December 13, 2016
Retirement Isn’t Always Fair
More than half of older Americans with the lowest socioeconomic status can expect to face an income gap if they retire when they’re planning to.
That finding is from a study by the Center for Retirement Research, which supports this blog. The researchers quantified and compared the gaps in the retirement preparedness of more than 3,000 older U.S. households, grouped by four levels of educational attainment.
First, the researchers estimated the target income that each working household will need in retirement to maintain its current standard of living. That target income will be less than its current income from working, because retirees no longer need to save money, and they pay less in taxes. Then, the researchers projected the income each household will actually have – at each different retirement age – from their Social Security, employer retirement plans, regular savings, and home equity.
When a household’s projected income reaches the target, that’s the age at which they can expect to retire comfortably. But people don’t necessarily make decisions that are in their best financial interest. …
November 15, 2016
The Needs of Working Folks
“The economy” was the top priority for the vast majority of American people in one poll last summer. Surely, what they were talking about was quality jobs and economic and financial security for themselves and their children.
Or as my brother, a father of three and service manager at an auto dealership outside Chicago, put it in a recent text message, “No one can afford anything anymore.”
This simple idea seemed to resound throughout the primaries and long presidential campaign. With the election over, I compiled the following wish list for working people based on what the polls and research studies reveal about what they are hoping for.
Good jobs. The disruption created by the transition from an industrial to a service economy has hollowed out the middle over three decades. Despite a remarkably low unemployment rate of 4.9 percent, middle-skill workers face a dilemma: there are a lot of jobs, but most aren’t the right jobs for them.
Consider this detail in the October jobs report. Retail employment increased by a total of 38,000 in August, September, and October. These jobs pay, on average, $553 per week. Meanwhile, 12,000 goods-producing jobs were lost during the same three months, meaning that fewer people are earning industry’s average weekly wage of $1,100. The urgent question is, what are the potential jobs that will bolster the middle class? Healthcare and telecommunications technicians for the New Economy? A related question is, what are the vocational and policy paths to securing better-paying jobs?
Cash on hand. Working Americans are severely strapped for cash. One in three surveyed by the FINRA Investor Education Foundation said they probably could not come up with $2,000 to cover an unexpected expense in the next month, and nearly half said they can’t pay off their full credit card balances every month. While working people are benefiting from the stronger economy, Finra concluded, “large segments of society continue to face financial difficulties, particularly minority populations and those without a college education.” …Learn More
November 8, 2016
On-the-Job Healthcare Costs More
We’ve passed a milestone: workers typically spend more than 10 percent of their incomes for their employer health coverage.
A decade ago, they spent 6.5 percent on health costs.
One reason for the rising cost burden is the growing prevalence of high-deductible insurance plans, and, within these plans, the deductibles themselves are increasing. Although premium hikes in employer plans have slowed in the past five years, they are also still going up. The nation’s aging work force could be another indirect pressure on costs.
Workers’ incomes have also been going up, but growth remained sluggish over the past decade and “have not kept pace” with employer health costs, the Commonwealth Fund reported.
Healthcare news in recent weeks has focused on the 2017 premium hikes hitting people who buy coverage on the state exchanges created under the Affordable Care Act. But 154 million Americans – more than half of U.S. workers – obtain health insurance through their jobs, compared with about 10 million who go through the exchanges, points out the study by the Commonwealth Fund, a healthcare research organization.
When premiums and deductibles are combined, health costs are really starting to bite: the typical family shelled out about $6,422 in 2015 for premiums and copayments, compared with $3,531 in 2006 – that’s increasing much faster than the pace of inflation – the report estimated. No wonder one recent survey found only a minority of Americans satisfied with the cost of their health insurance plans.
In the Commonwealth Fund’s state-by-state analysis, the level of incomes in a state seem to play a role in the weight of workers’ healthcare burdens. For example, premiums and deductibles, as a share of workers’ incomes, currently exceed 12 percent in low-wage states like Arizona, Florida, New Mexico, Oklahoma, and Tennessee – Mississippi’s, the highest, is close to 15 percent of incomes. Workers in relatively well-off states such as Maryland, Massachusetts, and Washington, however, pay 7.9 percent, 7.3 percent and 8.5 percent of their higher incomes, respectively.
To examine the study’s state-by-state analysis, click here.Learn More
October 18, 2016
Fewer, Clearer Medicare Part D Choices
A decade ago, the nation’s Medicare enrollees had more than 1,800 different prescription drug plans to choose from. In the 2017 open enrollment that started on Oct. 15, that number dropped to just 746.
News of higher Part D drug plan premiums and out-of-pocket costs in 2017, estimated in a new report by the Henry J. Kaiser Family Foundation, will not be welcome by the nation’s older population. But Squared Away also wanted to know whether fewer plan options are good or bad for consumers.
“It’s good in the sense [federal] efforts are bearing fruit in giving people options that are more distinct from each other than in the past,” said Juliette Cubanski, Kaiser’s associate director of Medicare policy. At the same, she said, retirees “still have a lot of choice in this marketplace.”
The number of plans has shrunk steadily for a variety of reasons since the 2006 inception of the prescription component of Medicare, known as Part D. In the early years of the program, plans started disappearing amid consolidation among insurers and pharmacy benefits managers, she said. More recently, a few Part D plan providers have pulled out of the market.
But Cubanski said recent reductions in the number of plans were primarily by federal design. In 2011, the Centers for Medicare and Medicaid (CMS) stepped in and began requiring insurers that offered more than one Part D plan in a region to make sure the differences among their plans were clear and distinct to Medicare beneficiaries. …Learn More
August 9, 2016
Social Security Replaces Less for Couples
Source: U.S. Social Security Administration poster, 1954.
When Social Security was created in the 1930s, wives were mainly full-time homemakers, with their pension benefits based on their breadwinner husbands’ earnings.
But wives went to work in droves after Social Security’s passage. Today, women make up nearly half of the U.S. labor force. Yet the program’s design remains the same, with the result being a steady decline in married couples’ replacement rates – the percentage of the combined earnings of two working spouses that Social Security replaces when both retire.
A study by the Center for Retirement Research found that the replacement rate for couples has declined from 50 percent for married couples born in the early 1930s to around 45 percent for the oldest baby boomer couples, and it will fall to just 39 percent for Generation X couples when they eventually retire.
A declining replacement rate is an important consideration for working couples as they plan for retirement.
The simple explanation for the declining replacement rate is that household earnings are much higher when both spouses are working, but their Social Security pension benefits do not increase proportionally. The reason is that even if a wife doesn’t work, she still receives a spousal benefit equal to half of her husband’s benefit. The more a working wife earns, the lower the couple’s replacement rate. …Learn More
August 2, 2016
Rising Health Costs a Factor in Inequality
Inequality is frequently in the news. A new study puts an interesting spin on this now-familiar topic: rising health costs are a significant reason for wage inequality.
The cost of employer-provided health insurance is a larger share of lower-paid employees’ total compensation than it is for the people higher up in the organization. Since insurance costs have been increasing faster than total compensation, squeezing out pay raises, the nation’s lowest-paid workers feel it most.
For people with earnings at the 30th percentile of all U.S. workers, total compensation, including the cost of employer health insurance as well as actual earnings, increased by just 9 percent in inflation-adjusted dollars between 1992 and 2010, according to data in a new study by Mark Washawsky at George Mason University’s Mercatus Center. Total compensation for high-paid workers at the 95th percentile grew 19 percent.
However, the rapidly rising cost of employer-provided health insurance took a larger bite out of lower-paid workers’ earnings – and out of their take-home pay. Inflation-adjusted earnings at the bottom rose by just 3 percent over the 18-year period, compared with a 17-percent increase at the top.
Washawsky correctly notes that employer-provided health insurance is a form of compensation that is valuable to all workers, regardless of how much they earn. The problem for workers living paycheck to paycheck is that they pay their day-to-day bills out of what’s left in that paycheck. That’s where you’ll find the inequality from rising healthcare costs.
So how should policymakers tackle U.S. inequality? Warshawsky argues that any prescription to reduce wage disparities should “focus on reducing the rate of increase in healthcare costs.”Learn More
July 14, 2016
Financial Anxiety Amid Economic Growth
The economy keeps chugging along, unemployment has been bobbing at or below 5 percent all year, and wages have been creeping up.
Yet anxiety is rising, according to a newly released survey by Northwestern Mutual. In February,
85 percent of Americans said they had “financial anxiety,” particularly about how they would pay for an unexpected emergency or medical bill.
And here’s how financial anxiety affects them:
- 70 percent say it reduces their “happiness,” their mood, or their ability to pursue their dreams, passions, and interests.
- 67 percent say it impairs their health.
- 61 percent say it has a negative effect on their home life.
- 51 percent say it has a negative effect on their social life.
For more than half, the most popular answer to how financial security would change their lives was: “Peace of mind that I never have to worry about day-to-day expenses.”
Northwestern Mutual summed things up by saying “the levels to which financial anxiety is impacting all corners of people’s lives is extraordinary.”
Pretty strong words for a typically cautious insurance company. Learn More