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

Social Security and Two-Income Couples

The decades-long march of women into the nation’s workplaces may be the most enduring trend in the labor force – and a signature of American progress.

But it is also one more reason that Social Security benefits today replace a smaller share of the lifetime earnings of married couples than they did in the past, when far fewer women worked for pay.

Other reasons include the gradual increase in the age at which U.S. workers can claim their full retirement benefits, from age 65 for the oldest retirees to 67 for Generation X. Medicare premiums are also taking more out of the monthly Social Security check, and more retirees are being taxed on a portion of their benefits over time.

But for married couples, the sharp increase in the ranks of working wives has reduced the share of their joint earnings during their working years that is replaced by Social Security when they retire. For the typical couple born in the Depression, Social Security benefits cover 45 percent of their prior earnings, but that falls to 41 percent for baby boomer couples retiring today, according to new research by the Center for Retirement Research, which supports this blog.

These Social Security “replacement rates” – benefits as a percent of employment earnings – will continue to decline, to just 37 percent for Generation X couples born between 1966 and 1975. …Learn More

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Underwater Homeowners Stuck in Place

Packing up and moving across state lines is a time-honored tradition in this country. Settlers headed to the Great Plains in the 1800s, retired snowbirds have flocked to the Sun Belt for decades, and roughnecks today are pouring into North Dakota for the shale-oil boom.

But moves like these became extremely difficult for an unprecedented number of Americans after U.S. house prices plunged, suddenly trapping millions of homeowners in houses that were worth less than what they owed on their mortgages.

The phenomenon, called “house lock,” was more pervasive during the recent housing market downturn, because the downturn was national in scope – prior housing declines had largely been isolated in regional markets.

Some 110,000 to 150,000 fewer Americans relocated each year from 2006 through 2009, reducing interstate migrations nationwide by 2 percent to 3 percent annually, according to the first study using data on individual house prices and mortgage balances to confirm that an increase in a state’s homeowners with “negative equity” affected migrations out of that state. …Learn More

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Aging U.S. Workers: The Fittest Thrive

By the time people reach their mid-60s, two out of three have retired, either voluntarily or because they’re unable to keep or find a job. By age 75, nine out of ten are out of the labor force.

But the minority who do continue working aren’t just survivors – they’re thrivers. Think novelist Toni Morrison, rocker Neil Young, or the older person who still comes into your office every day.

The earnings of U.S. workers in their 60s and 70s are rising faster than earnings for people in their prime working years, according to a new study. Defying the stereotype that they’re marking time, today’s older workers are also just as productive as people in their prime working years.

Driving these trends is education: far more older Americans now have a college degree than they once did.

There’s a “perception that the aged are less healthy, less educated, less up-to-date in their knowledge and more fragile than the young,” but this does “not necessarily describe the people who choose or who are permitted to remain in paid employment at older ages,” Gary Burtless, a senior fellow at the Brookings Institution, concluded in his study.

The experience of age 60-plus workers is becoming increasingly important, because there are more of them in this country than there ever have been – a rising trend that will continue. …Learn More

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Are You An Ostrich About Investing?

As the stock market approached and then broke through the 15,000 mark, did you get a little obsessed with your 401(k) balance?

You would not be alone. A novel research project recently analyzed how often investors went online to check their 401(k) accounts and found that they did so more often when the Dow was rising. What could be more pleasant than watching your wealth grow?

The researchers quantified the emotional roller coaster that our investments can take us on by looking at log-on activity during 2007 and 2008 for 100,000 401(k)-style accounts at Vanguard Group Inc. To make sure they were properly measuring investor interest, the sample included only online customers who did not receive paper statements in the mail.

Their analysis gauged how responsive these investors were to stock market swings in either direction, based on the size of one-day market moves. If the Dow increased by 1 percent in a day, for example, the total number of log-ins rose nearly 2 percent. But if the Dow fell by 1 percent, then 2 percent fewer investors checked their accounts.

This human inclination to avoid the pain of losing money has been labeled the “ostrich effect,” because investors respond by putting their heads in the sand when the market is down. …Learn More

Layoffs After 50 Cause Severe Losses

For the average older worker who loses his job, his income a decade later is 15 percent lower than if he had escaped the layoff.

It gets worse: His pension wealth is worth 20 percent less, and his financial assets are 30 percent smaller.

The enormous financial hit delivered to older workers who experienced a layoff sometime during the 1990s was reported recently by researchers at the Center for Retirement Research, which supports this blog. First, the researchers pinpointed all workers in the data set who were over age 50 and lost a job between 1992 and 2000. They then examined their financial outcomes – earnings and assets – a decade later and compared them with outcomes for those who avoided layoffs during that time.

Unemployment rate for workers ages 55+If the financial fallout during the 1990s was that dramatic for unemployed older workers, it will be even worse for many of the 3.2 million jobless baby boomers at the peak of the Great Recession, the longest downturn in post-war U.S. history.

The Great Recession hit just as members of the biggest demographic bulge ever were either hitting retirement age or lining up on the runway. Record numbers of them sustained severe hits to their financial security, because the jobless rate for older workers reached record highs.

The research suggests that the recession’s effects may last into old age for many boomers. One key reason for their grim prospects is that older workers have more difficulty snaring new jobs than do young adults. Many boomers never found employment and are being forced to retire grudgingly, simply because they lack options. …Learn More

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White-Black Wealth Gap Nearly Triples

Over the past 25 years, the difference in wealth held by white and black households in the United States has nearly tripled, to $236,500.

In December, Squared Away wrote about the difficulty that black families have in trying to accumulate wealth so they can pass it on to their children. New research out of Brandeis University’s Institute on Assets and Social Policy now finds that the gap between the median net worth for white and black households has widened to a chasm, as blacks have fallen farther behind.

The study also quantified the reasons for the widening gap and found that the difficulty of building up housing equity is the largest factor.

A house is usually the single largest asset owned by middle-class American families. But starkly different homeownership patterns between blacks and whites – ownership rates are lower for blacks, who also own their homes for fewer years than whites – accounted for 27 percent of the increase in the wealth gap.

Housing’s impact has been “incredibly large” and is the “key driver” of the growing black-white wealth gap, said Thomas Shapiro, the institute’s director. “It’s part of the disadvantage that keeps working its way through the life course” from one generation of a black family to the next, he said. …Learn More

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