“Personal Finance: Warning to empty nesters: Boost saving, not spending - Philadelphia Daily News” plus 1 more |
| Personal Finance: Warning to empty nesters: Boost saving, not spending - Philadelphia Daily News Posted: 19 Dec 2010 12:01 AM PST Posted on Sun, Dec. 19, 2010 Almost half of American households are on course to struggle through retirement because they haven't been saving enough money while working and raising their children. But it doesn't have to be this way. Many parents have the ability to save significantly once their children are grown and leave home, but they squander the opportunity, according to research by the Center for Retirement Research at Boston College. Clearly, saving is difficult while raising children. The researchers note that food, clothing, karate classes, and college can consume almost every penny from paychecks. But, eventually, parents reach a point where they are not spending on schooling or piano lessons any longer, and that is when they hurt themselves needlessly. Leftover money too often seems to burn holes in pockets. Instead of saving it, parents spend it. This works against the parents in two ways, say researchers Norma Coe, Zhenya Karamcheva, and Anthony Webb. Parents miss a relatively painless way of saving, or stashing away money they were not used to spending anyway while raising children. Further, because they consume more after children are grown, parents get used to a cushier lifestyle just before retirement. That makes it tough to live on a budget during retirement and puts them on a course to run out of money while they still want to be active. About 43 percent of households are at risk of being unable to maintain their preretirement standard of living, the researchers say. Various pieces of academic studies have reached different conclusions about how many Americans are in danger of financial trouble in retirement. But the divergence in findings depends largely on assumptions about how people save. Although studies have noted that many families save little in their early working years, they assume that these families will increase their savings in 401(k) plans and IRAs after raising children. The researchers at the Center for Retirement Research recently tested that assumption. Using data from the Social Security Administration and the national Health and Retirement Study, they tracked consumption before and after children left home. They found a marked increase in spending once children left. Households with children living at home spent $4,700 to $5,800 a person per year on nondurable goods from 2001 to 2007. That was a lot less than adults without children, who were spending $8,800 to $10,300. Once children left home, the parents apparently decided to give themselves a break. The newly freed parents spent about $2,000 more a year per person on average than the parents who still had children at home. Some parents might not realize what they are doing to themselves. Research by Annamaria Lusardi, a Dartmouth College professor, shows that most people have no idea what they will need for retirement. Yet there is a rule of thumb in financial planning: Spend no more than 5 percent of savings during the first year of retirement and then increase the amount only slightly each year to cover inflation. Under this rule, parents with $500,000 in savings could spend $25,000 for the first year of retirement and boost the amount to about $25,750 the next year. And how could a couple get to $500,000 after saving little while raising children? Say parents are 50 and have been spending $12,500 a year sending children to college. With only $65,000 in their 401(k), they could start devoting $12,500 each year to the retirement plan. If they earned 6 percent a year on mutual funds invested half in stocks and half in bonds, they would have about $500,000 by age 67. To see if you are on track to live retirement the way you are living now, try the "ballpark estimate" calculator at www.choosetosave.org/ballpark. Gail MarksJarvis is a personal-finance columnist for the Chicago Tribune. E-mail her at gmarksjarvis@tribune.com. This entry passed through the Full-Text RSS service — if this is your content and you're reading it on someone else's site, please read our FAQ page at fivefilters.org/content-only/faq.php |
| Personal Finance: Buyer, beware of prepaid payment cards - Sacramento Bee Posted: 19 Dec 2010 12:16 AM PST When it debuted last month, the Kardashian Kard was touted as the ultimate glitz-and-glam holiday stocking stuffer. But don't try finding one. The prepaid payment card, emblazoned with a sultry image of the Hollywood celebrity-sister trio, was almost immediately yanked off the market, amid widespread criticism that it was overloaded with costly, hidden fees. Short-lived as it was, the Kardashian Kard is just one of many celebrity, sports and cartoon-branded plastic payment cards, primarily aimed at teens/young adults or those with poor credit. And during the holidays, they're often dangled to consumers as a festive gift idea. "Prepaid cards may walk and talk like regular credit or debit cards, but they're not the same thing," said Suzanne Martindale, associate policy analyst with Consumers Union in San Francisco. A recent report by the nonprofit warned consumers about the prepaid cards' often-hefty fees and weak financial protections. (For the full report, go to www.consumersunion.org.) "The fees can be high, multiple and confusing … And, you're at the mercy of the prepaid card company if your card is lost or stolen. There's no guarantee you'll get your money back," said Martindale. But that hasn't slowed the "explosion" of prepaid card offers. And during the economic slowdown, when many people are consciously trying to cut credit card debt – or can't obtain a traditional card due to financial troubles – a prepaid card is often seen as a viable solution. (See box for details on how they work.) "With so many people still out of work or (dealing) with damaged credit scores, it leaves many consumers feeling no choice but to turn to these 'fringe' banking products," said Martindale. Prepaid payment cards aren't covered by the same mandatory federal protections that limit consumer losses on bank-linked credit cards to $50, for example. With prepaid cards, any consumer protection is strictly voluntary. In its September report, Consumers Union compared the fees charged by 19 prepaid cards and found they vary tremendously by type and amount. For instance, the survey found that one-time activation fees ranged from zero to $39.95; monthly fees were up to $10; typical charges for ATM withdrawals were $2. (The ill-fated Kardashian Kard, by comparison, charged $99.95 for 12 months, which included a $7.95 monthly fee, as well as a long list of extra charges.) Prepaid cards in general carry many miscellaneous fees, for items such as calling customer service to getting a paper statement listing monthly purchases. Among the cards with the lowest fees in Consumer Union's survey were the Wal-Mart Money and nFinanSe cards, which charged $3 for activation, $3 monthly service and ATM fees of $2 (Wal-Mart) and 99 cents (nFinanSe). "It's buyer beware," said Bill Hardekopf, CEO of LowCards.com, a credit card comparison site that also rates prepaid cards. Hardekopf is especially bothered by prepaid cards catering to teens. "Cartoon characters, athletes and celebrities who may not know anything about financial management can influence teens and young adults," he said. "They're wanting these cards, but not for the right reasons." MyPlash, a prepaid MasterCard for teens, offers cards picturing the "hottest" music, sports, film and cartoon stars, everyone from teen surfer Kassia Meador to rapper Rich Boy to nine versions featuring the "Twilight" vampire movie cast. It's free to activate, with $4.95 monthly charges, $1.50 for ATM withdrawals and incentives to get free services. One of the less-splashy entrants in the teen market is San Diego-based BillMyParents.com, whose prepaid card is geared to ages 13 to 18. Its cards don't carry images of rap stars, vampire actors or other teen idols, but lean toward flowers and puppies. The company says its card aims to promote family communication and help parents teach kids "financial responsibility." Its website hosts teen-friendly budgets and money advice, as well as tips for parents. The fees: free activation, $3.95 monthly, $1.50 for ATM withdrawals. Meanwhile, Consumers Union and other groups are asking the FDIC to require more consumer protections on prepaid cards. Until that happens, consumer specialist Martindale recommends: "Do your homework. If you're getting a prepaid card, find out the fees and do your best to avoid them so you're not nickel-and-dimed to death." Read the card's terms and conditions, just as you would with any debit or credit card. Look beyond the basic fees posted on the card's packaging; you may need to drill down on the company website to find fee schedules. Ideally, get a prepaid card that reports to a credit bureau, so the user can establish good credit history. And keep low amounts on a prepaid card so you don't risk losing everything if the card is lost or stolen. Despite the glitzy, Kardashian-style marketing of many prepaid cards, Hardekopf reminds: "These are not toys. They can be very costly and create some bad habits. If we don't teach our children how to use money properly, they could cause a lot of (financial) damage that could take years to dig out of." © Copyright The Sacramento Bee. All rights reserved. Have a personal finance question? Call The Bee's Claudia Buck at (916) 321-1968. This entry passed through the Full-Text RSS service — if this is your content and you're reading it on someone else's site, please read our FAQ page at fivefilters.org/content-only/faq.php |
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