What if I Live to be 100?

When you reach your 60’s, as I have, you start taking a serious look at whether you are financially ready for retirement. As I talk with people about my own tentative plans, I frequently mention this concern: “What if I live to be 100?” Usually, people laugh.

I thought about that last week as I scanned a research report released last summer: “How Well Do Retirees Assess the Risks they Face in Retirement?” published by the Center for Retirement Research at Boston College. The research identified five major risks faced by retirees:

  • Longevity Risk – risk of outliving your money
  • Market Risk – market volatility
  • Health Risk – unusually high medical or long-term care costs
  • Family Risk – divorce, death of spouse, or needs of other family members
  • Policy Risk – mostly related to changes in Social Security

The research results suggest that people are NOT very good at recognizing which risks pose the greatest threat to their retirement wellbeing. Objectively speaking, the greatest risks are (in order): 1) longevity; 2) health; and 3) market. But when people are surveyed, they focus their primary attention on market risk – the risks of ups and downs in the economy during their retirement, with longevity risk second.

The moral of the story?  Don’t laugh at me when I ask “What if I live to be 100?”

Seriously: the report makes clear that the average person does not pay enough attention to longevity risk. To build a financially secure retirement, we need to be prepared for the possibility that we might live a long time. For those of us whose entire retirement income, apart from Social Security, is held in 401ks, IRAs, and other similar accounts: we need to be prepared to stretch that money for 30 or more years. Even for those of us who have IPERS or some other guaranteed lifelong pension: we need to consider the impact inflation will have on that income over 30 years or longer.

Longevity Illustrator. Several years ago I discovered this tool created by the Society of Actuaries. It shows us the statistical probability of living to different ages. As a female in my early 60s, it tells me I have a 45% chance of living to age 90, a 23% chance of living to age 95, and an 8% chance of living to 100. Yes, the odds of living to 100 are fairly small but there is almost a 50-50 chance I’ll live to 90. That means I need to be prepared to live at least to 90 or 95. And if I want to play it safe, maybe 100!

I’d encourage you to check out the longevity illustrator for yourself, and consider the information as you review your retirement plans!

Barb Wollan

Barb Wollan's goal as a Family Finance program specialist with Iowa State University Extension and Outreach is to help people use their money according to THEIR priorities. She provides information and tools, and then encourages folks to focus on what they control: their own decisions about what to do with the money they have.

More Posts

Managing Your Finances Amid Recession Concerns

Economists, policymakers, and news outlets are all at-odds over the U.S. economy heading toward a recession in 2023. For those paying close attention, the same debate took place prior to 2022; however, the economy mostly stayed its course, and recent economic data is pointing to the same…for now. Unfortunately, we have no way of knowing what the future holds, but there are still steps we can take to manage our finances during periods of uncertainty.

The first step in easing recession concerns is to review your current spending habits. It is very difficult to follow a financial plan, while simultaneously preparing for a potential economic downturn, if you have no idea where your money is going. But the good news…there are plenty of free tools out there to help! Utah State University’s PowerPay, the Ohio Public Employees Retirement System’s 50-20-30 Rule Calculator, and the Economic Policy Institute’s Family Budget Calculator are great for analyzing your spending in different ways.

The purpose of this exercise is not only to see where your money is going, but also to free up dollars toward your other goal: building emergency savings for the short and medium-term future. We often think of using emergency savings for an immediate, one-and-done expense; however, a recession can be much more than that for some households. That is why many financial professionals recommend having 3, 6, or even 12 months’ worth of expenses saved, depending on your situation.

On the long-term side of things, having a diversified retirement portfolio, sticking to your asset allocation, and rebalancing when necessary are all key strategies for reducing recession stress. The U.S. Securities and Exchange Commission’s Investor.gov website provides a Beginner’s Guide to Asset Allocation, Diversification, and Rebalancing (PDF format). This free publication explains the value of these strategies and how they can be utilized to benefit your savings goals.

If all else fails, please know that Iowa State University Extension and Outreach is here to help!

Ryan Stuart

Ryan is a Human Sciences Specialist in Family Wellbeing and an Accredited Financial Counselor®. He focuses on educating and empowering all Iowans to independently make positive financial decisions throughout their life course.

More Posts

Being Thankful

Thanksgiving – this season when we pause to be grateful – can become so much more than a day in which we gather with loved ones to enjoy each other’s company and share a wonderful feast. If we take it further, thanksgiving, or gratitude, can become an underlying attitude that helps us see our options and opportunities all year ‘round. That can have a big impact on our finances.

Feeling gratitude causes us to focus on what we have, rather than what we don’t have. As we deal with our finances and try to make choices about the best uses of our money, being mindful of and grateful for what we already have makes it easier to:

  • Say “no” to impulse or unnecessary purchases
  • Set money aside for future needs (including college, retirement, or other long-term goals)
  • Build an emergency fund
  • Give to worthwhile charities

Pausing and reflecting with gratitude on our possessions, and on the people and experiences in our lives, makes it easier to be satisfied.  Being satisfied makes it easier to put our money toward important uses rather than being distracted by spending opportunities with only short-lived value.

Gratitude helps us see ways in which we have more than a “bare minimum” existence – having freedom to choose how to use our money is definitely something to be grateful for. That includes small freedoms, like being able to add ice cream to our grocery cart, and bigger freedoms, like the ability to travel to see loved ones, or to provide music lessons for our child.

If you’re interested in taking your gratitude to a next level by sharing your abundance with causes important to you, stay tuned for next week’s post related to “Giving Tuesday.”

Note: freedom of choice is an essential element of financial well-being – learn more about financial wellbeing here or take the financial wellbeing quiz.

Barb Wollan

Barb Wollan's goal as a Family Finance program specialist with Iowa State University Extension and Outreach is to help people use their money according to THEIR priorities. She provides information and tools, and then encourages folks to focus on what they control: their own decisions about what to do with the money they have.

More Posts

Some Things Never Change

I have three grown children: each with two kids of their own. They once shared (with an eyeroll) how they always knew when mom was learning a new parenting curriculum because I would implement the strategies and techniques on them. It is now a privilege and a joy to watch my kids as parents and occasionally I will see one of those strategies from their past emerge in their home.

I really liked those parenting programs and the lessons that they reinforced in my kids (showing love while setting limits, using natural consequences, Savings/Spending/Credit, etc.). But as you would expect, there is now an app for SOME of that.  One that caught my eye allows a parent to pay their child an allowance or for extra chores. The money accumulates on a debit card which they can use to purchase the things they want or need.

The latest app being used with a couple of my grandkids is quite amazing. It teaches the Time Value of Money, Smart Spending through Rewards and the power of delayed gratification using Savings Goals.  The free version allows you to assign points to chores the child can earn and points for rewards the child can save for. For example…if a child wants a sleep over, the child will need to earn 1000 points.  Cleaning the toy room (a weekly chore) may be worth 5 points while emptying the dishwasher (a daily chore) may be worth only 1 point. The points can be assigned a dollar value as well.  So, if the child wants a $5 stuffed animal and it takes 10 points to equal $1, the child will need 50 points to buy the stuffed animal….I think there is also a math lesson in there.

What keeps it interesting is the fact that no two kids are alike, so what works for one child may not work for the next. I see that with my grandkids: one is highly motivated by rewards and has a long list of wants, while the other just loves to help and has no wish list.

By searching for “Child Chore Apps” on the web, you will find lists of apps that could be useful to parents trying to raise responsible young people and provide kids an opportunity to experience, practice and apply life skills, including money management.

Brenda Schmitt

A Iowa State University Extension and Outreach Family Finance Field Specialist helping North Central Iowans make the most of their money.

More Posts

Savings Strategies

Note: this post builds on yesterday’s post about having a meaningful reason to save.

Once you have a reason why you want to save, or save more, the next step is to “find” money to save. That generally means either increasing income or reducing expenses, which means something will need to change. Change can be hard, but most of us can succeed if we have a good enough reason.

To reduce expenses, you can make several small changes; for example, eat out one less time per week, drink one less can of pop each day, or stop buying magazines and read them at the library instead. OR, you could make one big change that saves money; for example, you could find a roommate to share housing expenses or move to a smaller (less expensive) apartment. To increase income, you could ask for more hours at work, get an extra part-time job, collect cans and bottles for the 5-cent deposit, or have a garage sale.

Once you have “found” some money by reducing expenses, increasing income, or both, the next key is to MOVE that money to a savings account or to some location where you are unlikely to touch it.

This seems like an obvious step, but it can be overlooked.

Imagine a scenario where you exercised self-discipline by skipping your morning coffee shop stop, bringing your lunch to work, and stuck to a limit at the grocery store! You’re proud of yourself! But if you don’t actually MOVE the money to your savings account, it will just end up getting spent on something else.

To make sure the money gets moved to savings, one helpful strategy is to treat savings like a bill you pay each month. If you’ve decided you can save $50/month by making some changes in spending, then “pay” that saving bill just like you pay your utility bill and your car payment. That approach increases your chance to be successful with saving. Even if you are saving small amounts, building the habit of saving each month is a way to reach your goals, whatever they may be.

Barb Wollan

Barb Wollan's goal as a Family Finance program specialist with Iowa State University Extension and Outreach is to help people use their money according to THEIR priorities. She provides information and tools, and then encourages folks to focus on what they control: their own decisions about what to do with the money they have.

More Posts

Financial Independence? Or Interdependence?

It’s my turn to write a financial blog post the week of Independence Day, and the obvious topic is to write about Financial Independence – which, for the average person, equates to retirement – the time when you have accumulated enough assets so that you can live on those assets rather than working. 

But when I think about it, I’m not convinced there IS such a thing as financial independence. I’m getting pretty close to a point where I might have enough assets to retire, but will that make me independent? I’ll still want to drive on roads that are paid for by my community, or county, or some other larger group of people. I’ll still want to use electricity, but I can’t pay for the electric grid on my own… I need everyone else to pay in too, or the whole system will fall apart.  

If I ever had a fire, I’d be grateful that the Red Cross showed up to help; likewise I’m grateful for the volunteers who make community beautification happen, and those whose volunteer work supports my public library, and those whose time and talents make community theater productions possible. An even less tangible example: my neighbors who have beautiful flower gardens that add beauty to my life. You get the point: even if we have more money than we need for ourselves, we still depend on others. And others depend on us. 

We value our independence as Americans. But I suggest perhaps we should give just as much attention to the importance of our INTER-dependence.  It’s worth remembering to appreciate all the services, amenities and intangible benefits we gain from being part of a larger community. It’s also worth supporting them. We support them financially in several ways: with our shopping (have you ever willingly paid a higher price in order to shop local?); with our tax payments; and/or with our charitable gifts. We may also support them with our time and skills, and just by being a good neighbor. That INTER-dependence is essential to keeping our communities and our country strong.  

Nearly all of us have had times when, if someone was “keeping score,” it would be clear that we RECEIVED more than we GAVE to this interdependent system. The nearly-universal example is when we were students in K-12 schools or at a college or university, especially if we received grants or scholarships. Many of us may encounter similar situations as we age. And certainly, when we have a serious crisis (like that home fire I mentioned above), we will likely receive more than we give or deserve.  

Thankfully, there’s no need to “keep score.” Instead, we’re better off simply celebrating the give and take that is central to the wellbeing of our communities and of our nation.  What INTER-dependence will you celebrate this week? 

Barb Wollan

Barb Wollan's goal as a Family Finance program specialist with Iowa State University Extension and Outreach is to help people use their money according to THEIR priorities. She provides information and tools, and then encourages folks to focus on what they control: their own decisions about what to do with the money they have.

More Posts

Buy Now, Pay Later?

Recently I was in the store, and while walking in the aisle, I saw a sign saying “ Buy now and pay later – see the associate for details.” I might expect to see signs like that during winter holiday shopping, but not in the spring!

First, what is Buy Now Pay Later? Basically it’s an option that lets consumers finance their purchase by making small payments each month, without paying any interest. Example: purchase an air fryer for $125 by paying $25 at the time of purchase and promising four future payments of $25 (perhaps monthly or bi-weekly).

According to a 2021 survey by the Federal Reserve Bank of St Louis, people chose Buy Now, Pay Later for five main reasons, listed below in order of preference.

  1. The largest group (78%) stated that it was more convenient for them.
  2. The second reason given was that the consumers did not want use their credit card. Even though they could have purchased the product with a credit card, they feel they were better off without charging it to their credit card.
  3. The next reason was that it was the only way they could afford the product. This is certainly understandable for consumers who are living paycheck to paycheck on a tight budget. Any large purchase would constrain their budget; small payments make the purchase possible.
  4. Some people did some analysis to compare payment options, and concluded that “buy now, pay later” was the least-costly payment option available to them.
  5. Lastly, for some consumers “buy now, pay later” was the only payment method they had – they did not have checking accounts or credit cards available, and worked strictly with cash.  

It is important to point out that even though “Buy Now, Pay Later” does not charge a fee to the consumer, it is not truly free. The retailer offers it in cooperation with an outside finance company, which charges the retailer a fee for the service. Some retailers expect to see increased sales that will make up for the added cost; other retailers may pass the cost on to the consumer in the form of higher prices.

Budgeting for large purchases requires some planning. For those who do not have savings or credit available to cover the cost of a large purchase, Buy Now Pay Later may prove to be a very helpful option, enabling them to acquire higher-cost items they would not otherwise have been able to afford.

A caution: what if I buy an air fryer today (needing $25 payments), and a bike next week (with payments of $40) and a chainsaw the next week ($20 payments)?  Next month I’ll have a bunch of unusual payments to make. If it seems “easy” to make large purchases, consumers may make several purchases within a few weeks and find themselves overcommitted. Like all tools, “Buy Now, Pay Later” can be useful, as long as we use them carefully!

Barb Wollan

Barb Wollan's goal as a Family Finance program specialist with Iowa State University Extension and Outreach is to help people use their money according to THEIR priorities. She provides information and tools, and then encourages folks to focus on what they control: their own decisions about what to do with the money they have.

More Posts

Is Your Spending Plan Working?

A spending plan (aka “budget”) is a key to taking control of your money. But it’s not enough to make a spending plan. To get results, you need to go the next step and work your plan.

Think about it: you could make a plan that works out perfectly on paper — all your bills are paid, you have enough money for needs like groceries and gas and also some fun, AND you also put some money toward your longer-term financial goals. However, if your plan calls for spending $500 a month on groceries, and you actually spend $700 on groceries, then your plan is wrecked. You’ll end up with unpaid bills, unmet needs, and/or zero progress toward your goals. Even a “perfect” plan is no good if you don’t follow it.

Following a spending plan doesn’t have to be difficult, but it does take some attention: you’ll need a strategy to help you stay within the spending limits of your plan. In other words, you’ll need some method of tracking or monitoring your spending.

Let’s stick with the grocery example above. Perhaps we go to the grocery store 6-8 times during a month. If we want to make sure we keep our grocery spending below $500, we’re going to need some type of on-going record of what we’re spending. Maybe we just keep a list of grocery spending. Maybe we use a paper ledger form, an excel spreadsheet or a purchased software program. Maybe we use an app on our phone designed for that purpose. We could even put $500 cash in an envelope and only buy groceries using that cash — that way we would be unable to spend more than we planned.

A note of realism: unexpected events can interfere with our plans. A grocery example: suppose relatives decide to come visit you for a weekend. Suddenly your original grocery allotment of $500 might no longer be sufficient. Your plan will need to change. It’s your plan – you are free to change it if you need or want to change it! And here’s the good news – that change doesn’t have to wreck your plan! By keeping track and being aware that you are spending extra on groceries, you will know that you need to reduce your spending in some other area to compensate for your extra grocery spending. You will adjust your overall plan intentionally to accommodate the change.

Finding the right tool. There are multiple tools and strategies available to help with following your plan; different tools suit different people, so consider what will be most workable for you. The ISU Extension publication “Tracking Your Spending” provides a helpful overview of basic methods. Because no publication can keep up with the ever-changing landscape of software and mobile applications, some online research will be needed if you want to explore and compare those options.

For Iowans who would like help with making and following a spending plan, Extension specialists are available for one-on-one consultations, either in person or via phone or zoom. Don’t hesitate to contact us!

Barb Wollan

Barb Wollan's goal as a Family Finance program specialist with Iowa State University Extension and Outreach is to help people use their money according to THEIR priorities. She provides information and tools, and then encourages folks to focus on what they control: their own decisions about what to do with the money they have.

More Posts

Make the Most of Financial Literacy Month

April is Financial Literacy Month! This annual event reminds us ALL that we are never “done” with financial literacy. The world changes, financial products change, and our own needs change — that means we always need to keep learning about financial topics.

What do you want to learn more about when it comes to finances?

  • Is buying a home on your radar sometime in the next few years?
  • Do you need a retirement checkup to see if you are on track to meet your goals?
  • Do you want to start saving for your children’s education after high school?
  • Are you having trouble keeping up with your daily-weekly-monthly financial challenges?

Set a goal NOW to take steps toward being the informed consumer and financial manager you want to be! See below for ideas that will help you address the four questions above. And subscribe to MoneyTip$ to make sure you get ongoing reminders and updates on financial topics.

Remember that financial literacy is not just for young people, or for people who don’t know how to manage their money. Financial literacy is an ongoing topic for EVERYONE!

Ideas to help with the questions above:

Barb Wollan

Barb Wollan's goal as a Family Finance program specialist with Iowa State University Extension and Outreach is to help people use their money according to THEIR priorities. She provides information and tools, and then encourages folks to focus on what they control: their own decisions about what to do with the money they have.

More Posts

Emergency Savings: How Much Do I Need?

Prior to the Covid-19 pandemic, approximately 30-50% of adults in the United States (depending on the study) would struggle when faced with an unexpected or emergency expense. While the percentage of affected adults improved with the arrival of COVID relief programs, recent data shows that the numbers may be trending back down toward pre-pandemic levels. The aggregate data will continue to show these fluctuations over time depending on the macroeconomy, significant policy changes, etc., so a more immediate question for consumers is:  How much do I need in my emergency savings account? $400…$1,000…3-6 months of expenses? The answer is not concrete and completely depends on your own personal situation, but here are some things to consider:

  1. How large is your household? – the necessary living expenses for a single individual will likely look much different than a household of four.
  2. Do you own a home or rent? – homeowners face the risk of repair costs, which increases their need for emergency savings. The recent derechos are a perfect example.
  3. What are your insurance deductibles? – this is an often-overlooked aspect of emergency savings. Auto insurance deductibles tend to be around $250 or $500, while health insurance and homeowner’s insurance deductibles could be in the thousands. A higher deductible provides lower premium costs, but does increase your need for emergency savings.
  4. How stable is your income? – are you self-employed or an independent contractor? Do you work in a high-turnover industry or face occasional government shutdowns? How likely you are to need those savings to make up for lost income should also factor into the amount saved.

This is not meant to be an exhaustive list, but rather a starting point for your emergency savings plan. For the DIY-ers, I encourage you to utilize PowerPay, Utah State University Extension’s free, online, personal finance tool to create your emergency savings plan; otherwise, you can contact your local Iowa State University Extension and Outreach Financial Educator for a free, confidential, 1:1 Financial Consultation!

Ryan Stuart

Ryan is a Human Sciences Specialist in Family Wellbeing and an Accredited Financial Counselor®. He focuses on educating and empowering all Iowans to independently make positive financial decisions throughout their life course.

More Posts

    

Subscribe to “MoneyTip$”

Enter your email address:

Delivered by FeedBurner

Archives

Categories