What I’ve Been Up To

This Week in Your Wallet: Your Retirement, Health and Parenting Style

How much will you be spending in retirement? That’s an important question – with a great many answers. It depends, of course, on how you live (large or modestly) and how you feel (poor health can send costs into the stratosphere). But on average, today’s retirees are spending much less than many experts believed they would.

That’s what I wrote about this week for Fortune. Two large financial institutions, JP Morgan Chase and T. Rowe Price, took a deep look at the spending patterns of current retirees. From the column: “According to JPMorgan Chase, spending in this country peaks at 45, then declines in every category of consumption except health care. Overall spending (in today’s dollars) falls about 30% from age 45 to age 75. T. Rowe Price found that nearly three years into retirement, retirees are living on an average 66% of their pre-retirement income.” (P.S. They’re not unhappy. More than half of the retirees T. Rowe studied say they’re living as well or better as they did before retirement.)

Does that mean you can stop saving for retirement? It does not. Yesterday, Bankrate.com released a survey showing that 36% of Americans have absolutely nothing saved. That’s not just bad for your retirement — it turns out it’s bad for your health.

The 401(k) health plan

As The New York Times reports, new research from the journal of Psychological Science finds that people who are good at planning for their financial futures are also more likely to be taking care of their health.

Overall the research sheds light on the type of person who is more willing to make short-term sacrifices for long-term gains (i.e. passing on the new boots and daily donuts in favor of padded savings accounts and lower cholesterol levels). As Gretchen Chapman, journal editor and psychology professor at Rutgers University told the Times, “It suggests that there is something very abstract and fundamental about caring for the future…the sort of person who invests in retirement is the sort of person who takes care of their health.”

It may also be that once you successfully change one area of your life that you’re not satisfied with – by, say, building up the balance in your retirement accounts – you become more confident in your ability to make changes overall. That’s when it becomes easier to get on an exercise routine or shed those 15 pounds. This is a lesson we learned when conducting the Debt Diet, a 5-part series for The Oprah Winfrey Show.  A number of the participants on the diet (who were there for the express purpose of reducing their large credit card bills and other debts) dropped actual weight, as well.

You can read more about the research here.

Old student debts now plaguing seniors

Believe it or not, student debt is growing faster for seniors than for any other age group, according to data from the Federal Reserve Bank of New York. Eric Merklein, 67, found out the hard way. As he recently shared with Bloomberg, he was unaware of his outstanding student debt until he noticed $300 missing from a Social Security check. As it turns out, the government started taking money from his Social Security payments to repay his student loans – from 40 years ago.

Merklein is far from alone. Even though people ages 50 and over account for only 17 percent of all U.S. student debt, this age category has roughly three times as much debt as it did in 2005, according to the data. Compare this jump to people under 40 – who have about one and half times as much – and you start to see just how fast seniors’ debt is growing. Although it’s important to note that the data didn’t separate the older Americans who took out loans to finance their own educations (like Merklein) versus the ones who are repaying their children’s educations. Regardless, owing federal student loans as a senior is tricky given the life stage. Collectors of federal student loan debt can garnish your income and Social Security checks, block your benefits and withhold your tax rebates. If you’re getting an eerie feeling after reading the above, then head over to the National Student Loan Data System to see if you forgot about any federal loans. And if you’ve been considering going back to school in your golden years, then check out my recent piece in AARP. Financial aid is out there no matter how old you are.

The number of graduate and postgraduate students ages 50 to 64 has been climbing in recent years: from 625,000 in 2007 to as many as 750,000 in 2011. This is a 20 percent increase, according to the National Center for Education Statistics. And just because you’re not a jobless 17-year-old doesn’t mean you won’t qualify for student aid. That’s why it’s key to fill out a Free Application for Federal Student Aid (FAFSA). After filling and filing, seek out tax breaks, like the American Opportunity Tax Credit  or the Lifetime Learning Tax Credit. Each is worth $2,500 and $2,000, respectively. Also, if there’s leftover money in a 529 savings account that your children or grandchildren didn’t use, then change the beneficiary to yourself.

On the topic of learning and growing…

Money isn’t pink or blue

It’s so disheartening to see – that even today – parents aren’t teaching their daughters about money the same way they’re teaching their sons. According to new T. Rowe Price research, 58% of boys say their parents talk to them about setting financial goals (at least occasionally), compared to just 50% of girls. I suppose it’s little surprise then that of the parents with one child, 80% of parents with a boy think their child understands the value of a dollar compared to only 69% of parents with a girl. Do you think parents are still giving boys and girls lopsided messages when it comes to their career aspirations, too? Weigh in by emailing me at jean@jeanchatzky.com. We’ll report your responses next week.

Have a great week,

Jean