February 2012

Getting by on Social Security

Retirement: Getting by on Social Security from Squared Away on Vimeo.

Before retiring, James Gomes said he often wasted his regular paychecks from General Electric. Arlene Starr wishes she’d saved – like her sister did. And immigrant Trung Quang Pham’s low income made it tough to set money aside.

They are residents of the Savin Hill Apartments in Boston, most of whom are “pretty much on fixed incomes,” said apartment manager Sandra Baker of CMJ Management Co.

They are not alone either. Millions of retirees rely on Social Security’s fixed monthly pensions, which average $1,181. The federal pension program provides the vast majority of retirement income for nearly one in four retired couples and nearly half of the elderly living alone. And new research for the first time determined that a large swath of the elderly leave this world with little or no assets left in savings and personal retirement accounts.

In the first of two videos, retirees in the Savin Hill Apartments generously agreed to discuss the issues they face for Squared Away. The second video – about their financial decisions and regrets over a lifetime – appears Thursday. …Learn More

For Many Elderly, Little Left as Life Ends

About half of the elderly living alone and one-third of elderly couples have less than $10,000  left in their savings and investment accounts just before they leave this world.

These grim statistics may be a more accurate gauge of retirement survival than the balances Americans have accumulated as they enter retirement, a pursuit that pre-retirees and the financial-services industry tend to focus on.

To determine where retirees wind up financially, economists James Poterba at the Massachusetts Institute of Technology, Steven Venti at Dartmouth College, and David Wise at Harvard University crunched a mass of data.  Tracking a nationally representative sample of middle-aged and older Americans, they tabulated the financial assets held by elderly couples and the elderly living alone as they approached retirement, retired and aged, and when they were last observed in the sample.

“What we take away from this is that a significant number of households have a very small cushion if they encounter any kind of financial need,” Poterba said in a telephone interview last week, referring to a new working paper, “Were They Prepared for Retirement? Financial Status at Advanced Ages in the HRS and AHEAD Cohorts.”

The following is a small slice of what the researchers found in the last years before the elderly died…Learn More

A cartoon chart with apparently random lines scribbled on it, captioned "This chart accurately predicted the last bear (and bull) market. It also doubles as an abstract painting for your home or office."

Investment Humor Not an Oxymoron

You have to admire a financial writer and editor with the guts to put this on his LinkedIn profile: “While many Wall Street people go to Harvard or Yale University to learn about business, Ron went to art school.”

The cartoons shown here are in a humorous financial book by Ronald DeLegge 2d, who said he first earned his chops as an insurance salesman at a small Midwestern company that eventually became part of AIG. His cartoons appear in “Gents with no ¢ents: A closer look at Wall Street, its customers, financial regulators, and the media.” Dave Clegg was the illustrator.

Enjoy.Learn More

Impulse Saving May Be ‘New’ New Thing

You’ve heard of impulse purchases. But how about impulse saving?

It’s purely an idea at this stage, and it may not work. But a New York City check-cashing firm plans to start a program that will allow customers to throw $20, $10, even $1 into savings – on impulse – when they’re cashing a check or flush with cash.

“I know my customers,” said Joseph Coleman, president of RiteCheck Cashing Inc., which has 12 stores open 24/7 in Harlem and the Bronx. “If they could put $5 away or $20 away for a television they wanted, to buy a car, or for Christmas, they would do it.”

Key to making the program work is simplicity, operating on the theory that barriers and red tape thwart savings deposit; if a customer wants to open a savings account, RiteCheck will print an application that’s already filled out and needs only a signature. RiteCheck teamed up with long-time business partner Bethex Federal Credit Union to open and manage the accounts.

“People have intensions to save” but “get derailed by the lack of a clear, easy path to start saving,” said Innovations for Poverty Action’s (IPA) Jonathan Zinman, a Dartmouth College economist who worked with Coleman to create the product. The non-profit IPA granted $15,000 this month to set up RiteCheck’s program…Learn More

Two cartoon birds, one black, one white, sitting on a branch.

Will Saying “I Do” Affect Your Saving?

The single-married divide is dramatic: single adults between the ages of 22 and 35 are far less likely to have retirement savings accounts than are married people their age.

This difference, which is most pronounced for women but also true for men, highlights a conflict between two mega-trends. The number of single Americans has surged to nearly 100 million – 43 percent of the adult population. Yet they are less likely to save at a time that all young Americans face greater responsibility for funding their own retirement than any prior generation.

About 22 percent of single women have employer-sponsored retirement accounts, compared with 44 percent of married women. For single men, only 28 percent have employer accounts, while 44 percent of married men do, according to a February paper in the Journal of Marriage and Family by researchers at the Social Security Administration (SSA).

“By highlighting the link between marriage and retirement savings in young adulthood, our analysis identifies an often-overlooked economic outcome related to marriage,” SSA researchers Melissa Knoll, Christopher Tamborini, and Kevin Whitman write. Data for their sample of 3,894 people came from the Federal Reserve’s Survey of Consumer Finances in 2001, 2004, and 2007.Learn More

A cartoon of a man in a suit running - titled "The Fear Index"

The Science Fiction of Financial Markets

A lot of us feel when we look at the Dow Jones plunging [that] we’re in the grip of some alien force that slips human control. — Novelist Robert Harris

The stock market in May 2010 seemed to “come alive” when it swooned 1,000 points within minutes, Harris said in a bone-chilling radio interview that’s worth a listen for Main Street investors.

His new thriller, “The Fear Index,” which the London Telegraph called “unputdownable,” is about a hedge fund manager. But in the interview, Harris expressed his desire to take readers beyond the business reporter’s technical explanations for the market’s wild swings up or down. A solitary, $4 billion trade, the media widely reported, caused the 2010 Flash Crash that left an impression on the novelist. As Europe teeters on recession, it’s anyone’s guess how the Standard & Poor’s 500 stock market index has managed to soar more than 7 percent since Jan. 1.

Wall Street experts may be able to make sense of a hair-trigger market, but Harris’s sci-fi explanation is appealing to the rest of us. He invokes the imagination – or, perhaps I should say, the artificial intelligence lab at the Massachusetts Institute of Technology.

To hear Harris’ interview on National Public Radio, click here.Learn More

Taxing Behavior

Taxes, politicians and economists say, can either encourage or discourage human behavior. This chart landed on my desk, so I thought I would share it.

The capital gains tax rate has declined sharply over the past 14 years. The marginal tax rate for high-income individuals has plotted a very different course than the marginal rate for the middle class.

What does this chart say to you?

Please post a comment by clicking below, on “Learn More.” …Learn More

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