog.

This is a repost from Forbes.

After all these years of giving retirement advice and advising policy makers on retirement policy, I have come to realize the best financial advice is to delay claiming Social Security.

I am not saying that Congress should end people’s ability to collect reduced benefits at age 62. If you have no choice, then claim early. But for most of the 28 million older workers with the privilege of choice, I’d say that delaying is the best choice.

Convincing someone to delay claiming is difficult. People like lump sums. Cold hard cash. And when pressed about waiting, they may say they have a higher chance of never collecting.

Most people think they will die sooner than experts predict. On average, retired women think they will die a full 2.5 years sooner than the actuarial tables. This miscalculation will make you think delaying claiming Social Security is less valuable than it is. Because of this, the average claim age is around 63, even though benefits go up each year you wait until 70.

Many of us in the field have stories of trying to convince friends and loved ones to delay. Here is one of mine:

“Wanda, don’t collect at 62! Use the $100,000 in your 401(k) for living expenses over the next several years and then collect more in Social Security later.”

“No, I am keeping that. What if I need a heart transplant?”

For Wanda, spending down her $100,000 to delay claiming makes sense. I am assuming Wanda doesn’t have a fatal disease and doesn’t stick her head in a lion’s mouth for a living.

Now assume Wanda is making the same as the average worker. Wanda can keep her $100,000 and claim Social Security at age 62, but she will only get $1,125 a month. Or, she could delay claiming Social Security until age 70 and get a much larger monthly $1,993 from Social Security.

How would she get by in those eight years? She could spend down her $100,000 to get over $1,010 a month, just a little less than the $1,125, for eight years. But when she needs it the most, when she is older and more fragile, she will benefit from that monthly $1,993 if she can just delay.

For people born after 1960, the Social Security system boosts benefits by about 7.41% per year between ages 62-70. If you were born before 1960, it’s more generous. In 2018, a price-indexed annuity of $1,125 at age 62 is worth about $291,000. But a $1,993 monthly annuity one had to wait for to collect in 2026 is worth $307,000 today! Social Security is worth a lot, and the value should be considered when calculating how much you need.

Economists puzzle over why people don’t buy annuities even though they say they like them, especially if they think they will have a longish retirement. A 2018 study shows that 73% of respondents consider guaranteed income as a highly-valuable addition to Social Security (up from 61% in 2017) and people are less depressed and anxious if they have an annuity from a defined benefit plan rather than a lump sum to manage in a 401(k)-type plan or Individual Retirement Account (IRA).

People want simple annuities. But, the annuity product is complex with a dizzying array of details and fees, like surrender charges, expense fees, death benefit fees, etc. Vendors also price them sky-high due to adverse selection. It is no surprise people don’t buy annuities on the open market.

In short, delay claiming and get extra annuities from your valuable Social Security.

The blog was assisted by Andrew Minister who will attend MIT for graduate school next Fall.

May 2018 Unemployment Report for Workers Over 55

The Bureau of Labor Statistics (BLS) today reported a 2.8% unemployment rate for workers age 55 and older in May, a decrease of 0.2 percentage points from April.

The economy is expanding, unemployment is low, and wages are growing. But wage growth for workers over 55 is slower than wage growth for younger workers. Why? Older workers are more likely to get stranded in stagnant regions earning low wages - they are only 17% as likely to move for a job compared to younger workers. click

June Jobs Report updated2Economic growth varies by region due primarily to differences in types of industries. If their local economy slows down, older workers face higher costs of moving for a better job; they are more likely to own homes and have deeper family networks and community connections than younger workers. Older workers also have fewer working years to recoup the costs of moving. Immobility is a source of a labor market condition called monopsony power, which leaves older workers with less bargaining power and allows employers to suppress wages.

The nation needs to offer older workers trapped in bad jobs a path to a secure retirement. Strengthening Social Security and creating universal, secure retirement accounts will allow all Americans access to dignified retirements after a lifetime of work. Guaranteed Retirements Accounts (GRAs) are a proposal for individual retirement accounts funded by employer and employee contributions throughout a worker’s career paired with a refundable tax credit. Better pensions help older workers gain bargaining power in the labor market.

*Arrows next to "Older Workers at a Glance" statistics reflect the change from the previous month's data for the U-3 and U-7 unemployment rate and the last quarter's data for the median real weekly earnings and low-paying jobs.

This is a repost from Forbes.

Something’s gotta give. 10,000 people are turning 65 every day for the next few decades and a little more than half can’t afford to retire. Most of them retire anyway.

One solution: work longer and get more money! Paul Davidson of USA Today detailed cheerful profiles of older people who fired themselves from retirement and came back to work, commanding their employers to adjust their work schedules. I don’t blame Paul for the hopeful solution to the retirement crisis, but the numbers don’t support the hope. In the same week as Paul’s article, Actuary Elizabeth Bauer, a fellow Forbes contributor, cautioned many may not be healthy enough to work longer.

I estimate that of the 12 million men between the ages of 65 and 70, 4.7 million have retired but can’t support a lifestyle anywhere near what they achieved while working. Maybe they have a spouse who can support them. Maybe they became hippies and live off the grid. But they probably eat less and do less. Medical research finds that financial stress causes health to get worse, so they likely will die sooner than if they had maintained their economic status.

My research team at The New School’s Retirement Equity Lab (ReLab) estimates about 2.7 million men continue working because they can’t afford to retire. Since they are less likely to be college educated, their pay is likely to be low. Even with the recent red-hot economy and tight labor markets, wages for workers over 55 are practically frozen. The average weekly wage for full-time older workers has slowed, declining from $936 in 2016 to $811 this year.

I am worried about older Americans seeking work to avoid financial hardship in old age. The ones who need to work because of inadequate pensions and retirement wealth are more likely to have less education and be less desirable for employers. Prudential Insurance research cautions, sadly, that employees who stay past their time may be too expensive, especially when comparing the benefits of hiring a younger worker.

If we keep believing that more work will solve the retirement crisis, we are doomed to be global standouts among the community of rich nations. If we do nothing, the future of this country is high rates of both old people working and old-age poverty. The United States is one of few nations to have more than 30% of their older people working.


Even though people might think that working longer is the solution to old-age poverty, working longer could be a cause! How does that work? The hope of working longer creates a comfortable fantasy that lets us all off the hook to do something, like create a workable national pension system. A Reagan administration officer was prophetic. He saw the link between old-age work and poverty. Reagan’s Deputy Labor Secretary Malcolm Lovell told Congress in the 1980s that older Americans will need to work because Social Security was slowly being cut and employers were eroding their workplace pension plans.

I worry that we will cling to the idea that if people don’t have enough retirement income, they can just work. That hope – lifted up by the cheerful USA Today article and thousands like it – does nothing to help people save for retirement. On the other hand, a new book called Rescuing Retirement outlines steps we can take to help us all accumulate retirement savings.

Ever since the 1980s, Americans have been expected to save, work, or make do. This won’t do anymore. If we do nothing, millions more older Americans will be stranded.

Andrew Minster assisted with this blog.

We all know the Econ 101 lyrics: the economy strengthens, labor markets tighten, wages rise. But we often miss the music: Solidarity Forever. Wages do not raise themselves. It’s when workers won’t take it anymore that employers feel the need to boost wages, when capital is willing to take less, and when prosperity is shared.

In 2018, workers are rising up, and the protests are having an effect. Teachers in Arizona (see over 50,000 people protested teacher pay and low education spending in Phoenix in April), Oklahoma, and West Virginia all got raises through protest. (It’s no surprise that these states have had healthy economic growth.)

Don’t forget another protest: there were “Occupy” movements in 70 cities and in as many nations. The grievance was plain, the remedies diffuse, the aggrieved self-identified. “We are the 99%” buttons and placards drove people to the internet. How much annual income did you need to be in the 1% in 2009? I did the work for you. In 2009, the answer was $983,734. In 2015, the answer was $1,483,596 according to the IRS.

Income inequality will not fall without sustained growth and protest. Our research shows that without real wage growth, it will be hard to save for retirement. The economy at the time of the Occupy movement was not hot. In 2011, we had just been through the worst economic recession since the 1930s, and the recovery was anemic. Many families were devastated. But government policy focused on strengthening banks and bank executive bonuses, and profits snapped back quickly. The 2010 bonuses in the financial sector – a total of $144 billion - could have lifted almost all full-time minimum wage workers out of poverty that year.

Another stanza from Econ 101 is that economic growth helps everyone. This is the well-known mantra that rising tides – or hot economies - lift all boats. This means that economic growth shrinks income, economic, and opportunity gaps between classes.

Even with the hot economy we’ve had since 2016, there is no evidence that the bottom is coming up or the top is falling. In 2018, signs are that the distance has only grown wider between the middle class, or the 40% of Americans with annual incomes between $12,943 and $34,504, and the top 5% who earn more than $375,088.

In the mid-90s, the middle 40% had 30% of all annual income, and the top 5% had 15%. In 2016, the share going to the middle class fell and the share going to the top 5% increased.

The growing gap between the middle class and the very wealthy is caused by stagnant wages and rising profits. Since income for the middle class comes from work (earnings) and income for the top 5% from owning (stocks, bonds, businesses), workers did worse than owners in the last 20 years.

 graph         Calculations based on CPS data

Government rules and corporate power have made unions weaker, while laws have made owning more rewarding. Trump’s 2017 GOP tax reform law (almost all Republicans voted for it, and no Democrats, out of 240, voted for it) rested on the belief that raising corporate after-tax profits would give corporations wiggle room to raise wages and keep profits steady. Forgone government revenue – under this belief system – would be shifted to workers. Instead, the tax breaks allowed managers to buy stocks back from investors, causing stocks to go higher and wages to languish.

In the economics textbooks, hot economies and tight labor markets cause wages to rise. Nothing in this hot economy signals that the middle 40% will benefit from this boom. Are we inviting another Occupy? Time to change the textbooks or time to change the rules?

Thanks To Martha Susana Jaimes for research assistance for this post.