January 2015

Retirement Saving: Excuses and Regrets

U.S. workers have a long list of reasons, many of them legitimate, for why they can’t come up with the money for a retirement savings plan.

But here’s the rub: we live in a 401(k) world. Workers who aren’t convinced of the urgency of saving should listen to people who have already retired.  Even though many current retirees have defined-benefit pensions, they have become largely unavailable to most people still working today. And these retirees say they’ve learned the hard way that saving is key.

Excuses now and regrets later – these two takeaways came out of a nationally representative survey of workers and retirees by HSBC, a global financial institution.

Chart: Why It's Hard to Save

Saving for retirement is not a major priority for 81 percent of the workers surveyed. The chart shows that saving takes a back seat to myriad other financial concerns, topped by the impact of the global economic downturn and the U.S. job market.

Things are much clearer to retirees.  Nearly half of them, when asked for the latest age at which people should start preparing to retire, said before 30.  Many retirees – about two out of five – said “they did not realize that their preparation had fallen short until it was far too late.”

Whatever obstacles they face, the question facing workers is: what can they do to save or save more? …Learn More

Photo of grads

Inequality Fuels Drop-Out Rate

Education is the holy grail of success.  But too many young men in this country don’t graduate high school, much less aspire to a college degree.

It’s clear that completing high school improves one’s chances of moving up the economic ladder.  So why doesn’t this incentive always work?

At a time of greater attention to the nation’s widening inequality, new research supports the argument that income inequality may actually discourage disadvantaged low-income teenagers from finishing high school.

The study examined whether there is a relationship between inequality and the drop-out rate, measuring inequality as the ratio of the lowest incomes in each state – the bottom 10 percent – to incomes in the middle.  The study found that drop-out rates for teenage boys in states with the greatest inequality were 4.1 percentage points higher than drop-out rates in the states with the least inequality – this is a big difference, amounting to more than one-third of the 11.1 percent average drop-out rate. …Learn More

snowy path

Winging It in Retirement?

Saving should be the centerpiece of any retirement plan today.  But a new survey indicates that many Americans on the cusp of retiring have given little thought to the other key issues they’ll face in retirement.

A majority of older Americans recently surveyed by the American College of Financial Services, an educational organization for financial professionals, said they have set a goal for how much money to save to “live comfortably” as retirees.  And, when asked to assess their own progress, they feel they’re doing a good job of it.  Granted, the survey was limited to a select group of about 1,000 people over age 60, all of whom have at least $100,000 in investable assets.

But the financial risks posed by the transition away from full-time work and a regular paycheck are complex and continual – and preparing for them goes well beyond contributing to a 401(k).

Only a minority of people planning their retirement take into account these important financial issues: …Learn More

Errors in Medical Bills Are Rife

Chart: Medical Debt ComplaintsEver try to make sense of a medical bill, with its co-payments, cost-sharing, and government or insurance-company reimbursements that haven’t been paid yet?  Hospital stays with multiple doctors and lab tests make billing even messier.

These layers of complexity contribute to errors and confusion that can damage Americans’ credit ratings.  Consumers “incur medical debts in collection without certainty about what they owe, to whom, when, or for what,” the federal Consumer Financial Protection Bureau (CFPB) reports.

When a hospital or physician hasn’t been paid, they may, after trying to resolve the issue in-house, pass the unpaid bill to one or a series of collection agencies.  Yet nearly one in four of the complaints consumers have made to CFPB about medical bills in collection said the debt “is not mine.” One in five said they’ve paid the bill being reported as past due.

There’s new evidence that the number of people reporting medical debt issues is declining, and new federal rules are aimed at curbing aggressive collection practices for low-income patients. But medical debt still accounts for half of the collections posted on credit reports and is the largest source of complaints about credit reports, exceeding complaints about utility and cable bills and retail and financial transactions. …Learn More

The Psychology of Fraud

What makes this AARP video about fraud compelling is that a few brave seniors were willing to discuss how they were cheated out of a few thousand dollars, $20,000, even $300,000.

With the baby boom population aging at the same time that the Internet has become a haven for hackers, scammers, and invasions of privacy, experts predict that the incidence of online and other fraud against the elderly will continue to increase in coming years. Some researchers have begun to explore the topic of fraud and aging, with one recent study showing that people become more vulnerable to fraud as they age and experience natural cognitive decline.

The seniors’ testimonials in the video, produced by the AARP Fraud Watch Network, demonstrate how con artists’ strategies tap into our deepest emotional needs.  “These tactics are so powerful, and [scammers] use them with such intensity that it is difficult to say ‘no,’ ” said Anthony Pratkanis, a psychology professor at the University of California, Santa Cruz.

Pratkanis explains four psychological strategies that con artists use to lure people into surrendering their money: …Learn More

Americans Cope with Income Swings

A full-time job that delivers a steady paycheck, week in and week out, is a luxury for many working people.

Low- and middle-income adults are instead often whipsawed by wild swings in their incomes, finds a U.S. Financial Diaries project, based on detailed biweekly or monthly financial interviews with 235 urban and rural U.S. households nationwide. During the course of the year these interviews were conducted, the average household experienced four spikes or dips, defined as a change of at least 25 percent in their incomes.

The Bloomberg video above explains that even when workers’ annual incomes are sufficient to cover annual expenses, these month-to-month fluctuations complicate how – or whether – they can save for their future.

The income swings have many causes primarily stemming from the labor market, including unpredictable work schedules, unsteady part-time or self-employment, and a patchwork of multiple jobs, as well as a reliance on intermittent payments such as tax refunds.  More than half of the adults interviewed – retail and construction workers, waitresses, check cashers, hotel workers, taxi drivers – held down more than two jobs. …Learn More

Photo of a college campus quad

Many in Dark About Their College Debt

A recent Brookings Institution report confirms for the first time how severely uninformed many college freshman are about the impact of the debts they’re taking on to fund their education.

This isn’t entirely surprising. But with tuitions continually rising and students now often forced to borrow the equivalent of a house down payment by the time they graduate, the Brookings findings should serve as a wake-up call:

  • Half of the full-time freshmen surveyed “seriously underestimated” how much they were borrowing.
  • Among students known to have federal college loans, four out of 10 either said they didn’t have any federal loans or didn’t have any debt at all.

According to the report, “Students who do not have a good idea of their level of borrowing may make expensive mistakes that they will later come to regret.” …Learn More

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