Donald J. Lester

Monday, September 14, 2015

Students' confidence exceeds their financial skills

Thursday, 10 Sep 2015 | 8:00 AM ETCNBC.com

College can be a confusing stage of life, but you wouldn't know it from how students rate their financial knowledge.

About 57 percent gave themselves high marks for their financial literacy in a new survey commissioned by the American Institute of Certified Public Accountants, compared to just 12 percent who rated their money smarts as poor or terrible.

That would be nice if it matched reality, given the $1.27 trillionoutstanding in student loans. But unfortunately, the AICPA survey found that often students behave like financial illiterates.

Almost half—48 percent—reported having less than $100 in the bank at some point in the last year, the survey found. And 38 percent said they had borrowed money from family members or friends.

Not surprisingly, another survey by GoBankingRates, out this week, found 1 in 4 Americans think about money more than anything else on a daily basis, and thoughts about money are most common among people aged 25 to 44.

Millennials and others "have been careless with either their money, their lack of knowledge, or putting wants before needs," said Ernie Almonte, chair of the AICPA's National CPA Financial Literacy Commission. "This is a great opportunity to teach the next generation how to handle their finances."

The findings in the AICPA survey bear out earlier findings on millennials' lack of financial literacy. In 2014, the Investor Education Foundation of the Financial Industry Regulatory Authority, or FINRA, released a study on the financial capability of young adults that found they "exhibit a number of problematic financial behaviors, display low levels of financial literacy and express concerns about their debt."

The millennials in that survey were more likely to go without bank accounts and spend more than their income, and while they were more likely to have rainy day funds than Gen Xers, they were less likely than older generations to do so. Some of that behavior is a function of their stage in life, but FINRA also found that theirs was the generation least likely to indicate high levels of financial literacy.

Skynesher | Vetta | Getty Images

In Almonte's view, the new data point to opportunities for parents to convey simple lessons about money.

"Budgeting is such a great thing to teach them at this age," he said. "If they mess up, it can be a small thing that can be fixed." By the same token, he said, college can be a time for a student to learn to manage a credit card—provided the credit limit is low. It can be a tool to teach them the difference between needs and wants, and a low credit limit will cap the damage they can do to their finances.

Almonte knows the hubris of college students from firsthand experience, he said. And it has driven home for him the importance of providing financial education in college, or sooner.

"I have five sons," he said. "I have had to live through them being confident in everything they did."

You'll take care of me when I'm old...right?

Kelli B. Grant | @kelligrant

Thursday, 10 Sep 2015 | 11:14 AM ETCNBC.com

Seventeen-year-old Maggie Ornstein was skiing in Lake Placid, New York—her first big trip away from home—when she got the phone call that changed her life. Her mother, Janet, 49, had suffered a brain aneurysm.

"I was a senior in high school, and my biggest concerns until then were the prom, graduation and heading to college," said Ornstein, now 37. "In my mind, on the long drive home [to New York City], I remember thinking that she'll be in the hospital for a while and then home, good as new."

Not quite. Ornstein's mother sustained permanent brain damage from the injury and spent the next five years in hospitals and long-term care facilities, relearning basic skills like talking and walking. "It was two years before I took a day off from seeing her," said Ornstein, who was thrust into the role of caregiver—handling medical bills, coordinating care and navigating a labyrinth of social services.

She decided to attend college in Brooklyn, allowing her to remain at home, where she could help her grandmother with household chores and care for her mom after she returned home.

Fast-forward to 2015, and Ornstein, now a lecturer at The New School and Sarah Lawrence College, is still her mother's primary caregiver. She intends to remain so as long as both are alive. (Her grandmother passed away in 2011 at age 102.) "Caregiving is the most rewarding thing you can do in life, but it's the hardest, too," she said.

Source: Maggie Ornstein

Janet and Maggie Ornstein

Ornstein became a caregiver at an unusually young age, but she has plenty of company today.

In the past year, about 43.5 million American adults worked as unpaid caregivers, the bulk of them to an adult age 50 or older, according to an AARP Caregiving report released in June.

Aside from a brief swell during the recession, that figure has held fairly steady over the years, but the ranks of caregivers have shifted to include more men and young adults—a quarter of caregivers are millennials, AARP found. And the number of caregivers is expected to grow as baby boomers age into retirement.

The caregiving need is 'growing and growing'

It's not just hands-on care: 8 percent of baby boomers, 13 percent of Generation X and 19 percent of millennials are financially supporting a parent, to the tune of $12,000 a year, according to a survey of 1,000 adults released this summer from TD Ameritrade. Of those, 31 percent said they are also caregivers for that parent.

"We have the combination of people who aren't saving, and who are getting older and living longer," said Juliana Menasce Horowitz, associate director of social trends research at Pew Research Center.

From 2012 to 2050, the Census Bureau projects, the size of the U.S. population age 65 and older will nearly double. The ranks of the so-called "old old," those 85-plus, will more than triple over that period.

"We are seeing, without a doubt, that the caregiving need is just growing and growing," said John Schall, chief executive of the Caregiver Action Network.

Profiles in Care

‘You take care of the people in your life’

Tzivia Gover, 52

“We had always said [mom] would come live with me,” said Gover, a teacher and writer from Northampton, Massachusetts. But when her mother, Jane Covell, started exhibiting signs of Alzheimer’s in 2008, Gover realized it was better to keep the then 73-year-old New Yorker in a familiar setting.

“It was like landing the Mars rover, taking care of my mother from Massachusetts,” she said. Gover remotely tackled tasks including paying bills and coordinating medical care, and driving to NYC at least once a month. It helped that Jane had a long-term care insurance policy which covered the cost of in-home help, and later, a nursing facility before she died in May 2015. Gover said she hasn’t estimated her own costs. “I choose not to go there,” she said. “You take care of the people in your life.”

Mounting costs of caring

For many people, whether to help an aging parent isn't even a question. Three-quarters of Americans say they believe it's their responsibility to provide financial assistance to a parent if needed, according to a 2013 Pew Research Center report. "It's just me," said Mandy, 56, who is caring for her 93-year-old mother in New York's Queens borough. (She asked that her last name be withheld for privacy concerns.) "She's my mom. What else am I supposed to do?"

But the financial effects of caregiving can add up fast. "Nobody ever realizes that not only are they doing this, but it's going to cost money, too," said Schall of the Caregiver Action Network. Even if the care recipient has assets or insurance to cover most expenses, caregivers spend an average $5,500 out of pocket each year, he said. The TD Ameritrade survey puts the annual financial support figure closer to $13,000 to help out mom and $8,500 for dad.

Ornstein, who has regularly worked outside the home on a part-time basis over the years, says caring for her mom makes a full-time job impossible. "Despite all this care labor I have put in over the years, when you look at my Social Security statements, it seems like I've done very little," she said.

Aside from the disability, her mom is healthy at age 69, but Ornstein worries about her falling on the stairs at home. She's also concerned about her own health, with symptoms of back trouble after years of lifting her mother and grandmother. And she worries about her own financial future. "It's scary," said Ornstein. "You can't plan because you don't know when things will change."

Tory White, 52, said when her mom needed to transition to assisted living in 2010 for her dementia, the $3,200 monthly cost came out of her own pocket initially until Medicaid, Social Security and other programs began to cover most of the bill. It was a struggle, White said, to balance her mom's wish to stay at home against her own limits. "I thought that love would take me through," said White, who has been caring for her mother since 2007. "I realize now, the duty and the love have to be balanced." (See her caregiving story in the carousel, above.)

It's less common to see money flow the other way, from a parent to the family member providing care, said Schall. Even if the parent has enough savings for that, doing so creates other problems. "There can be family dynamics where other siblings resent if it's taken out of the family reserves," he said.

The stress of the role can also add to caregivers' health-care bills. Caregivers are more likely to suffer from depression, said Schall, and report higher rates of chronic conditions including heart disease, diabetes and arthritis. "You feel guilty thinking about yourself, but you have to," he said. "It is taking a toll."

Caregivers' costs are enough to strain budgets. Only 28 percent of so-called sandwich-generation adults supporting an aging parent and children say they're living comfortably. About 11 percent don't have enough to meet basic expenses, according to the 2013 Pew report.

In the TD Ameritrade survey, 22 percent of financial supporters said they have had to dip into savings, and 14 percent have added to their debt, which is already significant, at an average $22,000 in nonmortgage debts like student loans, credit cards and personal loans. A third have delayed saving for retirement.

Caregivers also feel the impact on the earnings side. "It's still the case that a lot of caregivers are juggling care and employment responsibilities," said The Urban Institute's Johnson. The average caregiver spends 24.4 hours each week providing care, reports AARP, which is like having another part-time job.

Caregivers are more likely to work fewer hours or take part-time jobs, according to the institute's 2014 report. More than a third of caregivers in the TD Ameritrade report had reduced work hours or taken (unpaid) time off from work, while 26 percent delayed or plan to delay retirement and 15 percent had changed jobs. Among caregivers surveyed by AARP, 6 percent gave up working entirely.

Mandy returned to work in February after a four-year break to care for her mother, whose health concerns include sleep apnea and memory issues. "It was hard to get back in the workforce, because I had this gap on my resume," said Mandy, who works in real estate. She also dug into her savings to be able to take that time away from work. "By her not having an aide, we save money, but it puts a lot of stress and frustration on me," she said.

Being back at work is a tough juggle. "I'm busy, and I feel like I'm worried all the time," said Mandy. She said she's glad that her mother doesn't require round-the-clock care, but even so, she has spent most of the past year living with her mother to handle the care duties. She rarely visits her own apartment. "I just go there to get my mail," she said.

Three-quarters of caregivers are in the role for less than five years, according to the AARP, but depending on when in life that occurs, the financial damage could be more lasting. The average caregiver is in his or her late 40s or early 50s, said Amy Goyer, AARP's home and family expert who has, over the years, been a caregiver for her grandparents and parents, as well as one of her sisters. "That's a critical time," she said.

Caregivers age 50 and older who leave the workforce lose an estimated $303,880 in income and benefits, according to a 2011 MetLife study.

The net effect is that caregivers may find themselves needing help. "We do see that people who provide care have less wealth in old age than those who didn't," said Johnson.

The Urban Institute estimates that each wave of parent care increases the likelihood of the caregiver falling into poverty by 3 percent, or 11.9 percent if it's intensive care. "There's a question of how that is then going to impact your children," said Johnson. (In the TD Ameritrade study, 16 percent of financial supporters said that, as a result of their support, they anticipated needing some help themselves in retirement.)

Planning for the inevitable

"My hope is that we get more private and public solutions for this, so that there's less demand on [family caregivers]," said the AARP's Reinhard.

Progress has been made on both the federal and state levels, she said—including expanding Medicare coverage for telemedicine and chronic care coordination, and state CARE laws requiring hospitals to better coordinate with caregivers—and more proposals are in the works. In late August, Rep. Nita Lowey, D-N.Y., introduced a bill to provide a Social Security earnings credit to people who leave the workforce or reduce work hours to provide unpaid care to a family member.

There's also an increasing awareness that family caregivers supporting loved ones often need some support themselves—emotionally, financially and logistically. "It's a very lonely experience for people," said Andy Cohen, chief executive and co-founder of Caring.com. (See his caregiving story in the carousel, above.) "This is something people keep really private, and it makes it worse."

Still, caregivers say getting help is often complex, and frustrating. "There's nobody really telling you what you need to ask to get your problem solved, so there's a whole lot of work," said Ornstein. "The system retraumatizes us over and over." Even small efforts to ease the workload can become cumbersome. While caring for both her grandmother and mother, for example, she found that there was often little overlap in the services each qualified for: Her mother was often too young, while her grandmother didn't fit the medical needs criteria.

"It left me in limbo," she said. More recently, Ornstein tried to arrange for a volunteer to come by weekly and play Scrabble with her mother, but discovered one couldn't be sent without providing another service like hot meal or food pantry deliveries (which the family doesn't need, so seemed wasteful to Ornstein). Other hoops included an in-home social services interview before the volunteer could be sent.

Whether you expect to need care someday, or you see the prospect of being a family caregiver on the horizon, planning on the part of both generations can also help. "Emotional reluctance is keeping people from being prepared," said Tina Collins, 50, who has been a caregiver for 13 years, first for her father and later, her mother. "It's a habit that gets passed down."

Some of the important early steps include marshaling your resources to get a sense of what care options might be available and affordable, having a family discussion about caregiving needs and roles, and looping in a financial advisor to determine ways to prepare financially for the prospect of care or effectively use assets.

Family caregiving is a tough situation to think about, much less discuss openly, but it's a topic caregivers say needs to be talked about more, among families and as a pressing public issue—particularly as the number of Americans who will need or give care continues to grow.

"It's not like any of us aren't going to get old," said Collins. "Unless we die young, and that's not a good alternative either."

Monday, September 7, 2015

4 mistakes that could ruin your retirement

Sharon Epperson | @sharon_epperson

Thursday, 3 Sep 2015 | 8:28 AM ETCNBC.com

COMMENTSJoin the Discussion

Considering the stock market's wild swings over the last two weeks, some investors may be a bit queasy. Those who are newly retired or near retirement may be tempted to cash out of stocks or adjust their portfolio so that it is mostly invested in bonds. That could be a big mistake.

That's one of a few mistakes that can derail your retirement plans.

Mistake: Boosting bond allocations at retirement.

With extraordinary low interest rates and modest inflation, investing in long-term bonds to capture as much yield as possible may seem like a smart move. But the years leading up to retirement tend to be your highest-earning years and an allocation to equities can boost your retirement portfolio.

Also, as interest rates rise, bond yields fall. "With interest rates poised to rise over the next few years, a large allocation to bonds, especially now, may result in significant capital loss," said Hardeep Walia, CEO of Motif Investing.

He suggests adding exposure to equities that do well in a rising rate environment.

There is also no guarantee that inflation will stay benign.

"The extra reward you get in the form of higher yields from stretching on maturity will come back to haunt you should inflation trend upwards faster than expected," said financial advisor Manisha Thakor, director of wealth strategies for women at The BAM Alliance. "For many people, the only way to keep assets growing enough to not only beat inflation but hopefully grow in real terms is to take on some equity risk."

Mistake: Counting on Medicare to cover all health care costs.

Another common mistake is assuming the government will pay for one of your biggest retirement expenses: health care.

Qualifying for Medicare does not mean your health-care expenses will be covered. Medicare helps to pay for hospitalizations, doctor visits and prescription drugs, but people on Medicare generally still pay monthly premiums for physician services and prescription drug coverage.

Also, Medicare does not cover long-term care services, routine dental visits or vision care. According to a Kaiser Family Foundation studypublished in 2014, the average Medicare beneficiary paid $4,374 in 2010, including premiums and out-of-pocket costs. To check whether a medical expense is covered, go to medicare.gov. Make sure you've saved up to cover those costs.

Mistake: Moving to a state for the low income taxes.

If you don't have enough savings, maybe you've decided it's not a big worry because you are planning to move to a state with low or no income tax, so your overall tax hit will be lower. Not so fast. That's another big mistake.

Don't make a move just because of taxes. Many low-income or no-income tax states have high property and sales taxes that can eat into your savings.

"States have to finance themselves. So some states don't do it through income taxes, which makes them attractive, but they have lots of other 'nuisance' taxes," said tax advisor Ed Slott, author of "Fund Your Future: A Tax Smart Savings Plan in Your 20s and 30s." "Somewhere you pay for a lifestyle. It may not show on the income tax but will show up when you go to the movies, or buy something else. When you add up the taxes you pay throughout the day, it may be as much as you would have paid in state income tax. Nothing is totally free."

If you move far from family and friends, you may also have to dip into your nest egg for travel costs.

Mistake: Not saving enough for retirement.

Not saving is the No. 1 retirement mistake. "Not putting away enough money is the biggest mistake people make," Slott said. "Wherever you are, it's not too late to save. You won't have anything if you don't put something away."

How much do you need? It will vary depending on your lifestyle.

But consider this. Suppose you worked from age 25 to age 65. That's 40 long years. Now assume you live to 95. That's 30 years in retirement. Think about that. For every year you worked you needed to fund one year of current living expenses and set aside enough funds (either through your contribution to Social Security or outright retirement savings) to cover another three-fourths of a year of expenses in retirement.

"That math is absolutely mind-boggling. As a result, many people are heading into retirement with a little less (or a lot less) than they'd like, to have reasonably high odds of not outliving their money," said Thakor.

So save even more money than you think you may need. The amount that you save may be even more important to making sure you don't outlive your money than where you invest those dollars.