Are Too Many Baby Boomers Too Indebted?

Financial burdens could alter their retirement prospects. Imagine retiring with $50,000 of debt. Some new retirees owe more than that. Outstanding home loans, education debt, small business loans, and lingering credit card balances threaten to compromise their retirement plans. How serious is the problem? A study from the University of Michigan’s Retirement Research Center illustrates how bad it has become. Back in 1998, 37% of Americans aged 56-61 shouldered recurring debt; the average such household owed $3,634 each month (in 2012 dollars). Today, 42% of such households do – and the mean debt load is now $17,623.1 Are increased mortgage costs to blame? Partly, but not fully. Quite a few homeowners do trade up or refinance after age 50. The Consumer Financial Protection Bureau notes that between 2001-2011, the percentage of homeowners 65 and older carrying a mortgage went from 22% to 30%. The data for homeowners 75 and older was more alarming. While 8.4% of this demographic had outstanding home loans in 2001, 21.2% did by 2011.2 Education debt is weighing on boomer households. According to the Motley Fool, the average recent college graduate has $30,000-$35,000 in outstanding student loans. It would take monthly payments of $300-$400 over a...
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Millennials, Do Not Imitate Your Parents

They invested heavily in what was “hot” and got burned. A new generation of investors is coming to the forefront: your generation. Millennials have witnessed a fantastic bull market, one of the longest on record. Any given week, scary headlines may generate some volatility, but the bulls just keep on running. It is easy to be lulled into a false sense of security in this market climate. Bearish arguments can be effortlessly dismissed. Innovation, consumer-friendly technologies, and new social media platforms are turning heads and sending share prices higher. TD Ameritrade says that the five most-owned stocks among its millennial accountholders are Apple, Netflix, Amazon, Tesla, and Facebook. Snap and Twitter are also on the radar. Trading shares via phone is routine. So what if these stocks pay no dividends? (Currently, only Apple does.) These companies seem invincible.1 Twenty years ago, another generation of investors worshiped tech stocks. In the Web 1.0 era, baby boomers and Gen Xers salivated over the potential of Yahoo, Cisco, Lycos,, E*TRADE, GeoCities, and other emerging tech firms. They were all so hot. Then came the dot-com crash of 2000. Ever hear of a company called CMGI? It owned the search engine AltaVista. It sold...
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Taking a Loan from Your Retirement Plan = Bad Idea

Why you should refrain from making this move. Thinking about borrowing money from your 401(k), 403(b), or 457 account? Think twice about that, because these loans are not only risky but injurious to your retirement planning. A loan of this kind damages your retirement savings prospects. A 401(k), 403(b), or 457 should never be viewed like a savings or checking account. When you withdraw from a bank account, you pull out cash. When you take a loan from your workplace retirement plan, you sell shares of your investments to generate cash. You buy back investment shares as you repay the loan. So in borrowing from a 401(k), 403(b), or 457, you siphon down your invested retirement assets, leaving a smaller account balance that experiences a smaller degree of compounding. In repaying the loan, you maybe repurchasing investment shares at higher prices than in the past – in other words, you will be buying high. None of this makes financial sense.1 Most plans charge a $75 origination fee for a loan, and of course they charge interest – often around 5%. The interest paid will eventually return to your account, but that interest still represents money that could have remained in...
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