Retirement insights from a Colorado PERA perspective

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<h4 class="wp-block-heading"><a href="https://money.com/irs-free-file-2024-eligibility/" target="_blank" rel="noreferrer noopener">IRS Launches Free File for 2024 Tax Season With Major Eligibility Expansion | Money</a></h4>



Tax season is nearly upon us — the IRS says it will begin accepting tax returns on January 29. In addition, the IRS has raised the maximum income for using the online Free File system. Taxpayers with adjusted gross income up to $79,000 can now take advantage of the free guided tax prep program.



<h4 class="wp-block-heading"><a href="https://www.reuters.com/markets/us/us-consumer-sentiment-rises-solidly-january-2024-01-19/" target="_blank" rel="noreferrer noopener">US Consumer Sentiment Races to 2-1/2-Year High; Inflation Expectations Ease | Reuters</a></h4>



Many economists are expressing increased optimism about the U.S. economy as the new year gets underway, and it appears many consumers agree. A major index that measures consumer sentiment jumped significantly this month, hitting its highest level in more than two years.



<h4 class="wp-block-heading"><a href="https://content.copera.org/news-you-should-know-irs-expands-free-file-program-ahead-of-tax-season/" target="_blank" rel="noreferrer noopener">401(k) Experiment Has Failed, Fueled U.S. Retirement Crisis, Labor Economist Says</a></h4>



The transition from widely available defined benefit pension plans to defined contribution plans like 401(k)s has led to generations of private-sector workers being unprepared for retirement, according to labor economist and author Teresa Ghilarducci. She argues that there’s enough data to show the change has been a failure and many workers are now forced to retire earlier than expected, exacerbating the problem.



<h4 class="wp-block-heading"><a href="https://www.cnbc.com/2024/01/10/62percent-of-adults-age-50-and-older-have-not-used-an-advisor-for-retirement.html" target="_blank" rel="noreferrer noopener">62% of Adults Age 50 and Older Have Not Used an Advisor for Retirement | CNBC</a></h4>



If you’re planning for retirement, enlisting the help of a professional can provide peace of mind, but a recent survey found that more than 60% of Americans in the 50-plus age group have never consulted with a finance pro. And while 30 percent of those survey respondents said they haven’t done so because they can’t afford to, an even larger share said they prefer to handle their finances on their own. &nbsp;



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News You Should Know is a digest of news from publications around the nation about finance, investing, and retirement.

News You Should Know: IRS Expands Free File Program Ahead of Tax Season

April 2021 is Financial Literacy Month. Now in its eighteenth year, the month has kept its focus on the original goal, as stated in the original 2004 Senate Resolution: 



<blockquote class="wp-block-quote">“to raise public awareness about the importance of financial education in the United States and the serious consequences associated with a lack of understanding about personal finances.”</blockquote>



President Biden has also <a href="https://www.whitehouse.gov/briefing-room/presidential-actions/2021/03/31/a-proclamation-on-national-financial-capability-month-2021/" target="_blank" rel="noreferrer noopener" class="broken_link">proclaimed</a> April to be National Financial Capability month, saying: 



<blockquote class="wp-block-quote">“High-quality financial education should build on and respond to people’s individual strengths, circumstances, and needs in order to help them work toward their own unique goals.”</blockquote>



<h4 class="wp-block-heading">What is “Financial Literacy”?</h4>



There is no single measure for financial literacy. Google “financial literacy quiz”, and you could spend an entire day taking tests. 



For example, the National Financial Educators Council has created a half-dozen quizzes that ask general awareness questions on a wide array of topics (including <a href="https://www.financialeducatorscouncil.org/national-financial-capability-test/" target="_blank" rel="noreferrer noopener">standard</a> and <a href="https://www.financialeducatorscouncil.org/advanced-financial-education-test/" target="_blank" rel="noreferrer noopener">advanced</a> versions).



About 59% of more than <a href="https://www.financialeducatorscouncil.org/national-financial-literacy-test/" target="_blank" rel="noreferrer noopener">60,000 test-takers</a> passed the standard test referenced above, and the average score was 68%.



But what makes a particular personal finance topic relevant — paying off debt, owning a home, planning for retirement, and more — depends on the circumstances each person faces and the tools they have at their disposal. These, of course, can vary.



So, while quizzes like these are a fun way to gauge general awareness about financial topics, they aren&#8217;t the best measure of literacy on an individual basis. What, then, does it mean to be “literate?”



<h4 class="wp-block-heading">Bridging the Gap Between Knowledge and Action</h4>



Financial knowledge can equip a person to make more informed decisions. But without action, knowing about personal finance adds nothing to a person’s net worth. A person who saves 3% of their salary in a 401(k) but who isn’t confident they know how a 401(k) works is probably better off than a person who knows every detail about 401(k) accounts but who has no savings and has no plan to start.



In a sense, a person achieves literacy when they implement financial knowledge into their life in a tangible way. It’s similar to learning a language: Memorizing vocabulary words on flash cards is an important step in learning, but it takes more than a vocabulary to have a conversation or become fluent.



PERA offers members a variety of tools and resources to bolster financial literacy. One way to help understand what’s available is to think about each resource as either education-oriented or action-oriented. A few examples are shown below:



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<figure class="wp-block-table alignleft"><table class="has-subtle-pale-green-background-color has-background"><thead><tr><th>Education</th><th>Action</th></tr></thead><tbody><tr><td> PERA partners with employers by offering free workshops about how to make sense of investing.</td><td>PERA members can enroll in a PERAPlus 401(k) with their employer or in PERAPlus 457 directly online. (more info <a href="https://www.copera.org/recap-of-pera-boards-september-meeting" target="_blank" rel="noreferrer noopener" class="broken_link">here</a>)</td></tr><tr><td>PERA offers <a href="https://www.copera.org/members/webinars" target="_blank" rel="noreferrer noopener">webinars</a> about planning for retirement.</td><td> Refine your own individual retirement plan. <a href="https://content.copera.org/are-public-sector-workers-satisfied/" target="_blank" rel="noreferrer noopener">Meet</a> with a PERA representative if you have additional questions about your PERA benefit. </td></tr></tbody></table></figure>











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<h4 class="wp-block-heading">The Importance of a Plan</h4>



Financial literacy is important. While it takes more than simply memorizing financial principles to reap the rewards, having a baseline of knowledge is an invaluable part of becoming financially secure. Not surprisingly, a lack of financial knowledge is a <a href="https://www.thebalance.com/overcome-excuses-and-save-money-4129534" target="_blank" rel="noreferrer noopener">common</a> <a href="https://www.thesimpledollar.com/save-money/not-saving-enough-the-reasons-why-might-surprise-you/" target="_blank" rel="noreferrer noopener">barrier</a> to getting started.&nbsp;



So in recognition of Financial Literacy Month, go ahead – take an online quiz. Test your knowledge against others. But when you’re done, go a step farther. Strive for true literacy. Keep learning, and find ways to apply what you know.

Making Sense of Financial Literacy

<h4 class="wp-block-heading">A digest of news from publications around the nation about finance, investing, and retirement</h4>



<a href="http://money.com/money/5655644/how-to-wean-your-adult-children-off-the-bank-of-mom-and-dad/" class="broken_link">How to wean your children off the bank of mom and dad</a> | <a href="http://money.com/">Money</a>



If you’ve been lending a financial hand to your adult kids –
from covering their car insurance or cell phone bills all the way to paying for
their rent or down payment on a home – you have plenty of company. But
financial planners caution that your generosity may be unwittingly jeopardizing
your retirement.



<a href="https://squaredawayblog.bc.edu/squared-away/half-of-retirees-afraid-to-use-savings/">Half of retirees afraid to use savings</a> | <a href="https://squaredawayblog.bc.edu/">Squared Away Blog</a>



For most retirees, figuring out
how much money to withdraw from savings every year is a difficult-to-impossible
math problem. But the issue goes much deeper: fears about what the future might
bring make this decision overwhelming. Extreme caution is a popular solution.
Vanguard recently reported that retirees with very modest savings turn around
and reinvest a third of the money they’re required to withdraw under IRS rules
after age 70½. People saved all of their lives to make sure they will enjoy
retirement. So why are they so reluctant to spend the money for the purpose it
was intended?



<a href="https://www.marketwatch.com/story/4-costly-scams-targeting-older-people-that-you-should-know-about-but-probably-dont-2019-09-26">4 Costly scams targeting older people that you should know about — but probably don’t</a> | <a href="https://www.marketwatch.com/">MarketWatch</a>



While it’s hard to put an exact figure on how much elder
financial abuse costs older Americans – in part because much of it goes
unreported – <a href="https://www.ncoa.org/public-policy-action/elder-justice/elder-abuse-facts/">estimates range
widely from $2.9 billion to $36.5 billion annually.</a> What’s more, large numbers
of older people are unaware of some of the common scams that swindlers use on
them, according to&nbsp;<a href="https://content.copera.org/retirement-roundup-how-to-wean-your-children-off-the-bank-of-mom-and-dad/">data fromAIG Life &#038; Retirement</a>.



<a href="https://www.cnbc.com/2019/09/20/you-may-have-more-time-than-you-think-to-achieve-financial-security.html">Think time isn&#8217;t on your side? These late savers are all on track to hit financial independence</a> | <a href="https://www.cnbc.com/">CNBC</a>



Click on any story about someone
who started saving in a 401(k) plan on her first job. Or read about a guy who
opened a Roth IRA with his first high school summer job earnings. Fast forward
15 years to your own age, and these people are now sitting on a tidy sum that’s
many times what you’ve managed to set aside. But take heart. It’s true that the
earlier you start, the less you have to save each month. Yet getting started
late is better than never starting at all. A few examples of successful savers,
age 50 and over, could be the inspiration you need.



<a href="https://www.consumerreports.org/retirement-planning/why-indexed-annuities-may-promise-more-than-they-deliver/">Why indexed annuities may promise more than they deliver</a> | <a href="https://www.copera.org/retirement-roundup-how-to-wean-your-children-off-the-bank-of-mom-and-dad" class="broken_link">Consumer Reports</a>



Financial planners and regulators
are increasingly warning consumers to think twice about buying a popular
annuity that promises better-than-average returns but carries high fees. Sales
of indexed annuities, as they are known, have soared in recent years. But they
are extremely complex, carry high fees and surrender charges, and often fall
short of their promised returns.



<a href="https://www.nextavenue.org/financial-stress-americans/">The 3 big financial pain points of Americans</a> | <a href="https://www.nextavenue.org/">NextAvenue</a>



If you look only at the nation’s low, 3.7 percent
unemployment rate, it would be easy to assume that the economy is humming and
that Americans are feeling great about their finances. But data from recent
surveys suggests that many people are actually feeling three big financial pain
points: caregiving and family assistance; health costs; and not enough savings
but too much debt.

Retirement Roundup: How to wean your children off the bank of mom and dad

A digest of
timely information and insight about finance, investing, and retirement.



<a href="https://www.usatoday.com/story/money/2019/05/08/how-much-retirement-savings-will-you-need/39450047/">How much retirement savings will you need? Try 16.4 times your salary</a> | <a href="https://www.usatoday.com/">USA Today</a> One of the most challenging elements of saving for <a rel="noreferrer noopener" href="https://www.fool.com/retirement/2018/07/23/retirement-advice-for-every-decade.aspx?utm_campaign=article&amp;utm_medium=feed&amp;referring_guid=1b66adde-df39-4190-91af-b6358531c034&amp;utm_source=usa-today" target="_blank">retirement</a> is figuring out how much money to sock away for it. While it’s possible to estimate some of your senior living costs, factors outside your control, like inflation, tax increases, and health problems, can render your savings insufficient even if you’ve done a pretty respectable job of building a retirement nest egg. Now when you sit down to estimate how much income you’ll need to retire with, it’s common to calculate that number as a multiple of your ending salary. For example, investing giant Fidelity says older workers should aim to sock away 10 times their ending salary by age 67. But global professional services firm Aon disagrees, and in a <a href="https://www.aon.com/getmedia/59c14111-6414-46a4-adbb-0dba9e0e8676/Aon-Retirement-Solutions-The-Real-Deal-Full-Report-US-2018.aspx">recent report</a>, it finds that the average retiree will need 16.4 times his or her ending salary to cover the cost of retirement.



<a href="https://www.marketwatch.com/story/retired-people-share-the-secrets-of-early-retirement-2019-04-29">Retired people
share the secrets of early retirement</a> | <a href="https://www.marketwatch.com/">MarketWatch</a> 
The
idea of retiring early might sound heavenly, but there’s plenty to learn before
taking the leap. One person asked Quora, in a questions-and-answers forum,
“What is something that almost nobody knows about retiring early?” <a href="https://www.quora.com/What-is-something-that-almost-nobody-knows-about-retiring-early">Many answers</a> were from people
who retired in their 50s, either because they chose to retire or were forced to
leave. A few responses were from those of the “Financial Independence, Retire
Early” (FIRE) movement, where people quit their jobs in their 20s and 30s and
live off of the money they saved while living frugally and investing. The
upshot: Depending on how you prepare, early
retirement can be a blessing or a curse.



<a href="https://www.forbes.com/sites/teresaghilarducci/2019/04/19/a-nobel-laureates-plan-to-use-social-security-to-fix-the-retirement-crisis-and-why-it-wont-work/#4f1ae8d24424">Why a Nobel
laureate’s plan to use Social Security to fix retirement won’t work</a> | <a href="https://www.forbes.com">Forbes</a> 
Nobel
Prize-winning economist Richard Thaler made a splash recently by slamming
401(k)s and promoting Social Security. It was a bit surprising given Thaler’s conservative
bent. He proposed that the <a href="https://www.ssa.gov/">Social Security
Administration</a> should
get into the annuity business by allowing retirees to direct some of their
retirement savings toward their Social Security balances to beef up their
monthly payments. Thaler wants to solve a problem that all Americans with
401(k) and IRA plan balances face. How do you take $92,000 — the <a href="https://www.economicpolicyresearch.org/images/docs/research/retirement_security/Account_Balances_adjusted_appendix_tables.pdf" target="_blank" rel="noreferrer noopener">median level of holdings</a> for workers
approaching retirement age — and make it last a lifetime? That is, how do you
avoid outliving your money? Unfortunately, there are three problems with this
proposal.



<a href="https://www.copera.org/retirement-roundup-how-much-retirement-savings-will-you-need" class="broken_link">Howdo Medicare options factor into retirement plans?</a> |
<a href="https://www.kiplinger.com">Kiplinger</a> 
If you have a financial adviser, he probably spends a fair amount of time
talking about the risks you’ll face in retirement. He’ll test for risk
tolerance and discuss how your investing philosophy should change as you age.
He’ll set up an income plan and help find ways to fill any gaps between the
income sources you can rely on and what you think you’ll need for the lifestyle
you want. He may even get into the rising costs of health care — especially
long-term care — and how to better provide for those costs. But what a lot of
advisers don’t talk about, or help their clients navigate, are the health care
coverage options available through Medicare when you become eligible at age 65.
That’s a big omission, considering that in a <a href="https://nationwidefinancial.com/media/pdf/NFM-17433AO.pdf" target="_blank" rel="noreferrer noopener">2018 online survey</a> by the
Nationwide Retirement Institute, conducted by The Harris Poll, seven in 10
respondents said they wished they better understood Medicare coverage.



<a href="https://www.plansponsor.com/gen-x-struggling-retirement-readiness-confidence/">Gen
X struggling most with retirement readiness and confidence</a> | <a href="https://www.plansponsor.com/">PlanSponsor</a> 
A recent report, “<a href="https://transamericacenter.org/docs/default-source/retirement-survey-of-workers/tcrs2019_sr_what_is_retirement_by_generation.pdf">What
is ‘Retirement’? Three Generations Prepare for Older Age</a>,” prepared by the
Transamerica Center for Retirement Studies, looked at the retirement outlook of
Baby Boomers, Generation X and Millennials. All generations — Baby Boomers,
Generation X and Millennials — associate retirement with freedom, enjoyment,
and being stress-free. Among those of all ages, 72 percent are looking forward
to retirement. Among Baby Boomers, this is 81 percent. For Gen Xers, it is 70
percent, and Millennials, 68 percent. However, among all age groups, 76 percent
think people in their generation will have a harder time achieving financial
security in retirement than their parents. This is slightly lower for Baby
Boomers (69 percent), but higher for Generation X (81 percent) and Millennials
(79 percent).



<a href="https://www.cincinnati.com/story/money/2019/05/08/student-debt-retirement-saving-secured-credit-card/1134636001/">Saving
for retirement vs. college? There’s a clear winner</a> | <a href="https://www.cincinnati.com/">Cincinnati.com</a> 
Given that the average 2018 college
graduate with loans left school with about $29,800 in student debt (according
to <a href="https://studentloanhero.com/" target="_blank" rel="noreferrer noopener">studentloanhero.com</a>), the urge to shield your
kids from such a crushing burden is probably as strong as ever. The best-case
scenario is that you save for retirement and for your kids’ college fund
simultaneously. But if you’re thinking of putting all or the majority of your
savings towards college costs, resist. There are no scholarships for
retirement. There are no loans. If you’re not setting enough money aside now,
you’ll be out of luck once retirement arrives. And if you look at retirement as
basically being ‘unemployed’ for 20 or 30 years, that’s a daunting, if not
terrifying, prospect. Even scarier? You then become your kids’ problem at some
point. Do you really want to spend retirement living in their basement?

Tag Archives:

News You Should Know: IRS Expands Free File Program Ahead of Tax Season

Making Sense of Financial Literacy

Retirement Roundup: How to wean your children off the bank of mom and dad

Retirement Roundup: How much retirement savings will you need?

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