This Week In Your Wallet: Are You Underestimating Your Longevity?

This Week In Your Wallet:
Are You Underestimating Your Longevity?

At the height of the Great Resignation, it seemed that finally, finally the power balance had shifted, and that workers were calling the shots. Not only did we have more flexibility in where, when and how we worked, salaries shot up by an average of 20% (and we heard some reports from HerMoney Podcast listeners of bumps of closer to 90%). Yes, ninety. But if, rather than smiling in celebration, you cynically forecast that it wouldn’t last, I hate to admit it: You were right.

As Ben Casselman writes for the New York Times, “the pendulum could be swinging back toward employers.” Not only has wage growth slowed, quitting has, too — the number of people leaving jobs is now back in line with where it was in 2019, and according to payroll firm ADP those huge raises are a thing of the past. Employers now say it’s much easier to hire and retain good people. Why? “With recession warnings in the air, [people] are becoming nervous about getting caught without a job when fewer are available,” Casselman writes.

Still, it’s not all bad news for workers — many economists say that employees gained a lot of ground these last few years that isn’t just going to vanish. For starters, even though huge signing bonuses may no longer be the norm, if you were able to secure a higher salary, it’s yours to keep. Also, if you’ve had the flexibility to work remotely, it’s unlikely that you’d lose it completely. Yes, many corporations — especially banks and financial institutions — have begun calling people back into the office. But nearly one-third (27%) of paid full-time days worked in America are now remote, and 74% of employers are either using or plan to implement a permanent hybrid model. In other words, if your employer isn’t offering you the flexibility you need, you can likely find an employer that will — just take care in when and how you jump to something new. Friday’s jobs report, which added 209,000 non-farm positions to payrolls (40,000 below estimates), was the latest signal that the still-strong job market is starting to soften. So, although the grass may be greener somewhere else, you may be more likely to find speed bumps than pay bumps waiting for you on the other side.

Partying Investing Like It’s Still 1999

As investors age and get closer to retirement, they should start shifting their money into “safer” investments so there’s less risk of loss if the market takes a tumble right before they need it. This has been the conventional investing advice for decades, with individuals in retirement generally being advised to keep no more than 50% of their portfolio in stocks, or sometimes even less, depending on risk tolerance. But a new Vanguard report has shown — pretty clearly — that investors aren’t listening. “One-fifth of investors 85 or older have nearly all their money in stocks, up from 16% in 2012. The same is true of almost a quarter of those ages 75 to 84,” writes Anne Tergesen for The Wall Street Journal. “Older Americans keep rolling the dice in the stock market, ignoring the conventional wisdom to protect their nest eggs by shifting more of their investments to bonds,” she writes. Is this risky? Heck yes, it is. If the market tanks, those in need of money will be forced to sell their stocks at a loss, which could have devastating long-term consequences.

The question is: Is having this knowledge going to move retirees to change their behavior? Likely not. For starters, more retirees now feel pressure to invest for higher returns due to inflation — they feel they just aren’t going to see the yield they need from bonds, CDs, or anything else generally deemed “safer.” Also, Baby Boomers express a “greater willingness to take financial risks than those who lived through the Great Depression,” per data from researchers at the University of California, Berkeley and the University of Chicago. Many of the retirees Tergesen spoke with seemed at peace with the risk they’re taking and skeptical of traditional financial guidance. “Nothing is totally safe,” one said. And while I agree, I also think that unless you have enough cash on hand to fund your lifestyle for three (or ideally five) years, it’s too great of a risk to take. Because while the markets have always rebounded, it always takes time — sometimes a lot of it. And your money is going to need to last a long time — possibly a lot longer than you think.

Which brings us to…

Is 85 (Or Even 95) The New 65?

Turns out that retirees are increasingly guilty of underestimating exactly how long they will live, writes Daniel de Visé at The Hill. According to a recent survey by The TIAA Institute, 25% of Americans underestimated a 60-year-old’s life expectancy: By age 60, an American man can expect to reach 82, while a woman is expected to reach 85. A further 28% of people said they just didn’t know what the average life expectancy was. “We were kind of shocked to get the data,” Surya Kolluri, head of the TIAA Institute, told de Visé. There was also a gender divide in terms of how accurately people could predict their lifespan — 43% of women were able to answer correctly, compared to 32% of men. So, why are we so wrong? As a species, we tend to be overly pessimistic about exactly how long we’ll live, so there’s that. But we also seem to lose sight of the fact that “human longevity doesn’t stop rising at 60. An American who retires at 65 can expect to live to 85, according to Social Security projections,” de Visé writes. And for whatever reason, at 65, we’re often resistant to predictions that we’ve got another 20 years left. But we need to start doing exactly that: Boomers have a median of $202,000 saved for retirement, according to The Transamerica Center for Retirement Studies, which is not nearly enough to last several decades.

So, what can you do? Save more and invest more, keeping your risk tolerance and time horizon top-of-mind. And when it comes to actually investing more vs. just talking about it, consider this your official reminder to move investing off your “to do” list and onto your list of accomplishments. Our InvestingFixx club for women may be just the helping hand you need. The investments our members have picked for the group portfolio are not only beating the market, we’re also having a lot of fun doing it! We know the best way to feel confident in your investments and understand exactly where your financial future is headed is to get educated + empowered. We’re waiting for you — and so is your 30-day free trial :)

Family Apps = Financial Literacy?

If you’re one of the millions of moms and dads bemoaning the fact that your child never uses cash and never uses checks, and are worried that said child will never learn the value of a dollar as a result, you can officially stop fretting. Turns out apps are doing a heck of a job helping kids track their spending, save money, and make on-time payments, writes Julie Jargon for The Wall Street Journal. Jargon offered a run-down of the best apps that offer kids independence with their money along with a healthy dose of parental oversight. Some of the best? Step, which is free to use, but charges a small per-transaction fee, Greenlight, which costs $5 to $15 per month, for up to 5 people, Cash App, which is free and allows parents to “sponsor” accounts for teens and input allowance every month, and Venmo, which only charges per-transaction and allows parents to “lock” their teen’s debit cards, among other features. Plus, a lot of big banks now have their own apps that allow parents and children to share money, including Chase, Bank of America and Capital One. No matter which one you pick, the point is that you pick, since we’re increasingly raising our tiny humans in an-all digital society. Data from Junior Achievement found that just 57% of teens ever get cash from their parents, compared to 71% in 2019. It’s a trend that’s only going to continue. And if you still have reservations, take heart in knowing that with an app, you won’t have to deal with lost cash, torn checks, or misplaced piggy banks.

Have a great week,

Jean

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