The stock market’s 19 percent climb in 2017 was nothing short of impressive. This year, it has gained another 6 percent.
This means that many boomers with 401(k)s are feeling a little more secure about retirement – at least for now. That more people feel they will be able to afford a vacation this summer with their children. And that Warren Buffett is getting richer even faster.
But one in two Americans isn’t at the party. According to the Survey of Consumer Finances in 2016, the Federal Reserve Board’s latest triennial survey and the most comprehensive look at Americans’ personal finances, 48 percent of U.S. families do not own equities.
Less surprising is how stock holdings break out at various income levels. About 30 percent of families with earnings in the bottom half of all incomes own equities, whether in the form of 401(k) investments, brokerage accounts, mutual funds, or individual stocks. For these lower-paid workers, the 2.5 percent average increase in hourly wages in 2017 is usually more meaningful. But inflation increased 2.1 percent last year, leaving them with just 0.4 percent more spending money, according to U.S. Bureau of Labor Statistics wage and inflation data. This is half of 2016’s inflation-adjusted wage gain.
In the next highest income group – from the middle-income level up to the 90th percentile – about 70 percent of families own equities in various forms. In the top 10 percent, the vast majority do (94 percent).
The chasm between the well-heeled and ordinary workers has been widening. Stock ownership is one prism through which to view that inequality. …
During Boston’s mayoral election in November, Mayor Marty Walsh boasted that his administration has overseen $100 million in housing investment. Walsh’s challenger, City Councilor Tito Jackson, responded that this new investment has been dominated by the luxury apartments and condominiums sprouting downtown and around GE’s new headquarters in the booming Seaport neighborhood.
Walsh retained his seat, but Boston’s housing debate is playing out from Orlando to Austin to San Francisco.
“The lack of affordable rental housing is a consequence of not only increases in the number of lower-income households but also steeply rising development costs,” Harvard University’s Joint Center for Housing Studies concluded in its annual report on the nation’s housing stock.
An unprecedented 1 million new renters have come into the market annually since 2010, the center said, fueled by well-heeled older couples and young professional couples with children pouring into luxury apartments and the single-family homes that are on the rental market.
Building has slowed more recently, but not before strong demand had driven up the typical U.S. apartment rent by 27 percent, to $1,480, between 2011 and 2016. And $1,100-plus apartments leaped from one-third of the rental market to two-thirds; all rents were adjusted for inflation.
A decline in available apartments renting for under $850 are depriving working-class families of options. “[O]nce-affordable units have become out of reach for lower-income households,” the report said. …Learn More
This Donald Duck cartoon, funded by the U.S. government in 1943, urged Americans to pay their income taxes to support the war effort. Paying taxes was a patriotic act, to build up the inventory of war planes and battleships to defeat the Nazis – “sink the Axis!” the narrator bellows.
Nobody liked paying taxes then, and they still don’t. Yet there was a growing awareness as the war played out in the 1940s that taxes – like saving your scrap metal – were necessary to advance the greater good.
Things are different today. There doesn’t seem to be as much room in the public conversation for the benefits that federal taxes bestow, such as Social Security, Medicare, Medicaid (nursing home funding) and the Part D prescription drug benefit for retirees, or for government investments in education, roads, and research – or about who would suffer more if deprived of these benefits.
“Most people who do in fact receive significant forms of economic security from the federal government don’t know it,” argued Molly Michelmore, an economic historian at Washington and Lee University, in a recent interview on New York public radio. …Learn More
Federal Medicare spending will increase sharply as baby boomers, with their longer life spans than previous generations, sign up in droves. The Social Security Trust Fund also reports that its reserves will be depleted in 2034, requiring either benefit cuts or new revenues to replenish a program that keeps millions of older Americans either out of poverty or just above water.
These two programs currently account for about 40 percent of the federal government’s $3.7 trillion budget. Most people agree that we need to deal with the financial shortfalls in Medicare and Social Security. And there is precedent. Remember the bipartisan 1983 reform that put Social Security on firmer footing by increasing the program’s revenues and gradually raising its Full Retirement Age?
But there is growing concern among retirement experts and advocates for the elderly that the proposed $1.5 trillion in tax cuts will make future reductions to these critical retiree programs all the more likely in order to rein in growing federal budget deficits.
If cuts to Medicare and other social programs follow a tax cut, it would fly in the face of what regular folks said are their top priorities in a new Kaiser Family Foundation poll: Only a small minority of Americans support tax cuts if they involve cuts to Medicare, Social Security, and Medicaid. …Learn More
The state of the nation’s health care system includes these incredible facts:
Americans with health insurance who are “under-insured” have more than doubled to 41 million since 2013. They now make up 28 percent of adults.
Geographic disparities can be stark. Nearly one in three Floridians and Texans is under-insured, compared with one in five in California and New York. Not surprisingly, insurance deductibles are higher in Florida and Texas.
Much has been made of the fact that many Americans can’t afford their deductibles and out-of-pocket costs when purchasing polices under the Affordable Care Act (ACA). The new report by the healthcare advocacy organization, The Commonwealth Fund, indicates that both ACA-insured and employer-insured Americans are frequently stretched to the limit.
Middle-class incomes for a family of four range from about $58,000 to $115,000. The definition of middle-class people who have health insurance but cannot afford it is well-established in the research: their deductibles or other annual out-of-pocket costs exceed 10 percent of their annual household income. (For the poor, the threshold is 5 percent.) …Learn More
One thing has gotten lost in the turbulence around the fate of the Affordable Care Act (ACA): the health insurance provided by U.S. employers is relatively stable.
Total premiums increased
3 percent for family plans (to $18,764 for the average, combined premium for employers and employees) and 4 percent for single employees’ coverage in 2017 (to $6,690), according to the Henry J. Kaiser Family Foundation’s annual report on the employer health insurance market. Employees enrolled in family plans pay under one-third of this total premium; single people, less than one-fifth.
In contrast, there was a 20 percent spike in 2017 premiums paid by workers lacking employer health insurance who purchase their policies on the state ACA exchanges – and premiums are expected to increase sharply again in many cities in 2018. While the ACA’s system of mandates and subsidies has pushed the share of Americans covered to record highs, the new challenge clearly is to contain costs.
“It’s really striking how much more stable the group market is than the far smaller marketplaces in the non-group market,” Drew Altman, the Kaiser Foundation’s president, said during a recent webinar. He compared the 20 percent increases and “very high deductibles” typical of ACA plans to modest premium increases and “no real deductible growth this year” for employer health plans.
The rise last year in total employer plan premiums, although somewhat faster than inflation and wages, is an improvement over the 5 percent to 10 percent annual premium growth in the past decade.
No obvious explanation exists for this relative stability, Altman said, especially at a time prescription drug costs are surging and health care providers are consolidating their market power. “I think it’s healthcare’s greatest mystery right now,” he said about the employer market.
That’s not to say everyone can afford their employer medical plans. …Learn More
New Jersey’s retirement income exclusion for couples leaped from $20,000 to $100,000 in 2016. Minnesota and South Carolina now have income tax deductions for retired military. And Rhode Island started exempting the first $15,000 of retirees’ income from the state’s income tax.
State taxes are one piece of the financial puzzle to consider when retirees – or Millennials – are thinking about moving to reduce their living costs, find a job or friendlier climate, or be close to the grandchildren.
The Retirement Living Information Center recently compiled a nice summary of tax rates for all 50 states on its website. The information comes from sources like the Federation of Tax Administrators, The Tax Foundation and the National Conference of State Legislatures.
State taxes vary dramatically. Alaska, Florida, and Texas are among the states boasting no personal income taxes, though some offset this with relatively high property or sales taxes. A few states – yes, Alaska again – have no sales taxes. Tax deductions and exemptions for retirement income are the norm, but they vary widely from one state to the next.
Full disclosure: the Retirement Living Center is a company that makes money by referring retirees to senior communities listed on its website or by arranging residents’ reviews of these communities. But the state tax website is free and publicly available.Learn More