This blog has a single writer posting just two articles a week. So it’s impossible to keep up with all the news that crosses the transom.
But perhaps because the work world is gearing back up this fall, there have been a lot of interesting stories lately about financial behavior. Here are three worth noting:
Fatherhood adds to paychecks – motherhood, not so much. A new study estimates that women actually face about a 7 percent “wage penalty” for each child. So, having two children reduces a woman’s hourly wages by 14 percent, according to a new study out of the University of Massachusetts at Amherst. In contrast, annual earnings for fathers are about 8 percent higher than similarly situated men who have no children. This research sheds more light on the wage gap.
Baby boomers are having to pay off college loans they took out decades ago. Some 155,000 older Americans are now seeing deductions from their Social Security checks to pay their federal student loans – up from 31,000 a decade ago – according to the U.S. Government Accountability Office. Parents often co-sign loans for a child’s education, but the GAO report says that about three out of four dollars of boomers’ loan balances are for their “own education.” Baby boomers never borrowed the large amounts that today’s steep college tuitions demand. But what’s not discussed in the report is that the garnisheeing of Social Security benefits may be due to a cultural artifact of the 1960s and 1970s – when attitudes toward repaying student debt were, well, loose. Laws requiring repayment have become more stringent. …Learn More
Policymakers often worry that increasing government pension benefits won’t necessarily help retirees, if the reforms cause workers to change their behavior in ways that counteract them. For example, some workers might save less if they know pension benefits are rising, offsetting the income boost they’ll get from a larger pension.
However, researchers examining Canada’s pension reform over five decades confirm that they have materially improved the financial well-being of retirees there.
To reach this conclusion, Kevin Milligan of the Vancouver School of Economics and David Wise of Harvard University tracked the financial status of older Canadians from 1960 through 2010. They analyzed some 100,000 families between 55 and 80 years old using Canada’s Survey of Consumer Finances, the Survey of Labor and Income Dynamics, and the Family Expenditure Survey.
They conducted simulations to estimate what benefits would have been if no policy changes had been made since the 1960s. This simulation showed that the poverty rate, based on the incomes of Canadians from ages 70 through 79, would have been 34 percent. But today, in the aftermath of reforms, only 4 percent of older Canadian families are poor. [The researchers did a second simulation based on an alternative poverty measure: how much older Canadians spend on shelter, food, clothing and other goods. This also showed a decline in the poverty rate, albeit smaller.] …Learn More
A September 2012 article on page one of TheNew York Times reported “disturbingly sharp drops” in life expectancy between 1990 and 2008 for Americans who do not complete high school – five years less for white women and three years less for white men.
This flatly contradicted past studies documenting rising longevity throughout the developed world. Much was also at stake in this dramatic new finding for U.S. retirement experts concerned about the growing financial pressures on retirees from what they’d assumed were virtually uninterrupted gains in longevity
Everyone wants to live longer, but it’s expensive. So who’s right?
In reaction to the 2012 study, a new group of researchers, funded by the U.S. Social Security Administration, took another run at calculating life spans and found that life expectancy is not on the decline for Americans with the least education.
The researchers, from the University of Michigan and Urban Institute, used the same data as in the 2012 study – U.S. Census data and National Vital Statistics. But they refined the statistical technique. One criticism of the prior paper had been its blunt measure of Americans with the least education, defined simply as those who had not graduated high school.
Yet the segment of the U.S. population that doesn’t graduate high school has shrunk dramatically, becoming an increasingly selective – and disadvantaged – group. That’s a change from the experience of people born a century ago for whom leaving high school to begin working or marry was the norm. …Learn More
How much must 30-somethings save in their 401(k)s to prevent a decline in their living standard after they retire?
No two people are alike, but the Center for Retirement Research estimates the typical 35 year old who hopes to retire at 65 should sock away 15 percent of his earnings, starting now. Prefer to retire at 62? Hike that to 24 percent. To get the percent deducted from one’s paycheck down into the single digits, young adults should start saving in their mid-20s and think about retiring at 67.
These retirement savings rates are taken from the table below showing the Center’s recent estimates of how much workers of various ages should save to achieve a comfortable retirement; they represent the worker’s contribution plus the employer’s contribution on their worker’s behalf. Expressed as a percent of their earnings, they also vary depending when a worker retires.
To derive these savings rates, the Center’s economists assumed that a retired household with mid-level earnings needs 70 percent of its past earnings. They then subtracted out the household’s anticipated Social Security benefits. The rest has to come from employer retirement savings plans, which determine the percent of pay required to reach the 70 percent “replacement rate.” …Learn More
In the 1970s, Americans saved about 12 percent of their after-tax income. Today, that’s plummeted to less than 6 percent.
Yet saving is in everyone’s interest.
A new video produced by The Atlantic magazine, “Why Americans Are So Bad at Saving Money,” blames our savings apathy on three factors: math (the lower one’s income, the less people save); psychology (spending money is more fun); and envy (keeping up with the Joneses).
The video doesn’t fully explain why this is an American problem. But it’s accessible and thought-provoking. For example, the narrator notes that much of the national conversation is about wealth – taxing it, measuring its disparities, winning it in the stock market.
We don’t expend a lot of energy talking about what builds wealth – saving – or how to encourage it.Learn More
Failing to meet one of Medicare’s many enrollment deadlines can be costly to new or imminent 65 year olds.
The Journal of Financial Planning helps aging baby boomers start out on the right foot with a clear run-down of at least five different enrollment windows for various parts of Medicare.
Getting these dates right is “very tricky,” and people often make mistakes that lead to higher out-of-pocket medical costs and gaps in their coverage, said Katy Votava, president of the consulting firm, Goodcare.com, and author of “Making the Most of Medicare: A Guide for Baby Boomers.”
“They often receive well-meaning but mistaken advice, and then they’re really in a pickle,” she said. “They aren’t eligible to apply when they want to or face penalties down the road. Coverage gaps can be a tremendous financial burden.”
The image displayed was extracted from the Journal’s enrollment timeline, and the entire graphic and a Journal article by Votava can be viewed here. The graphic is worth 1,000 words but here are some important don’t-miss dates: …Learn More
The Squared Away Blog’s focus is on how informed financial decisions can improve one’s personal finances or retirement prospects. But much that impacts our standard of living is not in our control.
One example is the cost of consumer goods, healthcare, and renting or buying a home, which vary widely from one city or region to another. To highlight this variation, the Tax Foundation in Washington, D.C., used recent data from the U.S. Bureau of Economic Analysis to create the cool interactive map below, which shows locations with the highest cost of living (bright orange) and the lowest (bright turquoise).
Running a cursor over the map displays metropolitan and rural areas and their comparative living costs, measured in terms of what $100 will purchase. In the Manhattan-New Jersey area, for example, $100 buys the equivalent of about $82 worth of goods, healthcare and housing, while it will buy $119 worth of the same stuff in central Kansas.
Source: The Tax Foundation.
The least expensive city is Danville, Illinois, where $100 buys $126 in consumer goods, followed by Jefferson City, Missouri; Jackson, Tenn.; Jonesboro, Arkansas; and Rome, Georgia. The most expensive metropolitan areas are the usual suspects, in this order: Honolulu, Manhattan, Silicon Valley, the Bridgeport-Stamford, Connecticut, area outside Manhattan, and Santa Cruz, California, which is south of Silicon Valley.[A second map compares states.] …Learn More