December 5, 2013
Laid-off Boomers: Retirement as Default
The natural reaction to losing a job is to get a new one. But when older people become unemployed, some view it as a dilemma: look for work or just retire?
The presence of a financial safety net significantly increases the likelihood that an older, unemployed person will retire. And that decision often comes quickly after they lose their job, concluded a new study by Matt Rutledge, an economist for the Center for Retirement Research, which supports this blog.
“The brevity of [their] jobless spells suggests that older individuals have little tolerance for a job search” and will “make a quick exit” if they have financial resources backing them up, Rutledge wrote in a recent summary of his research.
His findings get to the heart of the difficult choices facing older workers when they are laid off, no more so than amid the Great Recession when the jobless rate among people over age 55 hit a record 7.3 percent. Rutledge tracked individuals between 55 and 70 who lost their jobs between 1990 and 2012. …Learn More
October 22, 2013
Food Stamps Need Rises in Good Times
Enrollment in the federal food stamp program, known as SNAP – for Supplemental Nutrition Assistance Program – has more than doubled over the past decade to 47 million.
What’s remarkable is that for the first time the number of Americans receiving food stamps increased even in a period when the economy was growing. During the 2003-2007 expansion, the SNAP case load, in a break with historic trends, rose 24 percent.
One explanation is the change in the longstanding correlation between the unemployment rate and poverty, according to research findings by economists Matt Rutledge and April Yanyuan Wu of the Center for Retirement Research, which were presented at the Retirement Research Consortium meeting in August.
Poverty used to fall in tandem with the jobless rate, reducing the need for food stamps. But the researchers found that the mid-2000s expansion was different: poverty did not decline as the economy grew.
In the recovery that has followed the Great Recession, the number of people receiving food stamps continued to rise, according to federal data.
The assumption has always been that a stronger labor market will reduce the need for food stamps. But this new trend suggests rising employment might no longer be enough. Reducing the food stamp rolls may require a broader recovery or initiatives to reduce poverty and provide more jobs for the marginally employed.
Full disclosure: The research cited in this post was funded by a grant from the U.S. Social Security Administration (SSA) through the Retirement Research Consortium, which also funds this blog. The opinions and conclusions expressed do not represent the opinions or policy of SSA or any agency of the federal government.Learn More
September 26, 2013
Social Security Claiming and Psychology
It’s common for people to begin collecting their Social Security benefits soon after they turn 62, ignoring the financial planners and retirement experts urging them to postpone and increase the size of their monthly checks.
A new study has uncovered four powerful psychological traits that influence this decision: the individual’s expected longevity, his fear of loss, whether he perceives the Social Security system as fair, and patience.
The study surveyed some 3,000 people, primarily in their 40s and 50s. This is a good age to ask about Social Security, because claiming the benefit is a few years away, “but they’re thinking more about it,” researcher Suzanne Shu said when presenting the findings at an August meeting of the Retirement Research Consortium in Washington.
In an online survey, Shu, who is from the University California at Los Angeles, and John Payne, from Duke University, posed a series of questions designed to understand the psychology of the individuals they were studying. They also asked when they planned to claim their Social Security and then determined which psychological traits were linked to those who said they planned to file early.
Four influences on claiming came out of their preliminary findings:
Fear of loss. People who have a stronger aversion to financial loss also tended to say they would claim earlier. To them, the researchers said, a delay in receiving their benefit checks “looks like a potential loss.” …Learn More
September 24, 2013
Nearly Retired, Lugging a Mortgage
Traditionally, the picture-perfect retirement included a paid-off house. But the Me Generation isn’t sticking to the script.
Snapshots of three generations of U.S. households on the cusp of retirement – people born in the Depression, at the beginning of World War II, and after the war – show that more of the most recent generation, the baby boomers, are still carrying mortgages as they head into their retirement years.
About 40 percent of households who were between the ages of 56 and 61 in 1992 – the Depression-era parents of baby boomers – held mortgages at that age. This share had increased to 48 percent by 2008, as the front wave of baby boomers were reaching their late 50s and early 60s
“The current generation has bought larger, more expensive homes, and they arrive at retirement with more mortgage debt,” concluded George Washington University business professor Annamaria Lusardi, who presented the findings of her study with Olivia Mitchell of the Wharton School during an August meeting of the Retirement Research Consortium. …Learn More
September 12, 2013
Swedish Retirees Spend More Freely
Americans are known for being reluctant to spend their life savings after they retire. The burning question has always been why.
New research comparing tight-fisted Americans with more free-spending Swedes found that U.S. retirees tend to hold on to their savings, because they face more risk of having to pay high out-of-pocket costs in the future for their medical and long-term care.
U.S. households, by the time they’re in their late 80s, have tapped only about one-third of the net worth they held in their late 60s, according to the study. Swedish households in their late 80s have spent more than three-fourths.
In preliminary findings presented at an August meeting of the Retirement Research Consortium in Washington, researcher Irina Telyukova said her study with Makoto Nakajima found that nearly 70 percent of the difference in the way Swedish and U.S. retirees spend down their financial assets can be explained by differences in their potential future medical costs.
Sweden’s healthcare system reduces the uncertainties for retirees in two ways. Sweden has national health care for everyone. Swedish municipalities are responsible for providing long-term care to the elderly in their communities, limiting a cost that can be enormous for U.S. retirees who need these services. …Learn More
September 3, 2013
Money Concerns Sap Mental Capacity
Poor and working people’s continual worries about money cloud their thinking and make it more difficult to perform simple tasks, concludes new research in Science magazine.
This finding came out of two very different experiments – one at a New Jersey shopping mall, the other in India’s sugar cane fields – by an international team of economists and psychologists.
In the first experiment, wealthy and low-income shoppers – $70,000 in household income was the cutoff between high and low – were seated in front of computers and quizzed about a variety of financial scenarios designed to trigger thoughts of their own money concerns.
For example, they might have been asked whether to pay for a car repair with a loan or cash or to forgo the work altogether. Some of these scenarios were relatively easy to resolve – say, the car repair cost only $150. In a difficult scenario, it might cost $1,500.
After answering a series of easy and hard financial questions, the shoppers performed simple tasks often administered by psychologists, such as picking the shape that best fits into a group of other shapes. Rich and poor performed similarly on the tasks after they were presented with the low-cost scenarios. But the high-cost scenarios caused the poor to perform significantly worse.
A brain distracted by financial problems is “like a computer slowing down when you run too many things at once,” said Eldar Shafir, a Princeton University professor of psychology and public affairs. …Learn More
August 13, 2013
End-of-Life Medical Costs Vary Widely
Medical expenses increase unpredictably with age, so the crystal ball gets very hazy when trying to foretell how much you’ll need in retirement.
A new study helps clear things up: a single older American spends about $39,000 on average for medical care in the final five years of life, or about $7,800 a year. For couples in which one spouse has died, $51,000 was spent during that spouse’s final years, or about $10,000 annually.
These out-of-pocket expenses, which were reported by surviving spouses and family members, are for health care not covered by Medicare: insurance premiums, hospital and physician copayments and deductibles, and expenses for medications, nursing homes, and in-home care.
The data also show that the financial burden on older people varies greatly, not just depending on marital status but also income. High earners spend more than $100,000 in their last five years, reflecting the large amounts paid out by those who need – and can afford – long-term care.
The authors conclude that end-of-life medical expenses subject a significant minority of older Americans to “considerable financial risk.” Their evidence: for 43 percent of the people they studied, the medical bills accumulated during their last years exceeded the value of their financial assets, excluding home equity. …Learn More