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Empty-Nesters Aren’t Saving Enough

Day care, sneakers, cell phones, maybe college – kids are expensive. When they grow up, empty-nesters face a decision about what to do with their extra money.

What they choose is crucial to their retirement security for two reasons – one obvious, and one subtle but very important.

The Center for Retirement Research estimates that about half of U.S. workers might not have enough savings to maintain their standard of living after they retire. So, the obvious thing to do after being freed from child-rearing obligations is to put more money into an employer retirement plan. But 401(k) saving increases only modestly after the kids leave home, according a study by the Center comparing empty-nesters with parents whose kids are still living at home.

The Center’s researchers confirmed this finding using two separate sources of data on married households’ finances. One was a University of Michigan survey of nearly 2,500 households in which the man was over age 50, with financially independent offspring defined as those who are no longer living at home and, if they are college students, have not attended school continuously. The other was U.S. Census data on more than 40,000 adult households of all ages, with independence defined simply as over age 23. …Learn More

Elderly woman with cat

Policy Reduces Elderly Women’s Incomes

Poverty is the scourge of women in old age.

This problem was aggravated, according to a new study, when older workers started claiming their Social Security benefits sooner after the earnings test was lifted in 2000 for those who reach the program’s full retirement age.

The earnings test withholds benefits from older workers earning more than a specified amount – the withheld benefits are returned later, in the form of an increase in monthly Social Security checks. But the earnings test is, nevertheless, often viewed as a tax in the mistaken belief that these benefits are never restored.

Researchers at the U.S. Treasury Department and the University of California at Irvine found that people reacted in one of two ways to lifting the earnings test, both based on the misperception it’s a tax. One response was to work longer – as Congress intended – under the logic that benefits would no longer be unduly “taxed” after workers entered their late 60s. The second and more common response was to claim benefits earlier than one would have prior to the policy change, when workers perceived that delayed claiming was the way to avoid this “tax.”

The earnings test remains in place for beneficiaries younger than the full retirement age – 66 for most boomers. However, the researchers analyzed a broader age range of workers – 62 to 70; even those who haven’t yet reached their full retirement age might change their behavior in anticipation they will soon reach it, and the test will no longer apply to them.

Earlier claiming by men and women, which results in smaller monthly Social Security checks, has fallen especially hard on elderly widows. After a husband dies, the two benefit checks coming into the house are reduced to one. Although widows receive the larger of the couple’s two checks – typically the husband’s – it may not be sufficient to maintain her standard of living. …Learn More

Pencils that look like bar chart

How Couples Deplete Retirement Savings

Americans who save for retirement throughout their working lives often hold tight to that savings after they retire. A new study shows they eventually do spend much of this money and sheds light on where it goes.

The study focuses on the retirement spending patterns of couples, adding to similar past studies on single retirees. While both spouses are alive, the researchers found that a couple’s wealth remains relatively stable over time – until they start paying for medical care, nursing homes, and other major end-of-life expenses.

The researchers examined spending patterns for more than 4,600 households over a 15-year period using a subset of the Health and Retirement Study that collects data on the health and wealth of people over age 70. Wealth included savings and retirement accounts, investments, and home equity.

Couples in two different income groups were compared: the average couple at the 20th percentile has about $14,000 in post-retirement income and $70,000 in wealth at age 74; the 80th percentile couple has more than $30,000 in income and $330,000 in wealth.

Here are the study’s main findings:

Saleswoman

Age Discrimination Affects Women More

Some people might plan to work well into their 60s if they can’t afford to retire, or if they just think they’ll be around a long time. But this strategy is more difficult for women to execute than for men.

A study of employer discrimination in hiring found “strong and robust” evidence that female job applicants in their mid-60s were much less likely to be called in for interviews for low-skill jobs than were younger women. Evidence of age discrimination among older men was more mixed, or even non-existent in one occupation.

“It seems there was age discrimination for women – no matter what,” said Patrick Button, an economist at Tulane University.

To conduct their meticulously designed study, the researchers sent out more than 40,000 mock applications for jobs advertised online in 12 cities. The “applicants” fell into three age groups – 29-31, 49-51, and 64-66 – and submitted resumés in four job categories: retail sales, office administration, security guard, and janitor.

The results confirmed age discrimination, showing a clear decline in callback rates in three of the four occupations – administration, sales, and security – as the workers progressed from their late 20s and early 30s into their mid-60s. … Learn More

Horse race

What Derails a Planned Retirement Date

Workers are feeling very ambitious these days: one in three plans to retire after age 65. In the 1990s, just one in 10 did.

In reality, though, many older Americans today are retiring before they’d planned, resulting in lower monthly Social Security checks, slimmer 401(k) accounts, and more golden years to pay for.

There’s no shortage of research looking into what derails these plans. But, for the first time, a new study ran a statistical horse race among the various reasons known to impact older workers’ decisions. Health issues finished first in the race, followed by layoffs, and a spouse’s early retirement.

In an ideal world, eliminating these major shocks, along with a few less prevalent shocks that were also analyzed, would reduce the share of older workers retiring earlier than planned, from 37 percent to 27 percent.  [The remaining factors that were still unaccounted for in this analysis could be anything from not liking one’s job to financial or health events that went undetected by the survey.] …Learn More

visiting an elderly woman

Long-term Care Policyholders Who Lapse

In an upside-down aspect of long-term care insurance, about one in four older people with a policy who eventually go into a nursing home had let that policy lapse sometime in the previous four years, forfeiting coverage that would’ve paid for their care.

The questions are who does this and why.

New research by the Center for Retirement Research (CRR) finds two explanations for why: a scarcity of financial resources and cognitive impairment, which limits the elderly’s ability to properly manage their finances, including their long-term care policies.

The researchers found no support for what they call “strategic lapsing” – a deliberate decision to quit paying the premiums by healthy older individuals who, upon reconsideration, conclude that their risk of needing care in the future is low. …Learn More

Fewer Boomers Get Social Security at 62

Grave that says "62"

The best way for most individuals to increase their retirement income is by delaying Social Security – each year they wait significantly boosts their monthly benefit check.

It seems that baby boomers are getting the message. The share of people who claim their Social Security benefits at age 62 – as soon as they’re eligible – is falling, and falling more rapidly than previously thought.

The share of 62-year-old men who claimed immediately dropped from 56 percent in 1996 to 36 percent in 2013, according to the Center for Retirement Research, which supports this blog. For women with the same birth years, the share of 62-year-old claimers declined from 63 percent to 40 percent.

The Center also confirmed that more people are waiting to sign up for their benefits until after their full retirement age under the program, which is 66 for most baby boomers. Waiting provides at least one-third more in their monthly Social Security checks than the 62-year-old claimers receive. …Learn More

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