May 2018

Medicaid Now Critical to Aging Workers

For decades, the Medicaid program has subsidized health care for the poor, including retirees.

Yet, until recently, it largely excluded most working-age adults without disabilities due to a strict monthly income limit.

medicaid logoAll that changed in the 32 states and the District of Columbia that accepted the Affordable Care Act’s (ACA) option to expand their Medicaid coverage to low-income working people.

In 2010, the ACA increased Medicaid’s income limits for people to qualify for the insurance. Today, working baby boomers, as well as younger workers, can qualify if their income is below 138% of federal poverty levels – or $1,396 per month for a single person and $1,892 for couples.

This joint federal-state program now completely or partially insures about one in six people approaching retirement age, according to a new report citing U.S. Census Bureau data.

The expansion is at least partly responsible for a striking improvement in one statistic: the uninsured rate for adults between ages 50 and 64 fell from 15.5 percent in 2012 to 9.1 percent in 2016. …Learn More

SNL’s Kate McKinnon and Kids on Money

Kate McKinnon has made a name as a comedienne with her wild and weird humor on “Saturday Night Live.” But she plays straight man to the kids she interviews about money.

This video, produced by the best-selling personal finance author, Beth Kobliner, is an effort to have some fun while improving financial literacy – an effort that seems aimed more at adults than children.

Justine, Ricky, and Jillian are the sugar that makes Kobliner’s sober advice about saving, jobs, debt, and credit cards more palatable – and this strategy just might be effective.

Watch for yourself.

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Public Pension Cuts Hit Recruitment

West Virginia teachers started the wave of strikes over pay.
Photo courtesy of Janet Bass, American Federation of Teachers

Teachers’ strikes and walkouts over inadequate pay – in Arizona, Kentucky, Louisiana, North Carolina, Oklahoma, and West Virginia – are making news this spring. In Oklahoma, half the people who’ve left teaching recently said pay was their top reason for moving on.

A wave of reductions in another significant form of compensation – pensions – also appear to be making state and local governments a less appealing place to work, according to researchers Laura Quinby, Geoffrey Sanzenbacher, and Jean-Pierre Aubry at the Center for Retirement Research, which publishes this blog.

Pensions have traditionally been the great equalizer for governments trying to recruit people from the higher-paying private sector. But benefit cuts, which had been fairly uncommon, gained momentum after the 2008 stock market crash that battered pension funds’ already declining finances.

The pace of cost-cutting reforms peaked in 2011, when 134 state and local government plans made some type of cuts that year. They run the gamut from increasing the tenure requirement or retirement age applied to new employees’ future pensions to trimming the cost-of-living adjustment on all pensions. …Learn More

slot machine

Squared Away at Year 7

Seven years ago this month, this personal finance and retirement blog debuted. How things have changed.

For one thing, back in 2011, a lot more people were reading blogs and newspapers on their clunky desktop computers. In recognition of the now-ubiquitous smart phone – more accurately, a computer that happens to have a phone – we just redesigned how Squared Away looks on phones to enlarge the type and make the articles easier to read.  Our older readers will appreciate this update.

Year 7 is also an opportunity to restate the blog’s mission, which, frankly, was not fully refined in the early years.  In some ways, our mission has not changed: we continue to emphasize retirement security and personal finance, with a bent toward the evidence-based research that provides a clearer understanding of the financial, economic, and behavioral issues that are critical to a high quality of life.

We regularly report on research by scholars around the country, including studies produced by members of the U.S. Social Security Administration’s Retirement Research Consortium: the NBER Retirement Research Center in Cambridge, Mass., the University of Michigan Retirement Research Center, and the Center for Retirement Research at Boston College, which also is the blog’s home.

But it’s natural for a new publication to find its sweet spot over time, and Squared Away is no different. One theme that has emerged very clearly is that the threads of retirement saving are shot through the fabric of our financial lives.

The predicament of Millennials is an obvious example. Immediately after beginning their careers, 20- and 30-somethings – so much more than their parents and grandparents – are under the gun to save for retirements that no longer are likely to include a pension. …Learn More

wave

Target Date Funds are on a Roll

For the sheer simplicity they bring to 401(k) investment decisions, retirement experts have been big fans of target date funds for years.

Now, their popularity is soaring with the people who really count: employees.

Last year, 401(k) participants poured a record $70 billion into target date funds (TDFs), an investment option that automatically shifts the asset allocation in the portfolio to reduce risk as employees approach a designated retirement date. TDFs have become the first choice for people who, rather than go it alone and pick their own mutual funds, like having their employer’s mutual fund manager do it.

According to a new report by Morningstar, the Chicago research firm, the new money flowing in has averaged $66 billion annually over the past three years, a 28 percent increase over the prior three-year period. The inflows exclude new money from investment returns.

The surge in new invested money has been more about the intensity of baby boomers’ efforts to save for an impending retirement, Morningstar said, than the fact that strong returns usually pull investors into the stock and bond markets.

In another major development, TDFs invested in passive index funds are now investors’ predominate choice. This is a full reversal from a decade ago, when most TDFs were invested by stock pickers.  (Although more money is now flowing into passively invested TDFs, actively managed TDFs still hold more in total assets.) …
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inequality

Why Retirement Inequality is Rising

Just as the wealth and income gap between the well-to-do and working people is growing, so, too is retirement inequality.

tableResearchers increasingly want to know what’s behind this phenomenon. They’ve uncovered reasons ranging from low-income workers’ greater difficulty saving to the well-to-do’s longer life spans – which means they’ll get more out of their Social Security benefits.

Having a low income doesn’t necessarily mean a retiree can’t live comfortably. What matters is how much of their earnings they will be able to replace with Social Security and any savings.

Even by this standard, lower-income workers come up short: 56 percent are at risk of having a lower standard of living when they retire. The decline is slightly less for middle-income workers – 54 percent – but the risks fall sharply, to 41 percent, for the people at the top.

The roots of this inequality span Americans’ lives from cradle to grave:

  • In our 401(k) system, financial security in retirement increasingly hinges on how much people can save in their 401(k)s as they work. But it’s harder for low-income workers to save, mainly because their employers are less likely to offer a savings plan, according to a 2017 study by The New School for Social Research. The study also found that basic living expenses gobble up more of their paychecks, and they experience more financial disruptions from layoffs and divorce, leaving less for savings.
  • Some research assesses inequality trends for specific groups of people.  Incomes tend to rise over time, even after being adjusted for inflation, but they rise more slowly for people near the bottom of the earnings scale. Lower earnings translate later to lower retirement incomes.  For example, the future retirement income of well-heeled members of Generation X, relative to today’s retirees in the high-income bracket, is estimated to be two times more than it will be for low-income Gen-X retirees, according to an Urban Institute study. …
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Tiny House Fixes Millennial’s Money Woes

Sky-high city rent, college loan payments, and the low-paying days of an early career are a bad combination for today’s Millennial.

Liz Patterson

Liz Patterson has solved all that.  The carpenter built herself a 96-square-foot house on top of a flatbed truck for less than $7,000 in Manitou Springs, Colorado, a hip neighborhood near Colorado Springs.

The house “represents my monetary freedom – it’s the whole reason I did it,” the 27-year-old said.

Tiny houses, which average 500 square feet, are only about 1 percent of U.S. home sales. But builders say that sales continue to grow as Generation-X buys them as Airbnb rental properties, and baby boomers park their “granny pods” in an adult child’s backyard.

Patterson’s house before

Tiny houses actually make the most sense for 20-somethings in rebellion, given their financial constraints and a distaste for all the junk their parents accumulated over a lifetime, said Shawna Lytle, a spokeswoman for Tumbleweed Tiny Homes Company in Colorado Springs, which built its first tiny house in 1999. The national tiny house price is $23,000.

Five years earlier, the tiny house movement had started in Tokyo. Recently, a handful of U.S. communities, including Spur, Texas, and Berkeley, California, have modified their zoning rules or building codes to accommodate them. The laws are a patchwork: houses on wheels must sometimes be classified as RVs, and some cities set size minimums for houses with foundations. …Learn More

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