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Not all 401(k) investors are as optimistic about their accounts as President Trump

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President Trump — on Twitter — listed some reasons why Americans should vote for him on Monday morning; one being their 401(k) plans.

The president often touts how well the economy is doing under his administration, including a stock market recovery in the six months following a pandemic-fueled economic shutdown and sharp market decline. During the presidential debate against Democratic nominee Joe Biden last week, Trump said when the stock market does well, jobs and 401(k) balances benefit. On Monday, he also tweeted quotes from individuals who said their retirement accounts have risen dramatically while he was president.

But not all Twitter users agreed about the status of their 401(k) plans. While some investors have seen their balances grow in recent months, that hasn’t been a universal experience. Some said their balances have suffered recently and others said they had to borrow from their retirement accounts to pay their bills in the middle of the crisis.

Critics also argued not all workers have access to employer-sponsored retirement accounts. Only a third of Americans were invested in a 401(k) plan in 2017, according to U.S. Census Bureau data. Even when workers do have access to a plan through their employer, not all can participate — or contribute enough — citing other financial obligations. Companies suffering from the effects of the pandemic may also have to change what they offer their workers. Some businesses, for example, have had to suspend their 401(k) matches in recent months.

How well a 401(k) balance does depends largely on what is invested within that portfolio. An account that is invested heavily in funds that are tied to a stock market index, such as the S&P 500 SPX, will react in line with how that index is doing. A portfolio that is well diversified among various asset classes may be impacted by market volatility, but perhaps not as much as one that is mostly in equities.

These accounts are also most beneficial to higher-income workers, and how well they fared because of the stock market also depends on if an individual has been able to maintain a job during the pandemic, said Alicia Munnell, director of the Center for Retirement Research at Boston College. Upticks of the stock market do benefit 401(k) account balances, but only if someone is not relying on that money and can continue to contribute to it. “If you retain [a job] you should be fine, but if you lose a job, that puts pressure on 401(k) balances, if they have to turn to them,” she said.

Young employees or those who don’t expect to retire for a few decades are typically advised to stick with a portfolio heavily invested in equities, which is why they may have seen balances rise and fall dramatically in the last few months. Someone who is anticipating retirement sooner is generally advised to have more conservative investments in their portfolios, to protect against market volatility.

Still, some Twitter users said they have seen their 401(k) plans doing well under the Trump administration.

Many Americans weren’t expecting a crisis, and they weren’t financially prepared for one either. One in four people expect to retire later than expected because of the pandemic, according to a joint report from personal finance app Stash and lender LendingTree, while another 70% said there has been no change to their plans.

Fidelity Investments, which tracks its investors’ workplace and individual retirement accounts, said balances of defined contribution accounts — such as 401(k) plans — have stayed relatively consistent in recent years. Defined-contribution plans had an average balance of $104,400 in the second quarter of 2020, a 14% rebound from the previous quarter. Most employers adopted the CARES Act provision that increased the allowable 401(k) loan from $50,000 to $100,000, but even then, loan usage was down during the second quarter of 2020, according to Fidelity.

Other 401(k) providers have seen similar trends. Principal Financial said 401(k) loans have been down more than 50% from the beginning of 2020 to Aug. 31, compared with the same period in 2019. About 3.4% of participants originated a loan during this time, compared with 7.6% in 2019. Another 3.5% of participants took advantage of the CARES Act provision for coronavirus-related distributions, with an average withdrawal of $13,200. Another 0.7% of participants took a hardship withdrawal, down from 1% in 2019.

In the LendingTree survey of nearly 5,000 Americans, those who made less than $35,000 a year expected to delay their retirements, compared with 17% of people who earn more than $100,000. Almost a third of Latino consumers and 28% of Black consumers said they’ll also hold off on retirement, versus 23% of white consumers. Members of Generation X, who are between 44 and 55 years old, said they would likely push off retirement, compared with millennials and their younger cohorts, Generation Z, of whom 21% and 24% said they would retire later, respectively.



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‘I could live on my Social Security and still save money’: This 66-year-old left Chicago for ‘calming’ Costa Rica — where he now plans to live indefinitely

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Editor’s note: This article was first published in September 2019.

A school break changed 66-year-old Martin Farber’s life forever.

In 2007, his daughter — who at the time was attending Illinois State University — decided she wanted to spend a college holiday volunteering in Costa Rica and staying with a local family, he explains. She came home raving about the experience, so, in 2008, Farber — who at the time was living in Evanston, Ill., just outside Chicago, and selling cars — took his first trip there.

“It was a big surprise to me — bumpy roads, dogs barking in the streets,” he says. “I wasn’t enamored at first.”

But as his daughter began traveling there more and eventually moved there for a year, he took additional trips to Costa Rica. It quickly grew on him — in particular, the people. “The Costa Rican people are warm, open and friendly. I felt less invisible in a strange country in a strange town where I didn’t speak the language than I did in Evanston.”

And the more time he spent there, the more it impacted him: “On one of my trips there, I thought: My daughter’s life makes more sense than mine,” he says. “There was nothing wrong with my life, but I felt that my life was out of context with who I’d become. … I would have bills and make money to pay them, but that had ceased to be satisfying,” he recalls. “I knew I needed to change my life — there was no more joy in what I was doing.”

What’s more, when he’d return from his Costa Rica trips, people noticed. “I would come back, and my friends and therapist would say: You seem better after you go,” he says with a laugh.

A view from the hot springs near Martin Farber’s home in Costa Rica.


Martin Farber

So in 2014, he packed up and moved to Orosi — a picturesque, lush small town with waterfalls and hot springs a little over an hour’s drive from San Jose — promising himself he’d stay for two years. It’s been five, and he now plans to stay in Costa Rica indefinitely. (Though Farber notes that, to him, “it’s not a retirement; it’s a chance to lead a new and different life.”)

Here’s what his life is like, from costs to health care to residency to everyday life:

The cost: While many expats spend way more living in Costa Rica, Farber says: “I could live on my Social Security and still save money.” He says “a person can live on $1,200 per month, two people on $2,000.” The key, he says, is to live more like he does and as the Costa Ricans do — in a modest home, eating local food and purchasing local goods.

Indeed, Farber himself spends just $300 a month for rent (he rents a home from a friend who moved recently and gave him a good deal), roughly $225 a month on groceries and just $50 a month total on water and electricity (the temperate climate in Orosi means you rarely need heat or air conditioning). The veteran Volkswagen
VOW,
+0.96%

 
VLKAF,
+0.98%

salesman saves money by not owning a car (those over 65 ride municipal buses for free), which can be a significant expense in Costa Rica; for his cellphone, “I pay as I go … roughly $10 may last me a couple weeks or more,” he says, adding that “many people handle there their cellphones this way. You can get them recharged anywhere.”

His major expense is travel: He goes back to the U.S. to visit his mother in Florida several times a year and lately has spent part of the summer in Chicago helping out a friend with a dealership there. He also spends a good amount of money on health care. He says that while flights can be had for as little as $350 roundtrip during offseasons, the cost can be much higher the rest of the year.

In the saddle.


Martin Farber

Health care: Farber, who has permanent resident status in Costa Rica, says he pays about $90 per month to participate in the country’s health-care system — adding that the health care he’s received has been very good. (A 2018 study of health-care quality and access in more than 190 nations ranked Costa Rica No. 62.)

When he developed a detached retina, though, he paid for the procedure out of pocket so that he didn’t have to wait for the required surgery, he says — adding that the entire procedure cost him about $5,000. “I would have had to have waited four days,” he says, if he had not paid to expedite matters. “That might have been fine, but it might not.” And he adds that the quality of care depends on where you get it in the country.

Lifestyle: Though Farber says that he “moved here with no goals and no agenda,” he’s found plenty to do. “I take Spanish lessons two days a week for two hours a day. It’s been great. I never thought I would acquire a usable language in my 60s,” he says. He also rides his bike all around the area, does some writing and belongs to a community group that undertakes projects to improve the area.

And he often simply takes in nature, which he says has been an essential part of why he feels calmer and more relaxed in Costa Rica than in the U.S. “I live at 3,000 feet but in a valley surrounded by coffee fields and lime trees and water. At night, if I open the windows, I can hear the river rushing by,” he says. “It is very calming … hundreds of trees everywhere … you know the Earth is alive.”

The historic Iglesia de San José de Orosi.


iStock

Cons: “I don’t want to overglorify. It’s not without its problems,” Farber says of Costa Rica. “There are social problems and downsides.” He notes that crime and petty theft can be a problem (“I am cautious,” he says of his approach) and seem to have increased since he moved there, and adds that he misses out on some cultural things because of where he lives. And, he says with a laugh, “I can’t order Thai food at 9 at night.” But, he adds: “These are trade-offs — in the afternoon, I get to walk in the coffee fields and see flocks of parrots.”

Residency: To qualify for Costa Rica’s pensionado visa, expats must prove that they have a pension of at least $1,000 coming in each month. (Here are the details of that program.) Once you have lived in Costa Rica for three years, you can apply for permanent residency. Farber used a lawyer to help him figure out the ins and outs of residency options; his entire path to permanent residency took about a year, he says.

The bottom line: “After five years I am still amazed and surprised that I made the decision to lead a life I never thought I would,” he says. And while he may not stay in Orosi forever — “the town doesn’t have an ambulance, [and] I don’t know what it will be like to be 80 there,” he says — he does plan to stay in Costa Rica in no small part because of the people and sense of community. “I have the feeling that life is good here,” he says. “It’s hard sometimes, but we are all in it together.”



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Mutual Funds Weekly: These money and investing tips can help you read the market’s signs and stay on your path

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Mutual Funds Weekly: These money and investing tips can help you read the market’s signs and stay on your path

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