U.S. Millionaires: a Racial Breakdown

This video examines wealth through the prism of race.

It compares the share of the nation’s African-American, Hispanic, Asian-American and white populations who have net worth exceeding $1 million; net worth equals financial and other assets minus mortgages and other debts. If the fact that there is a racial divide isn’t surprising, the magnitude of it might be.

Other factors also have an enormous influence over who gets rich, and understanding this becomes increasingly important amid rising inequality. The biggest determinant of wealth is whether our parents are rich, as recent research has shown. Age and education are also crucial. That’s because older people have more time to save and accumulate wealth, and a college education typically leads to jobs that can add an estimated $1 million to the total amount that a worker earns over a lifetime.

But even when the data are sliced by age and education, there are deep economic inequities in our diverse society, as this video produced by Bloomberg Business shows.Learn More

No-Free-Lunch Seminars for Seniors

Economists like to joke about free lunches. The subtext is that there’s a cost to everything.

A free lunch is also literally how high-pressure financial companies sometimes lure older Americans into a room to hear their investment pitches. The FINRA Investor Education Foundation says some 6 million older Americans have attended seminars in return for a free lunch. Every year, my mother’s retirement community outside of Orlando hosts a handful of these seminars, which are presented by financial firms, insurance companies, and even funeral homes.

FINRA warns that they can pressure seniors into making “unsuitable, even fraudulent investments.” The above FINRA video explains what’s behind the free-lunch presentations and proposes some questions that people can ask to determine the legitimacy of what’s being sold.

But it’s probably better to do what my mom does: find something fun to do instead.Learn More

Personal Finance Info – now in Spanish

The wealth of good financial information available from government, university, and non-profit organizations is an antidote to the television and Internet advertisements selling financial products. Squared Away regularly compiles these resources for our readers’ benefit. This newest installment starts with some that are available in Spanish for the nation’s growing Hispanic population:

  • The FINRA Investor Education Foundation translated its short video about why people make bad financial decisions into Spanish. “Pensando Dinero: la psicología detrás de nuestras mejores y peores decisiones financieras” – or “Thinking Money” – explores how emotions get in the way of common sense when making decisions about money. Several other FINRA resources also in Spanish include a glossary of online financial publications and a video about financial fraud. (“Pensando Dinero” is based on a documentary produced for public television; a free DVD of the English-language documentary is also available.)
  • “Thinking Fast and Slow” by Daniel Kahneman was an international bestseller about behavioral economics. To explore another insider’s take on this field, read what one of the field’s founders says about it. Richard Thaler’s latest book, “Misbehaving,” will be published in paperback in May. A New York Times review called it “a sly and somewhat subversive history of his profession.”
  • In just two years, the housing boom taking place in many parts of the country has added
    $1 trillion to the value of home equity held by people ages 62 and older, reports the National Reverse Mortgage Lenders Association. For retirees wondering whether it’s appropriate to turn some of their equity into income, the Center for Retirement Research at Boston College, which supports this blog, has produced a booklet on ways retirees can use their home equity, including through reverse mortgages. The online version is free, and a paper version costs a whopping $2.75.

Learn More

Photo of construction demolition

How Melanie Paid Off Her Student Debt

Sitting at her computer in the oversized studio apartment she shares with her boyfriend in Portland, Oregon, Melanie Lockert received confirmation on Dec. 10 that her ordeal was over: $81,000 in college and graduate school loans were finally paid off.

She had two reactions. The first was an existential panic. “Who am I without debt?” the 31-year-old asked herself. Then a grin spread across her face. “I started dancing and screaming in my apartment. It was such an amazing moment, and I felt incredibly happy to be done with this,” she said.

Recent college graduates might despair that their day of liberation is far away or might never come. But Lockert’s single-minded focus on demolishing her debt, particularly by accelerating her payments recently, provides a roadmap – and some hard lessons – for those facing a seemingly endless string of monthly payments.

Melanie Lockert

Lockert’s path followed a zigzag pattern, which she documented in a Dear Debt blog that she started writing in 2013. Being debt-free was not her first priority when she packed up her undergraduate loans and moved from California to New York in 2010 to attend graduate school – a decision that would more than triple her total student debt. Paying off her loans required a lot of patience and sacrifice, some risk-taking, and brutal self-honesty. She concluded that she couldn’t accomplish her financial goal if she pursued a career in the field she had studied in college. … Learn More

Prescription drugs

Seniors Vulnerable to Drug Price Spikes

Total U.S. spending on prescription drugs by individuals, insurers and governments jumped 13 percent last year – the largest increase since 2001. One in four Americans report having difficulty paying for medications.

Older Americans are somewhat shielded from the full impact of rising drug prices by Medicare’s Part D program, which greatly expanded their coverage. Since Part D’s implementation in 2006, seniors’ average out-of-pocket spending on medications has actually declined, from $708 to $564 annually in 2012.

But a recent trend of price spikes for specialty drugs might be a snake in the grass for seniors on fixed incomes. Since most take multiple prescriptions, they face greater odds of needing at least one of these expensive medicines.

Drug cost stability for seniors “is starting to reverse as newer specialty drugs come into the marketplace,” said Juliette Cubanski, a senior Medicare policy researcher for the Kaiser Family Foundation. Part D plans “are covering these drugs and people are taking them, but the costs are going up.”

They include new breakthrough drugs that cure – rather than just treat – Hepatitis C, as well as medications for rheumatoid arthritis, multiple sclerosis, and cancer. Kaiser estimates that a senior who takes one of the 12 specialty drugs it analyzed can pay anywhere from $4,400 to $12,000 per year out of their own pockets, even after taking into account Part D’s subsidies. …Learn More

Doors illustration

Empty-Nesters Aren’t Saving Enough

Day care, sneakers, cell phones, maybe college – kids are expensive. When they grow up, empty-nesters face a decision about what to do with their extra money.

What they choose is crucial to their retirement security for two reasons – one obvious, and one subtle but very important.

The Center for Retirement Research estimates that about half of U.S. workers might not have enough savings to maintain their standard of living after they retire. So, the obvious thing to do after being freed from child-rearing obligations is to put more money into an employer retirement plan. But 401(k) saving increases only modestly after the kids leave home, according a study by the Center comparing empty-nesters with parents whose kids are still living at home.

The Center’s researchers confirmed this finding using two separate sources of data on married households’ finances. One was a University of Michigan survey of nearly 2,500 households in which the man was over age 50, with financially independent offspring defined as those who are no longer living at home and, if they are college students, have not attended school continuously. The other was U.S. Census data on more than 40,000 adult households of all ages, with independence defined simply as over age 23. …Learn More

Elderly woman with cat

Policy Reduces Elderly Women’s Incomes

Poverty is the scourge of women in old age.

This problem was aggravated, according to a new study, when older workers started claiming their Social Security benefits sooner after the earnings test was lifted in 2000 for those who reach the program’s full retirement age.

The earnings test withholds benefits from older workers earning more than a specified amount – the withheld benefits are returned later, in the form of an increase in monthly Social Security checks. But the earnings test is, nevertheless, often viewed as a tax in the mistaken belief that these benefits are never restored.

Researchers at the U.S. Treasury Department and the University of California at Irvine found that people reacted in one of two ways to lifting the earnings test, both based on the misperception it’s a tax. One response was to work longer – as Congress intended – under the logic that benefits would no longer be unduly “taxed” after workers entered their late 60s. The second and more common response was to claim benefits earlier than one would have prior to the policy change, when workers perceived that delayed claiming was the way to avoid this “tax.”

The earnings test remains in place for beneficiaries younger than the full retirement age – 66 for most boomers. However, the researchers analyzed a broader age range of workers – 62 to 70; even those who haven’t yet reached their full retirement age might change their behavior in anticipation they will soon reach it, and the test will no longer apply to them.

Earlier claiming by men and women, which results in smaller monthly Social Security checks, has fallen especially hard on elderly widows. After a husband dies, the two benefit checks coming into the house are reduced to one. Although widows receive the larger of the couple’s two checks – typically the husband’s – it may not be sufficient to maintain her standard of living. …Learn More

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