Tag Archives: saving

How $1,000 Invested at Birth Could Change Everything

 

KidSave’ accounts may be part of a long-term solution to the retirement income problem.

In the presidential debates, we’ve heard more about Donald Trump’s anatomy than what may be the most pressing financial issue directly in front of millions of boomers: Where will they find monthly retirement income that is guaranteed for life?

The retirement industry can talk about almost nothing else, which in hindsight seems a predictable turn. Did we really believe Americans would manage their 401(k) plans well enough to stash away 25 years of post-career financial security? We haven’t come close, and in this sense the 401(k) has been a colossal failure. Now the first wave of pensionless retirees is about to land, and politicians have almostnothing to say on the subject.

One reason is that there are no quick fixes, which is why it may be time to dust off a long-term solution first floated in the 1990s and still championed by one of its architects, Bob Kerrey, the former democratic senator from Nebraska. He would like every child born in the U.S. to receive $1,000 in a “KidSave” account that would compound over 65 years before being tapped. “For most people it’s not income that matters,” says Kerry, now with investment firm Allen & Co. “It’s wealth accumulation.”

In other words, retirement security is less about what you earn and more about how much and how soon you save. Compound growth over seven decades can do a lot of heavy lifting.

Kerrey reiterated his support for what he calls “wealth accounts” last week during a discussion on the financial impact of longevity, hosted by Bank of America Merrill Lynch at the Museum of American Finance in New York. These wealth accounts would be funded at every child’s birth through a government loan, to be repaid when the child enters the workforce some 25 years later.

The initial $1,000 by itself wouldn’t make a huge difference: at 6% a year over 65 years it would produce just $44,145 in tax-deferred savings. But the existence of a wealth account from birth would encourage more saving, Kerrey believes. These accounts would be strictly off limits for 65 years and in his estimation could be enough to guarantee adequate income that will never run out later in life. If parents or grandparents, say, kicked in $20 a month for 20 years the nest egg would swell to more than $240,000 at the child’s retirement.

KidSave accounts enjoyed bipartisan support years ago but stalled amid efforts to boost other types of savings accounts and shore up Social Security. As previously envisioned, the initial deposit might be $2,000, indexed annually for inflation. That alone might produce $250,000 at age 65, Heritage Foundation found in its assessment of the program nearly two decades ago. Another version of the program called for $1,000 at birth and five annual payments of $500, which could generate a nest egg of nearly $140,000.

Why dust off KidSave accounts now? They are a relatively painless way to address a retirement income shortfall in the, yes, distant future. But as the youngest boomers and then Gen Xers retire with virtually no guaranteed income other than Social Security, the shortfall will only grow. Everything is on the table now as policymakers try to fix the retirement income issue via things like expanded Social Security, guaranteed retirement accounts, 401(k) annuities, better home reverse mortgages, and breaking down legal barriers to working longer.

Kerrey noted that without change every American now under age 40 will receive a 25% cut in Social Security benefits at retirement. We need interim steps. But we also need a long-term plan. The candidates have touched on ways to fix Social Security and cut ballooning student debt.

Saving for tomorrow, tomorrow

Saving for tomorrow, tomorrow

Some say this gentleman speaks a little differently. Regardless, overlook that and concentrate on this good, simple message!

It’s easy to imagine saving money next week, but how about right now? Generally, we want to spend it. Economist Shlomo Benartzi says this is one of the biggest obstacles to saving enough for retirement, and asks: How do we turn this behavioral challenge into a behavioral solution?

https://embed-ssl.ted.com/talks/shlomo_benartzi_saving_more_tomorrow.html

If you’ve put off saving, investing or even thinking about it, just take a quick look at this

If you’ve put off saving, investing or even thinking about it, just take a quick look at this

I personally have had ups and downs, and I used to save a lot, used to invest, then when things got tough, I just started putting things off, avoiding it, deferring it, or just plain pretending like I never thought of it, yet it was always in the back of my mind. So many people don’t talk about finances, don’t think about it, and just keep pushing it out until a later date for all sorts of reasons.

Please don’t. Please think about it now…..it is easier than you think. People with less brains and less talent have done it, so you certainly can.

Tony Robbins explains how you can attain financial security more easily than you think.

http://www.inc.com/tony-robbins/wealth-isnt-about-not-working-about-not-needing-to-work.html?cid=sf01002

Save To Win’ Makes Saving As Much Fun As Gambling

Save To Win’ Makes Saving As Much Fun As Gambling

by Shankar Vedantam

January 06, 2014 5:07 AM
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One of the most common resolutions people make at the start of each year is to save more money. Researchers concluded if you want to help people save money, preaching isn’t gonna cut it. You have to make saving money as fun as a visit to a casino.

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As far as New Year’s resolutions go, saving more money is often a popular one. Actually being able to do that – well, we know how that story usually ends. But researchers may have come up with a winning method. NPR’s social science correspondent Shankar Vedantam, we are all ears.

SHANKAR VEDANTAM, BYLINE: Carolann Broekhuizen is a retired life insurance claims examiner. She lives in Waterford, Michigan. Whenever she has a little extra money, there are some things she likes to do.

CAROLANN BROEKHUIZEN: I do buy lottery tickets. I will buy the state raffle tickets on occasion. There are several casinos locally and I will go to one of them with friends every now and again, when I have a little bit of play money.

VEDANTAM: Broekhuizen never gets in over her head. And she doesn’t mind losing. In fact, she expects to lose money. The reason she gambles is because she enjoys it. Researchers have been studying people like Broekhuizen and they’ve come to the conclusion that if you want to help people save money, preaching isn’t gonna cut it. You have to make saving money as fun as a visit to the casino.

A couple of years ago, when Broekhuizen visited her credit union, she was told about a program called Save to Win. If she stashed some money away, she would get a shot at a grand prize of $10,000. The more money she saved, the more opportunities she’d have to win.

BROEKHUIZEN: I said, you know, why not? It’s saving for retirement. That can’t hurt.

VEDANTAM: Broekhuizen kept putting money away but just like her visits to the casino, she didn’t win the big prize.

BROEKHUIZEN: I thought it was a one-year program, to be all honest with you. And I didn’t hear anything the first year, so I assumed I did not win.

VEDANTAM: Even though she was a little disappointed, Broekhuizen says she liked the fact she could win something extra while saving for retirement. Then, a few months ago, she got a phone call out of the blue.

BROEKHUIZEN: The person identified themselves as being from my credit union. My first thought was that a check had bounced and I wasn’t real happy. And then she went on to explain that I had won the cash prize, and beyond that I couldn’t think for a while because something like this happens to other people; it doesn’t happen to me.

VEDANTAM: Broekhuizen’s Community Alliance credit union is one of several credit unions in Michigan that features the Save to Win program. It is also active in a handful of other states. Economists aren’t surprised the program is getting people to save. At the University of Maryland, Emel Filiz-Ozbay recently conducted a controlled scientific experiment into the benefits of prize-linked savings programs. She found people save more and are more willing to leave their savings untouched if saving comes packaged as a lottery.

EMEL FILIZ-OZBAY: We found that indeed people seem more patient or more willing to wait additional weeks to get more money when it is offered in lottery-like form.

VEDANTAM: The catch, Filiz-Ozbay says, is that banks in most states are not allowed to offer such programs because private institutions are not allowed to run lotteries. But she says policy makers ought to know these programs are different than regular lotteries.

FILIZ-OZBAY: Unlike the standard lotteries, the consumer is not losing the initial capital, initial principal. So what you invest is always there, you are not losing it. In the lottery, once you buy the ticket, if you don’t win the prize, money’s gone.

VEDANTAM: Back in Michigan, Carolann Broekhuizen has a theory about why she won the $10,000 prize.

BROEKHUIZEN: My mother passed away earlier in the year and I just looked up after it had a chance to sink in, I looked up and said thank you, Mom.

VEDANTAM: In homage to her mom – and the spirit of the prize – Broekhuizen didn’t go on a spending spree. She took the money and stashed it away in her savings. Shankar Vedantam, NPR News.

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