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  • A Mistake With Lingering Regret: Cashing Out Your 401(k)

    May 31st, 2019

    Guest Blog Author: Tom Hawkins, Retirement Clearinghouse

    As May ends and we observe the close of Older Americans Month, a time to recognize the role that older adults play in society and their many contributions. This year for the first time, the U.N. released figures showing the world has more older people than younger children -confirming the arrival of a long widening global trend.

    For younger working women, Older Americans month offers a rare reminder and planning opportunity to consider how certain life defining decisions will determine how they will pay for their increasing longevity. Today by age 85+, two-thirds of the elderly are women, and many are living alone.

    It’s an ideal time for younger women to consider if their future as “older Americans” is financially secure or may be filled with regret. Unfortunately, regret will likely haunt millions of younger women who prematurely cash out their 401(k) savings.  Not only are these women potentially sacrificing their retirement security, but research also reveals they’ll regret these decisions more than men, and that regret will continue to grow over their longer lifespans.

    Each year, 5.9 million American women enrolled in 401(k) plans will change jobs.  2.4 million, or 41%, will cash out completely.  For younger women, the outcomes are worse.  According to the Employee Benefit Retirement Institute (EBRI), women ages 25-34 will change jobs every 2.7 years, and for women with 401(k) balances less than $5,000, cash out rates soar to 71%.

    For example, a typical 25-year old woman could change jobs three times prior to age 34 and cash out two of her first three 401(k) balances.  At 34, she would preserve only $5,100 in retirement savings, which will yield just $13,900 in savings by age 67.  In contrast, had she avoided cashing out, she would have $83,700 at retirement.

    Early 401k Cash Out_RCH_v2

     

    Figure 1: Illustration of the Effects of Cashing Out, Women Ages 25-34

    Source: Retirement Clearinghouse / EBRI Webinar (EBriefing: Trends in Employee Tenure, 4/10/19)

    In 2015, a survey by Boston Research Technologies revealed that cash out regret is real and increases over time.   36% of Millennials who’d cashed out already regretted their decisions, rising to 46% for Gen-Xers, and to 53% for Baby Boomers.  The survey also found that women experience much higher levels of cash out regret than men, particularly among Millennials, where 46% of women regretted cashing out, vs. 30% of men.

    Cashing out a 401(k) balance is one that women should avoid unless you’re facing a true financial emergency.  Consolidating your retirement savings as you move from job-to-job, will not only preserve your savings, but will simplify your retirement planning, reduce fees and motivate you to save even more.  Finally, auto portability, is a new plan feature designed to automatically move small-balance retirement savings forward, and should help 401(k) participants changing jobs.

    Preserving retirement savings in your 20’s and 30’s will put you on the way to a secure, and comfortable retirement, and ensure that you don’t have to live with those regrets.

    Hispanic Heritage Month: Building Financial Security through the Latina Savings Project

    September 25th, 2018

     

    Half a century ago, President Lyndon Johnson signed the nation’s first formal recognition of Latino/Latina culture, history, and contributions by declaring Hispanic Heritage Week in the United States. Twenty years later, President Ronald Reagan reaffirmed the importance of this celebration by expanding it to a full month, from September 15th through October 15th. Today, nearly 59 million people in the U.S. – over 18% of the total population – are of Hispanic origin.[1]

    As we honor the extraordinary cultural and historic contributions of Hispanic Americans and Latinos/Latinas, however, it’s important to acknowledge the many social and economic barriers that exist – particularly for Latinas. For example:

    Nearly one in three (30.9%) Latinas works in service occupations, which traditionally are lower paid;[2]

    *  A Latina worker earns just 53 cents for every dollar earned by a White man[3]

    *  Roughly two-thirds (65%) of Latinas work for employers that don’t sponsor retirement savings plans[4]

    *  Just one in five Latinas is covered by a private pension[5]

    *  Almost three-fifths (58%) of Latinas have no retirement income from savings and assets.[6]

    The result? Nearly one in five (19.8%) of Latinas aged 65 and over lives in poverty.[7]

    And, because Latinas age 65+ have longer life expectancies than the majority of the U.S. population, they are likely to experience worse poverty, for a longer period, than most other Americans. Retirement planning is important for all of us, and it is especially essential for Latinas.

    The Latina Savings Project

    That is why WISER is collaborating with MANA—A National Latina Organization on the Latina Savings Project. With funding from the AARP Foundation, the demonstration project is designed to support low- and moderate-income Latinas in developing a habit of saving for retirement through education and hands-on access to savings accounts. WISER and MANA are partnering with community-based Latina organizations in Baytown, Texas; Albuquerque, New Mexico; and Topeka, Kansas, with plans to expand to other communities.

    The project helps participants open savings accounts and begin to contribute what they can afford, with added opportunities for matched savings contributions. The project also provides culturally-specific workshops that focus on the importance of saving and offer practical advice about how to get started.

    The goal of the project is to help improve the long-term financial security for its participants. Ideally, a successful outcome will help jump-start other efforts to increase Latinas’ retirement savings. More information about the project will be available soon at www.wiserwomen.org.

     

    [1] https://www.census.gov/newsroom/facts-for-features/2018/hispanic-heritage-month.html

    [2] https://factfinder.census.gov/faces/tableservices/jsf/pages/productview.xhtml?src=bkmk

    [3] https://iwpr.org/publications/gender-wage-gap-2017/

    [4] WISER, “Latinas and Retirement: Just the Facts”

    [5] WISER, “Latinas and Retirement: Just the Facts”

    [6] WISER, “Latinas and Retirement: Just the Facts”

    [7] https://nwlc.org/wp-content/uploads/2017/09/Poverty-Snapshot-Factsheet-2017.pdf

     

    It’s Not Too Late! Special Medicare Part B Enrollment Deadline Approaching

    September 21st, 2018

    cash_register_medical-cost_color

    Did you become eligible for Medicare Part A on or after March 1, 2013?  Did you keep your Affordable Care Act (ACA) health coverage instead of enrolling in Medicare Part B and then discover there were penalties for keeping that coverage?

    You have until September 30, 2018 under a special program which lets Medicare Part A beneficiaries sign up for Medicare Part B without late enrollment penalties.

    Who is eligible?

    Medicare beneficiaries who were covered by a qualified health insurance plan and who are not enrolled in Medicare Part B are eligible. Perhaps you turned down Medicare Part B coverage or dropped it because you thought ACA qualified health coverage was more affordable.  If so, what you did not realize is that you would lose the benefits of ACA coverage because of your Medicare eligibility.  And, you will face Part B higher coverage costs for life.

    What does the special relief provide

    It provides a special enrollment period that allows individuals to enroll in Medicare Part B without facing lifelong enrollment penalties. This ends September 30, 2018

    If individuals have Part B coverage now but are paying late enrollment penalties, special relief would end the penalties.

    Apply for special equitable relief to enroll in Medicare Part B and/or to eliminate your Part B enrollment penalties.

    Call the Social Security Administration (SSA) at 800-772-1213 or go to www.ssa.gov to find a local Social Security office that you can visit in person

    Once at the office or on the phone with a representative, request special “equitable relief” to enroll in Part B and/or eliminate your Part B penalties.

    Do this BEFORE SEPTEMBER 30, 2018!

     

    Visit the Center for Medicare and Medicaid Services to learn more about enrolling in this special program.

    WISER

    About Us

    WISER is a nonprofit organization that works to help women, educators and policymakers understand the important issues surrounding women's retirement income. WISER creates a variety of consumer publications including fact sheets, booklets and a quarterly newsletter that explain in easy-to-understand language the complex issues surrounding Social Security, divorce, pay equity, pensions, savings and investments, banking, home-ownership, long-term care and disability insurance.

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