February 2016

Woman gardener

Home Equity: a Retirement Resource

The National Council on Aging (NCOA) has redesigned its website providing information for “house rich but cash poor” older people who want to think about tapping their home equity.

Home equity – the house’s market value minus the amount owed on the mortgage – remains a largely unused source of income that many older Americans could be putting toward their medical care or to improve their lives.

wagesHome equity held by Americans age 62 and over reached $5.76 trillion last year – an increase of nearly 30 percent since 2013. A marker of how much of this retirement resource remains untapped is the small number of federally insured reverse mortgages – about 50,000 – that seniors take out every year against the value of their home equity. Reverse mortgages, which are available to homeowners at age 62, are equity loans that do not have to be repaid until the senior permanently leaves their home. …Learn More

Photo of confusing signs

8 College Repay Plans – and Counting

This was going to be a quick blog post about the new student loan repayment program rolled out by the federal government in January. But the differences between it and the seven plans that preceded it were too confusing to figure out on a tight deadline.

This isn’t just the view of one cranky blog writer. Craig Lemoine, a financial planning professor and student loan expert at the American College of Financial Services, which trains financial planners, also admits to being confused about the repayment options, which keep increasing in number.

If Lemoine were a student, he asked, “How on earth would I know which one to pick?”

His confusion pales in comparison with that of a lovely and loved young member of my family. She’s vague on the details of how her own student loans work. Here’s a rough approximation of our recent telephone conversation: …Learn More

U.S. Workers Got a Raise Last Year

It probably doesn’t feel like it, but workers got a decent pay raise in 2015.

wagesInflation last year was an improbably low 0.7 percent, and the fairly strong job market helped, too, by pushing up average hourly wages by 2.6 percent. Together, these translate to nearly a 2 percentage point increase in workers’ pay. Wages rose again in January by one-half percent, which was the second-best monthly increase in the current economic expansion. Minimum wages are also going up in many states.

It gets even better, based on an analysis by the American Institute of Economic Research (AIER) in western Massachusetts. An inflation measure designed by AIER that it calls the everyday price index, or EPI, actually declined last year. As its name implies, the EPI gauges changes in prices for things that are necessary for daily living, such as utilities and groceries, and excludes infrequent big-ticket items such as cars, homes, appliances, and even clothing. For this reason, it also weights gasoline more heavily than the standard consumer price index (CPI). The EPI declined 1.4 percent for the 12-month period ending in November, the latest data available, compared with the 0.7 percent increase for the CPI. …Learn More

Illustration: Quiz!

Can You Pass this Retirement Quiz?

Most people in a recent retirement survey fielded by the American College of Financial Services were confident that they had saved enough money to live in comfort in retirement.

But how do they know if they’re on-track? Four out of five also flunked the survey’s retirement planning quiz, answering less than 60 percent of its 38 financial questions correctly.

What’s striking about the poor results is that the quiz takers were a select and relatively well-off group: 60- to 75-year-olds with at least $100,000 in financial assets, excluding their home equity. A majority of them also have a financial adviser. One would think that people with both investment and retirement experience would do better. This also raises the question of what the quiz results say about the financial outlook for retirees with fewer advantages.

Think you can do better? With the American College’s permission, Squared Away selected five of its questions for a short quiz for our readers. Some of the answers incorporate the American College’s expertise with that of the Center for Retirement Research, which supports this blog.

Button linking to quizLearn More

Illustration of characters on change

More Parents Split Bequests Unequally

As the American family becomes increasingly complex, so do parents’ wills.

The result has been a dramatic increase over the past two decades in the share of wills in which parents distribute their estate’s assets unequally among their genetic offspring and stepchildren.

Chart: Complex FamiliesNew research, based on surveys of older Americans, finds that about one-third of parents today do not distribute their assets equally. The reasons range from the greater incidence of divorce and the inherent disadvantage of being a stepchild to the fact that some children naturally take on the role of caring for their aging parents. With parents now living longer and needing more care, children may receive compensation in the will for providing that care.

About 42 percent of older parents have not written a will, though it’s unclear why, according to the study. But when there is a will, here is how complexity affects the distribution of bequests, based on the research findings: …Learn More

Social Security Statement Header

Could Social Security Statement Do More?

Two out of three working Americans grade their retirement readiness at no better than a “C.”

So how about using the Social Security Statement that lands in their mailboxes, grabbing their attention, to spur them to action?

The statement is already valued by millions of Americans. A survey funded by the U.S. Social Security Administration (SSA) found that people who received statements were “dramatically” more knowledgeable about their basic pension benefits than people who had already retired when SSA started mailing them out in the mid-1990s.

Social Security is the nation’s most important source of retirement income, and the information in the statements is essential to most workers’ retirement planning. Mailed out before every fifth birthday – 25, 30, 35, etc. – and annually at age 60, the statement provides estimates of each worker’s future benefits at three different claiming ages: 62, when they have access to their smallest monthly benefit; the “full retirement age”; and 70, when workers receive their highest monthly benefit. It clearly lays out how much workers can increase their monthly retirement income by delaying when they start collecting their benefits. …Learn More

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

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