Is it your or your spouse’s biological or adopted child?
If not, you can claim a dependent age 19 or older if they are related to you or they are your domestic partner AND not using the Married Filing Jointly status AND either:
A) Disabled OR
B) Earned less than $4,700 in 2023 AND you provide more than half their support (including the value of the room & board you provide if applicable)
I did!
Not for taxes though (though it may end up being used for that purpose). I figured I wanted to guarantee an estate to my kids, and being self employed I could either end up with lots of money left over, or with nothing. The JLTD policy guarantees that if I screw up big time, there’s still money for the kids.
If I have any regret re: insurance, it’s not buying a honking big Term to 100 policy in the 90’s back when they were priced incorrectly.
Good for you.
The second to die life insurance is a great estate planning tool and your suggested use is another good example. These policies were also apparently underpriced in the 90’s but I missed the boat.
It is not unusual for actuaries to mess up on pricing. Back in the 1970’s, many Canadian insurance company actuaries thought long term interest rates would never fall below 4% again and priced guaranteed annuities accordingly. A lot of companies got hammered when the underlying original investments rolled over and had to be reinvested at low interest rates.
I don’t recall this being a thing. Maybe I just wasn’t “in the know”
I bought whole life in the 90’s. How much cheaper was Term to 100 compared to Whole Life?
OTOH, how much would it suck to buy Term to 100 and then die at age 101.
It was a Canadian thing. They prices it using whole life lapse assumptions but with no cash values. It was cheap, and sold like hotcakes. Then they realized their whoopsie and raised prices a lot. Then the low interest resulting from '08-'09 had almost every company cease offering it.
Also true story, up until early 90’s Canadian term policies offered select premiums at renewal, for renewals up to about 65 iirc. Then a few American companies entered the market with their select ultimate pricing and mildly cheaper initial premiums and the whole Canadian market turned over to that structure.
A suggestion by researcher on cutting back tax deferrals on retirement savings to reallocate to social security spending. If the US is like Canada, these proposals are political third rails and go nowhere.
This surprised me. Quoted because it has a paywall (use Reader Mode extension to bypass)
Obviously the poor are not well-prepared for retirement. Amusing that they note “Boomers have to pay off mortgages and therefore can’t save as much for retirement, whereas Millennials just can’t afford houses.” The article notes that many Millennials should expect to need to exhaust any housing equity as part of their retirement plan.
I’m floored that only 28% contribute to non-automatic retirement plans. I would have expected at least 50%.
This finding by investment advisor Vanguard seems contrary to years of economic research that projected millennials would be worse off than the generations that preceded them. Younger generations have had to weather a number of economic tsunamis: the financial crisis that started in 2007, which struck as many of them were entering the workforce; a crushing housing market that’s made homeownership a fantasy for many; and then yet another economic downturn during the pandemic.
However, financial advisors Fortune spoke to said the better retirement readiness was a result of decades of new regulations that made it easier for millennials to save for retirement, especially when compared to when boomers entered the workforce roughly 40 years ago.
“It’s funny, I’ve always said that the younger generation has really got it going on,” says Steve Azoury, an independent financial planner from Troy, Mich.
For its research, Vanguard measured the percentage of pre-retirement income and savings of households at different income levels needed to retire comfortably and how far from that target they actually were. In all but the lowest quartile of households, boomers are projected to be less prepared than younger generations. Meanwhile the poorest Americans, regardless of their age, were equally unprepared for retirement.
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The study factors in only a small slice of ages within the millennial, Gen X, and boomer generations because looking at the entirety of each generation, spanning some 20 years, would have been too difficult to accurately project, according to Fiona Greig, global head of investor research and policy at Vanguard and coauthor of the report. Within the study Vanguard’s researchers looked only at financial holdings, such as stocks, cash, and bonds, and didn’t include housing, which can be a significant source of an individual’s net worth that can be tapped for retirement.
One of the main reasons that younger generations are, perhaps counterintuitively, better prepared for retirement is because they have access to retirement plans with more sophisticated resources and better investment opportunities, according to Greig. In 1978, Congress passed legislation to create the modern-day 401(k) retirement accounts into which some employers match contributions. Previously, many employers paid pensions to retired workers. But as employees lived longer, changed jobs more frequently, and unions lost power, companies became less enthused about shelling out money for ex-employees to enjoy retirement.
“Employers were saying, ‘Forget it, I can’t do this anymore,’” says Azoury. “I can’t pay you a benefit for longer than you worked for me.”
Among the most significant developments involving 401(k)s have been automatic contributions, automatic increases in the amount employees contribute, and inclusion of target date funds, which adjust an individual’s investments as retirement approaches, Greig says. All of these developments mean that even the least financially savvy person can end up with a viable retirement nest egg as long as they contribute enough money into it.
“The procrastinator who says, ‘I’ll get to it later on’ and never gets to it—he’s automatically enrolled,” Azoury says. “And then when he starts seeing statements with his name on it and his accounts are growing, he gets very excited.”
There’s evidence to back up these claims. When companies implement automatic retirement account enrollment plans, 91% of eligible employees participate by saving for retirement. When enrollment becomes voluntary, that number drops to just 28%, according to research cited by Vanguard.
However, when it comes to the poorest U.S. households, millennials and Gen X lose the advantage over boomers. Greig suspects this is because people at the lowest income levels don’t have access to employer retirement plans, which have helped higher earners in their generations save.
“Low-income workers are less likely to be in a job that offers a retirement plan, right?” Greig says. “So these improvements in plan design only apply to those who have access to a plan.”
In fact, lower income households making less than $22,000 a year, across all generations—millennials, Gen X, and boomers—are on track to have just 63% to 64% of their pre-retirement income saved when they retire compared to the 96% they’d need. People in that income bracket, however, often make retirement planning a distant afterthought while prioritizing day-to-day needs. “I don’t even know how someone can survive on that to be honest let alone save for retirement,” says Russell Gaiser, a financial planner with the Financial Guys, a wealth management firm.
Homeownership is a ‘powerful but imperfect lever’ for retirement
Workers facing a gap in the amount of money they’d need to retire have a few options to make up for the shortfall, according to the Vanguard report. There’s the obvious one—working for more years. Delaying retirement was a popular decision for those who had expected to do so in 2022, due to it being a down year for stocks and a historically bad year for bonds, according to Gaiser.
Another option, which is more controversial but nonetheless touches on generational economic anxieties, is to tap into one’s home equity. Millennials have long struggled to own a home amid a national housing shortage and recent sky-high interest rates, while boomers had an easier time. More baby boomers may also be paying off mortgages than millennials and Gen X, more of whom rent, leaving boomers with less disposable income to contribute to their savings accounts.
Vanguard calls using home equity to make up the gap in retirement readiness “a powerful if imperfect lever.” The report cites two options: a reverse mortgage on a fully paid-off home or selling it altogether and either moving to a cheaper location or downsizing. Both would provide a windfall of cash. Gaiser considers these options more of a safety net than a chess move. “Tapping home equity is an option if it’s needed, but I don’t see that as a sustainable thing to recommend to folks,” he says.
Azoury doesn’t share the same reservations. Selling a home and buying a cheaper, smaller one is a lifestyle choice as much as a financial decision. “Maybe I don’t want to take care of a home when I retire,” Azoury says. “I’ll go to a nice condo and then use that equity to buy the condo. So now I’ve got housing at no charge.”
For younger people who may feel priced out of the tight housing market, Azoury recommends considering homeownership as part of their retirement plan alongside savings. Millennials “just have to realize that maybe part of their portfolio is going to be the house,” he says. “It’s not just my 401(k) or any [other investments], but also the house. Hopefully I’m in a nice area that’s going to appreciate, and that’ll be part of my retirement plan.”
Greig, however, thinks individuals can still properly prepare for retirement without owning a home. (Vanguard’s analysis in the report didn’t account for homeownership.) In fact, she doesn’t consider owning a home to be the financial benefit it once was because it can lock too much of people’s wealth into a single asset that can take time to sell.
“Maybe this is a bit provocative, but the notion that there will be a generation of people who are lifelong renters, who don’t invest in a home, but build out their wealth and their retirement in financial assets, rather than housing assets, isn’t necessarily a bad thing,” Greig says.
Honestly, there’s a decent chance when I retire (or at least when I hit my 60s or maybe 70s - hopefully retired mid-50s) I also move into a condo that doesn’t need to fit children and I don’t have to snowblow and mow the lawn. However, it’s not going to be a necessary part of my retirement finances.
28% is lower than what I would have guessed as well
I’m curious what percentage of employers have opt in 401k plans vs opt out. I would hope that a large majority require their employees to opt out, especially if they offer an employer match
New 401k and 403b plans are required to do opt-out (due to the SECURE 2.0 Act), I think they are required to start between 3% and 10% and increase 1%/yr until you hit a cap that can be between 10% and 15% or something like that. Existing plans aren’t affected but over time we’ll move towards most plans being opt out.
I think i had to opt out of the 401k plan at my extremely part time job that i do through a temp agency. (How part time? I do 9 hours of teaching and 2 hours of “administrative” time each year. The hourly wage isn’t bad, but keeping track of a 401k plan that has, say, $50 in it is not worth the effort.)
Based on how much of a PITA it was to roll over my old 401k I concur. Took me like three weeks and a dozen phone calls.
I’m sure assets managers lobbied hard for the default opt out feature but I think it is good for the majority of working people in America
Fair on both counts.
Would a 401k eventually be surrendered to the state as unclaimed property?
My partner has an old 401k from a post-collegiate retail stint. It probably has like $3,000 in it so I haven’t bothered. Problem is that they’re very much “I don’t wanna” when it comes to making phone calls and tracing these things, and I don’t feel comfortable pretending to be them on the phone. Even with their permission, they’d need to speak to them at multiple steps over multiple calls.
Curious if 30 years from now I’ll be able to reclaim it, just like I did with a $1,000 check demanded by a hospital and later paid by insurance.
I would think this would happen only after a very long period of time?
I don’t know the US rules but an abandoned bank account of $1000+ in Canada may be reclaimed for up to 100 years after the bank has transferred it to our central bank as an abandoned account. I don’t know the rules for retirement accounts but the government would want to get its tax cut faster than than that!
It can in the UK. But there is no rule like in Canada. It would have to sit unclaimed for many decades really.
This is a big problem if you have multiple smaller pots from job moves over the years. People forget about them or lose the paperwork. Or both.
What happens is that they try to contact the “owner” via a national tracing system. If they don’t respond it sits unclaimed and can eventually be hoovered up by the State.
FT story on this. Estimated at about £20bn or so.
I’ve found multiple sites that claim to recover your lost 401k. Some are clearly paid, some are unclear until I sign up.
Just went through one and they claim they’ll do it on a non-expedited basis for free, but only if I roll it into an IRA, which my partner doesn’t have. It didn’t get to the part of actually locating the 401k balance but it allegedly found the correct provider.
most states have free sites for uncollected funds
Yes, have done for that in the past, but a 6-year-old 401k isn’t there.