babies

US Fertility Falls in Midst of Recovery

fertilityWhen the economy is expanding and more people are working and earning more, they can afford to have more babies.

But that time-tested connection between the economy and fertility seems to be broken. During the recovery that followed the 2008-2009 recession and continues today, the U.S. fertility rate has dropped quite a bit.

Lower fertility is of interest to retirement experts because it has serious implications for our aging population.  AARP’s Public Policy Institute predicts a decline in the number of family members and friends available in the future to care for the elderly. Fewer babies also mean fewer workers will be paying into Social Security, in the absence of an increase in immigration.

Of course, fertility rates in developed countries like the United States, Germany, and Japan are far below the post-World War II baby boom. But the very recent decline in this country is striking. The total fertility rate, the best measure of current fertility, is 1.76 births per woman. This is well below the rate of 2 births per woman a decade ago.

A study by researchers at the Center for Retirement Research at Boston College identified four structural changes that are pulling the birth rate down. …Learn More

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Personality Influences Path to Retirement

Only about a third of the older people who are working full-time will go straight into retirement. Most take zigzag paths.

These paths include gradually reducing their hours, occasional consulting, or finding a new job or an Uber stint that is only part-time. Other people “unretire,” meaning that they retire temporarily from a full-time job only to decide to return to work for a while.

A new study finds that the paths older workers choose are influenced by their personality and by how well they’re able to hold the line against the natural cognitive decline that accompanies aging.

Researchers at RAND in the United States and a think tank in The Netherlands uncovered interesting connections between retirement and cognitive acuity and, separately, and a variety of personality traits. To do this, they followed older Americans’ work and retirement decisions over 14 years through a survey, which also administered a personality and a cognition test.

Here’s what they found:

  • Cognitive ability.  The people in the study who had higher levels of what’s known as fluid cognitive function – the ability to recall things, learn fast, and think on one’s feet – are much more likely to follow the paths of either working full-time or part-time past age 70.

    The probable reason is simply that more job options are available to people with higher cognitive ability – whether fluidity or sheer intelligence – so they have an easier time remaining in the labor force even though they’re getting older. …

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2 in 5 Millennials Have Used Payday Loans

Millennials at a food truckMillennials are big users of payday loans, which have steep interest rates that can really mess up their finances.

Remarkably, two out of five people in their mid-20s to mid-30s have used a payday loan, which is more than double the frequency for people in their late 30s, says Melody Harvey at the Pardee RAND public policy school. Generation-Xers and baby boomers use them even less, other surveys have shown.

Harvey’s new research has produced some evidence that something can be done to protect vulnerable young adults in the future: require them to take money management classes while they’re still in high school.

The use of payday loans is part of a broader trend among Millennials, she said. They also turn to desperation financing such as pawn shops to raise quick cash or rent-to-own schemes that, in the end, require them to pay much more for consumer products like furniture and computers.

Many young adults probably gravitate to high-cost forms of financing, because they’re strapped for cash after paying their rent and student loans every month. They also start their careers at relatively low wages and haven’t established the strong credit histories required to qualify for traditional, lower-cost debt.

But while poor people are often forced to use payday loans to solve an impossible financial problem, young adults could be using them partly to fund profligate spending. …Learn More

US

US Increasingly Polarized – by Geography

Rich or poor, old or young, white or black, red or blue – our differences cut many ways.

But a new divide has opened up, one based on geography. Stark new evidence shows that well-paid, highly educated people have moved to high-cost coastal cities over the past decade, while lower-income, less educated people have moved out.

American cities are “grow[ing] increasingly dissimilar along socioeconomic dimensions,” said Issi Romem, a fellow at the Terner Center for Housing Innovation at the University of California and economist for BuildZoom, a California website focused on development.

Gentrification is nothing new. But Romem’s analysis of U.S. intercity migration shows that gentrification occurs not just within city neighborhoods but also between cities. San Francisco is the most extreme example of what he calls “income sorting.” He estimates that the population moving into the Bay Area earns $13,000 more, on average, than the population that is moving out. People relocating to Seattle and Washington earn about $3,800 more than the people who leave.

A similar phenomenon is occurring in New York, Los Angeles, San Diego, and Boston, where restrictions on development, coupled with the strong demand for the limited housing stock, are pushing up house prices and driving people out, including renters who can no longer afford the steep increases in rents.

These movements exacerbate society’s already high level of inequality. As cities or regions of the country become less integrated in terms of their residents’ incomes, fewer low- and middle-income groups will enjoy the particular benefits to them of living in the midst of those who are better off.

Upward mobility is one such benefit. A famous study found that lower-income people are more likely to move up the income ladder, relative to their parents, if they live in coastal cities with higher education levels, better primary schools, and more family stability. Other research shows they will also live longer if they reside in cities with more socioeconomic diversity. …Learn More

race to the finish

Americans With Small 401ks Worry

This blog has spilled plenty of ink over the problem of so many workers having inadequate retirement savings.

One theory is that they don’t understand the urgency. But a new survey makes clear that they not only are fully aware of the problem but are very worried about it.

The vast majority of the 1,000-plus baby boomers and Generation-Xers who conceded to being behind on their saving wish they could save more – Allianz, which conducted the survey, calls them “chasers.”

These chasers recognize that if they don’t make adjustments, it’ll be too late to repair their finances. Two out of three fear the worst: they’ll run out of money at some point in old age and will be forced to eke out a living on their Social Security checks alone.

Their fears are warranted. The typical boomer household approaching retirement who has a 401(k) has saved just $135,000 in its 401(k) and any IRAs combined. At retirement, this amount equates to only about $600 in monthly income

Half of the workers put the blame on a single culprit: “too many other expenses right now.”

This sentiment dovetails with mounting evidence that many workers are overwhelmed by the increasing costs of health insurance, college, and housing, which are far outpacing their pay raises. Low-paid workers are especially hard hit, according to 2017 research. If they save at all, they set aside only 3 percent of their paychecks – half of what top-paid people are able to save. …Learn More

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Work v. Save Options Quantified

One of Americans’ biggest financial challenges is proper planning to ensure that their standard of living doesn’t drop after they retire and the regular paychecks stop.

A new study has practical implications for baby boomers in urgent need of improving their retirement finances: working a few additional years carries a lot more financial punch than a last-ditch effort to save some extra money in a 401(k).

This point is made dramatically in a simple example in the study: if a head of household who is 10 years away from retiring increases his 401(k) contributions from 6 percent to 7 percent of pay (with a 3 percent employer match) for the next decade, he would get no more benefit than if he instead had decided to work just one additional month before retiring.

Table showing how long to delay retirement in order to match a 1% increase in savings rate by age

Of course, this estimate should be taken only as illustrative.  To get their retirement finances into shape, many people should plan to work several more years than is typical today. Baby boomers tend to leave the labor force in their early- to mid-60s, even though more than four out of 10 boomers are on a path to a lower retirement standard of living. …Learn More

uphill battle

Why Less-educated Men Retire Younger

retirement age by educationMen with high school diplomas are retiring around age 63 – three years before college-educated men.  The gap in their retirement ages used to be smaller.

The reasons behind the current disparity are explained in a review of research studies on the topic by Matt Rutledge, an economist with the Center for Retirement Research.  The trend for women is similar, though their story is complicated by a sharp rise in their participation in the labor force in recent decades.

Rutledge provides four reasons that less-educated men are still the lion’s share of early retirees:

Health. Older Americans are generally getting healthier and living longer – so why not wait to retire? Well, the health of less-educated people is poorer and has improved less over time than their more-educated coworkers. And health problems trump unemployment and other types of job losses as the single biggest reason for their early retirements – more so than for better-educated workers.

Labor Market.  Two aspects of the labor market are relevant to less-educated workers.  In the past, a large share of the retiree population could count on a guaranteed monthly income from a pension. Today, the workers who have a retirement savings plan have an incentive to delay retirement, because they will have to rely on the often inadequate and uncertain income that can be withdrawn from their 401(k)s. But less-educated workers haven’t been affected very much by the change, because they’ve never been big beneficiaries of employer retirement plans. In the 1990s, they could claim just 11 percent of the value in pensions, and today they hold 11 percent of the wealth in 401(k) plans.

A second change in the labor market is plummeting U.S. manufacturing employment since the 1980s, which reduced the physical demands of work.  But myriad working conditions remain relatively poor for less-educated workers and are still a powerful reason for them to retire. …Learn More

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