June 12, 2014
Government Workers See COLA Cuts
State and local government workers have long felt their pensions were more secure than the vanishing pension coverage in the private sector. But a spate of changes to cost-of-living protections should give them pause.
In the wake of the Great Recession, 17 states reduced, suspended, or eliminated cost-of-living increases (COLAs) in their defined benefit pensions for state and local workers, according to a recent summary of legislative actions around the country by the Center for Retirement Research, which sponsors this blog. And the courts are backing them up, deciding that the inflation protections – a fixture of the majority of public pensions – do not have the same constitutional or other legal protections that apply to core benefits.
The COLA changes, enacted to reduce government pension liabilities, generally affect both current retirees’ benefits and the future retirement benefits of active employees.
The above map shows where the cuts have occurred. The following is a summary of the specific change in each state: …
April 29, 2014
Pay Gap: Depends on Woman’s Age
The earnings gap between working men and women has narrowed somewhat over time, but it’s considerably wider for older women.
Women who are now on the cusp of retirement and working full-time earn 67.5 cents for every dollar men their age earn – or 8 cents more than working women who were the same age (in their late 50s and early 60s) during the 1970s.
For younger women, the pay gap persists but things are brighter. Women in their late 20s and early 30s today earn 84 cents for every dollar a young man earns. That’s a 20 cent gain over women who were their age back in 1970.
These are among the myriad statistics documenting the history of the pay gap in the new (7th) edition of the economics textbook, “Economics of Women, Men, and Work.”
The pay gap affects women’s ability to save, buy a house, and invest. There are several explanations for why younger women have made more progress, relative to men, say the textbooks’ authors, Francine Blau, Anne Winkler, and Marianne Ferber: …
April 15, 2014
Marching to Retirement Without a Plan
Only about half of all U.S. workers in the private sector participate in retirement savings plans at their current places of employment, according to a new report by the Center for Retirement Research.
Pension coverage in this country “remains a serious problem,” concludes the Center, which also sponsors this blog.
The goal of the Center’s report is to make sense of the myriad estimates of how many Americans are covered at work. One prominent source of data is the federal government’s survey of employers, the National Compensation Survey. The NCS shows that 78 percent of full-time workers, ages 25 through 64, have some type of defined benefit or defined contribution plan available to them at work.
But that’s the rosiest way to slice the data.
The share of employees who are covered slides to 48 percent when public-sector, often unionized, workers are stripped out of the NCS; when part-time, private-sector workers are added in; and when one counts only the share who actually participate in an employer plan when it’s offered to them. …Learn More
April 8, 2014
1 in 4 Seniors Have Little Home Equity
Retirees can use the equity sitting in their homes to pay for their daily expenses, out-of-pocket medical bills or nursing care, especially toward the end of their lives.
Cash-strapped older retirees can access that equity by taking out reverse mortgages or home equity loans or by downsizing to less expensive homes or condominiums.
But one in four Medicare recipients has less than $12,250 in home equity, according to a new report by the Kaiser Family Foundation, a healthcare non-profit.
Kaiser’s calculations also show that the distribution of home equity among older Americans is – like the distribution of income and financial assets – top heavy. While 5 percent of Medicare beneficiaries in 2013 had more than $398,500 in home equity, half have less than $66,700.
According to Kaiser’s projections, that gap will widen in the future. By 2030, those whose home equity places them in the top 5 percent will see that equity grow more than 40 percent, but it will rise less than 10 percent for those with mid-level – or median – amounts of equity.
The analysis was part of a study to examine the ability of older Americans to absorb rising out-of-pocket retiree medical costs and increasing Medicare premiums. This blog also reported the study’s similarly grim findings about the meager financial savings held by many retirees to cover their health care costs.Learn More
April 3, 2014
1 in 4 Seniors Have Meager Savings
Less than $11,300 – that’s how little savings one-quarter of all Medicare beneficiaries have in their 401(k)s, IRAs, and other financial accounts.
This grim statistic comes out of a report by the Kaiser Family Foundation, a health care and policy non-profit. Kaiser’s goal was to gauge whether older Americans will be able to absorb rising Medicare premiums, co-pays, deductibles and related costs.
“Most people on Medicare are of modest means with relatively low incomes, low savings and low home equity,” concluded Gretchen Jacobson, the foundation’s associate director of the Medicare policy program and lead author of the report.
When retirees’ incomes can’t cover their out-of-pocket costs, they need money in the bank to pay for care. But half of all Medicare beneficiaries have annual incomes below $23,500 and have less than $61,400 in the bank – less than the cost of a year in a nursing home – Kaiser said.
The foundation’s report also projects beneficiary incomes and wealth over the next two decades, as baby boomers age: much of the growth in incomes and wealth will be skewed toward individuals in the higher income and wealth brackets.
This report should “raise questions about the extent to which the next generation of Medicare beneficiaries will be able to bear a larger share of costs,” Kaiser said.Learn More
March 27, 2014
Post Recession: Strugglers vs Thrivers
The Federal Reserve Bank of St. Louis, based on its analysis of data from the Survey of Consumer Finances, estimates that the recession has ended for only about one-quarter of the U.S. population – the thrivers, who have paid down their debts and restored their savings. That would leave three out of four Americans who are still struggling. Squared Away interviewed Ray Boshara, director of the Center for Household Financial Stability at the bank; Bill Emmons, senior economic adviser; and Bryan Noeth, policy analyst, for their insights into why most Americans’ net worth – their assets minus debts – hasn’t recovered.
Q: You distinguish “thrivers” from “strugglers.” Who are these two groups?
Boshara: The thrivers versus strugglers construct is a simple way to make the point that some demographically defined groups are doing better, on average, than others in terms of net worth – what you save, own, and owe, or your entire balance sheet. We found that age, race, ethnicity and education levels are pretty strong predictors of who lost wealth and who’s recovered wealth over the past few years, as well as over a longer period of time.
Q: Describe the typical thrivers.
Emmons: Whites and Asians with a college degree who are over 40 – that’s the typical thriver. Remember, this is a construct, and it’s not 100 percent foolproof. But you would tend to say these groups are more likely to have outcomes consistent with recovering.
Q: How about the typical strugglers?
Emmons: By age – they’re younger – and they’re African-American or Latino. They also do not have a college degree, and they have too much debt. They’re the other three-fourths of the population. They are not holding enough liquid assets, so they’re just one paycheck away from a crisis. They do not have a diversified portfolio and aren’t benefitting from the stock market gains. They’ve got too much in the house, which has declined in value.
Q: What have you learned about young adults and their wealth – or lack of it?
Emmons: It jumps off the page in our analysis: It doesn’t matter if you’re white or college educated. If you’re young, you’re vulnerable, and you’ve made the same portfolio mistakes as people with less education: low levels of liquid assets, too much in the house, an issue that is related to portfolio diversification, and more leverage. …Learn More
February 20, 2014
Mass. Health Law Cut Debt, Bankruptcy
Medical debt is a primary cause of bankruptcy. But new research finds that the Massachusetts health reform, by extending health insurance to a greater share of the state’s population, has reduced residents’ total debts and bankruptcy filings and improved their credit scores.
This experience is especially relevant now that the federal Affordable Care Act (ACA), modeled after Massachusetts’ 2006 reform, has effectively made health insurance mandatory nationwide, starting this year.
Health insurance is central to a household’s financial health, because one medical catastrophe can blow a hole in their savings account or throw them into bankruptcy. Most households who lack coverage are in the bottom half of the income distribution, and more than one in three uninsured individuals can’t afford his medical bills and is forced to pay them over time. Two out of three individuals paying over time owe more than $2,000, and one out of five owes more than $8,000.
Researchers at the Federal Reserve Bank of Chicago and Notre Dame examined the Massachusetts reform’s financial benefits for state residents between the ages of 18 and 64, using a Federal Reserve data set based on credit reports. Between 2006 and 2012, health reform increased the state’s insured population from 90 percent to 97 percent of all residents.
The benefits included: …Learn More