A March blog post pointing out that a large majority of America’s older population pay no federal income tax seemed to surprise some readers – particularly retirees who must send checks to the IRS at this time of year.
“[M]y annual tax liability is and will continue to be greater than when I was employed,” said one such retiree.
Readers’ comments are always welcome, and this time they’ve thrown a spotlight on a shortcoming of the article. It did not fully explore why most retirees – roughly two-thirds of 70 year olds – pay no federal income tax.
According to a Tax Policy Center report, “Why Some Tax Units Pay No Income Tax,” tax filers over age 65 are the largest single group to benefit from special provisions of the tax code designed to help various types of people. The elderly receiving tax preferences make up 44 percent of filers of all ages who are moved off the tax rolls by these tax breaks, said the Center, a joint effort of the Urban Institute and the Brookings Institution.
Of course, retirees pay all sorts of other taxes, including property tax and state sales and income taxes. But it’s essential for baby boomers to understand this federal income tax issue as they plan for retirement. …Learn More
Oprah has done it – in the form of a $490,000 house for her newly discovered sister. Former NFL cornerback Phillip Buchanon just wrote a book complaining about it. And Charles Barkley is characteristically blunt about it.
“When you continually come to me for money, that’s what ruins relationships,” Barkley explained on NBA TV. “I probably got $4-5 million I lent to friends and family I’ll never see again.”
No one is immune to a relative’s appeals for financial help. But this is a perennial and far more prevalent issue among black Americans – and not just the ultra-rich like Oprah and Barkley – according to Rourke O’Brien at the University of Wisconsin.
What O’Brien calls “informal assistance” exists, in part, because giving bestows non-monetary benefits on the givers as they foster emotional support and solidarity among their kin. But as a personal financial issue, the expectations and feelings of obligation are very challenging – and a topic of conversation in the black community.
One woman commenting online said she was looking for some useful advice about how “to be more comfortable with saying ‘no’ ” to her loved ones. …Learn More
Taxes are not as inevitable as most people assume. As the chart shows, the share of Americans paying federal income taxes falls precipitously after age 60.
Young adults often have little or no tax liability, because they’re either in school or aren’t yet earning very much. Older people revert to a similar picture, after having paid taxes all their lives.
The peak occurs around age 50, when nearly 80 percent of households pay federal income taxes. That share plummets to half at age 65 and to just over a third at 70, according to The Hamilton Project at The Brookings Institution, which produced the chart. [The chart is based on 2007 data; there may be some changes in current data, though not in the age patterns.]
This is important information for most baby boomers, because their tax picture will change dramatically in retirement. Taxes paid, as well as the share of people paying taxes, decline because retirees’ incomes generally fall below what they earned while they were working.
Further, U.S. tax policy provides additional deductions and credits for people over age 65. While some people pay taxes on their Social Security benefits, this usually happens, according to the Social Security Administration, “only if you have other substantial income (such as wages, self-employment, interest, dividends and other taxable income that must be reported on your tax return) in addition to your benefits.”
As the chart makes crystal clear, tax considerations are a crucial part of retirement planning.Learn More
First it was the Irish, then Portuguese, then Brazilians – for more than 150 years, Somerville, Massachusetts, absorbed wave after wave of immigrants. Today, hipster professionals are pouring into this city next door to Boston.
Somerville rents have shot up as much as 50 percent in 15 years, and a two-bedroom apartment for under $2,000 in a shabby chic neighborhood is a rare find.
A similar trend is playing out all over the country – from Boston and Miami to Los Angeles and Seattle – and it’s squeezing working- and middle-class families the most, according to the Joint Center for Housing Studies at Harvard University. …Learn More
It probably doesn’t feel like it, but workers got a decent pay raise in 2015.
Inflation last year was an improbably low 0.7 percent, and the fairly strong job market helped, too, by pushing up average hourly wages by 2.6 percent. Together, these translate to nearly a 2 percentage point increase in workers’ pay. Wages rose again in January by one-half percent, which was the second-best monthly increase in the current economic expansion. Minimum wages are also going up in many states.
It gets even better, based on an analysis by the American Institute of Economic Research (AIER) in western Massachusetts. An inflation measure designed by AIER that it calls the everyday price index, or EPI, actually declined last year. As its name implies, the EPI gauges changes in prices for things that are necessary for daily living, such as utilities and groceries, and excludes infrequent big-ticket items such as cars, homes, appliances, and even clothing. For this reason, it also weights gasoline more heavily than the standard consumer price index (CPI). The EPI declined 1.4 percent for the 12-month period ending in November, the latest data available, compared with the 0.7 percent increase for the CPI. …Learn More
This video examines wealth through the prism of race.
It compares the share of the nation’s African-American, Hispanic, Asian-American and white populations who have net worth exceeding $1 million; net worth equals financial and other assets minus mortgages and other debts. If the fact that there is a racial divide isn’t surprising, the magnitude of it might be.
Other factors also have an enormous influence over who gets rich, and understanding this becomes increasingly important amid rising inequality. The biggest determinant of wealth is whether our parents are rich, as recent research has shown. Age and education are also crucial. That’s because older people have more time to save and accumulate wealth, and a college education typically leads to jobs that can add an estimated $1 million to the total amount that a worker earns over a lifetime.
But even when the data are sliced by age and education, there are deep economic inequities in our diverse society, as this video produced by Bloomberg Business shows.Learn More
Total U.S. spending on prescription drugs by individuals, insurers and governments jumped 13 percent last year – the largest increase since 2001. One in four Americans report having difficulty paying for medications.
Older Americans are somewhat shielded from the full impact of rising drug prices by Medicare’s Part D program, which greatly expanded their coverage. Since Part D’s implementation in 2006, seniors’ average out-of-pocket spending on medications has actually declined, from $708 to $564 annually in 2012.
But a recent trend of price spikes for specialty drugs might be a snake in the grass for seniors on fixed incomes. Since most take multiple prescriptions, they face greater odds of needing at least one of these expensive medicines.
Drug cost stability for seniors “is starting to reverse as newer specialty drugs come into the marketplace,” said Juliette Cubanski, a senior Medicare policy researcher for the Kaiser Family Foundation. Part D plans “are covering these drugs and people are taking them, but the costs are going up.”
They include new breakthrough drugs that cure – rather than just treat – Hepatitis C, as well as medications for rheumatoid arthritis, multiple sclerosis, and cancer. Kaiser estimates that a senior who takes one of the 12 specialty drugs it analyzed can pay anywhere from $4,400 to $12,000 per year out of their own pockets, even after taking into account Part D’s subsidies. …Learn More