family

Mom-Dad Pay Gap Grows After First Child

Moms don’t need a research study to tell them that their earnings will never be high as dads’.

Nevertheless, a new study confirms this – and the pay gap may be larger than some suspect. In the two years surrounding the baby’s birth, mothers’ earnings fall by 12 percent, on average, as their careers stall or they take a hiatus from work to care for the child. Meanwhile, fathers’ careers clip along, with bonuses, pay raises, more hours, or better jobs bumping up their pay by 34 percent.

Mothers don’t get back to their pre-baby income levels until the child is 9 or 10 years old. The mom-dad wage gap will never be smaller than it was before the baby, because “the earnings of the male spouse do not undergo the initial shock” of childbirth, according to the U.S. Census Bureau researchers. They tracked wage changes starting in 1978, when baby boomer women were streaming into the labor force.

Their comparison of the husband-wife pay gap helps to overcome a big disadvantage of analyzing the popularized version of the gap: women earn 82 cents for every dollar a man earns. This headline statistic applies to all men and all women.

It’s neater to compare spouses, because both of them experience the baby bump at the same time, allowing estimates of the changes in each one’s earnings during the same time period and life circumstances. Just as important, husbands and wives usually bring to a marriage similar levels of education, the major determinant of earnings throughout workers’ lives.

The big issue in this study, however, is that data limitations prevented the researchers from controlling for the hours each spouse works after the baby’s birth. There are several potential explanations for mothers’ smaller paychecks but reduced hours are a major reason.

Maternity leave can be the start of several years of part-time employment at lower pay or even a hiatus from work for childrearing. If new mothers do return to the labor force fairly quickly, prioritizing the child can mean a job with less responsibility and lower pay than they earned in the past.

The increasing pay gap illuminates the financial sacrifices that moms make. Here are other findings in the study: …Learn More

map of Washington DC

Meeting to Focus on Retirement Research

It’s not too late to sign up to attend the Retirement Research Consortium’s (RRC) 20th annual meeting in Washington on Thursday and Friday, August 2 and 3.

Its purpose is to provide RRC researchers from around the country an opportunity to present their working papers to colleagues, the press, policy experts, and financial professionals. The consortium’s studies are all funded by the U.S. Social Security Administration.

The researchers will cover a variety of financial and policy issues facing workers and retirees. Topics will include the gains in longevity when retirement is delayed, widows’ poverty, and an analysis of low-income workers’ earnings and retirement prospects.

Another paper explores the decline in the share of total U.S. earnings that are being covered by Social Security as increases at the top of the income scale outpace increases in the payroll tax cap.  The links between money management and cognitive impairment among the elderly will be explored by one panel.

The members of the research consortium are the Center for Retirement Research at Boston College, which sponsors this blog; the University of Michigan Retirement Research Center; and the National Bureau of Economic Research.

Please join us!Learn More

hospital

Despite Medicare, Medical Expenses Bite

Medicare pays for the bulk of the medical care for Americans over 65, but a lot of their income is still eaten up by medical expenses.

The list of expenses is long. The lion’s share goes toward various insurance premiums – for Medicare Part B coverage, Part D prescription drug coverage, and supplemental insurance, whether Medigap, a Medicare Advantage plan, or employer health insurance for retirees. The remaining costs, for copayments and deductibles, are also significant.

These out-of-pocket costs, when added together, averaged about $4,300 annually per person, finds a new study by researchers Melissa McInerney, Matthew Rutledge, and Sara Ellen King of the Center for Retirement Research.

Out-of-pocket costs consume a third of the amount that retirees receive from Social Security, which is the most significant source of retirement income for a wide swath of the nation’s seniors, including many people in the middle-class. Half of seniors get at least half of all their income from the federal program.

The Medicare Part D prescription drug program has given some relief to retirees. After it became effective in 2006, the share of seniors’ income consumed by out-of-pocket costs declined slightly and then declined again after a follow-up reform of Part D began to close a big gap in drug coverage – known as the donut hole – in 2010. …Learn More

work life balance

Work-Life Imbalances Spur Retirement

When young people are dissatisfied with a job or feel it intrudes too much on their personal lives, they find a new one. Not so easy for older workers.

Their decision is complicated partly because they have fewer employment options as they age, but also because they must ask themselves whether or not it’s time to retire.

A study out of the University of Michigan’s Retirement Research Center found that people in their 50s, 60s, and 70s often choose to retire when long hours, inflexible schedules, and work responsibilities don’t allow them to do what’s required to help a family member or a sick spouse or to enjoy more leisure time.

Many things are constantly pushing and pulling older workers toward retirement, from lower pay, job stress, or unrealistic job demands to accumulating their required pension credits or having enough money in the bank. But the focus here is on lifestyle.

Marco Angrisani and Erik Meijer at the University of Southern California and Maria Casanova at California State University used a survey of some 6,000 older workers that asks about work-life conflicts and then followed them for nearly a decade to see if such conflicts led to decisions to reduce their hours of work or retire altogether.

The main takeaway was that both older men and older women who’ve had a work-life conflict in the past two years are far more likely to retire. This may not be surprising for women, who are typically the default caregivers for an ailing spouse, parent, or even a grandchild. …Learn More

Public Pension Cuts Hit Recruitment

West Virginia teachers started the wave of strikes over pay.
Photo courtesy of Janet Bass, American Federation of Teachers

Teachers’ strikes and walkouts over inadequate pay – in Arizona, Kentucky, Louisiana, North Carolina, Oklahoma, and West Virginia – are making news this spring. In Oklahoma, half the people who’ve left teaching recently said pay was their top reason for moving on.

A wave of reductions in another significant form of compensation – pensions – also appear to be making state and local governments a less appealing place to work, according to researchers Laura Quinby, Geoffrey Sanzenbacher, and Jean-Pierre Aubry at the Center for Retirement Research, which publishes this blog.

Pensions have traditionally been the great equalizer for governments trying to recruit people from the higher-paying private sector. But benefit cuts, which had been fairly uncommon, gained momentum after the 2008 stock market crash that battered pension funds’ already declining finances.

The pace of cost-cutting reforms peaked in 2011, when 134 state and local government plans made some type of cuts that year. They run the gamut from increasing the tenure requirement or retirement age applied to new employees’ future pensions to trimming the cost-of-living adjustment on all pensions. …Learn More

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Timing of Social Security Checks is Key

It’s a simple concept. Deposit retirees’ Social Security checks right before their big-ticket bills come, especially rent.

The U.S. Social Security Administration’s current schedule for depositing pension checks in bank accounts is based on each retiree’s birth date– it can be the second, third, or fourth Wednesday of each month.

The problem is that cash-strapped, low-income seniors receiving the earlier checks, on the second or third Wednesdays, can fall into a common behavioral trap: they spend the money soon after it comes in and then can’t cover the rent, mortgages or credit cards due at the beginning of the following month.

According to a clever new study, people who get these early monthly checks are at greater risk of resorting to desperate measures like payday loans than are seniors receiving them on the fourth Wednesday.

Such measures of financial distress are occurring “even though the pay schedule is known in advance,” write researchers Brian Baugh and Jialan Wang.

The advantage of Social Security deposits made on the fourth Wednesday is that retirees can get the big expenses out of the way first, forcing them to make do for the rest of the month with the money they have left. Indeed, people with fourth-Wednesday deposits had fewer bounced checks, account overdrafts, and payday loans, the researchers found. …Learn More

Future Retirees Financially Fragile

Retirement contributionsThe scary thing about fully retiring is the obvious thing: the ability to earn stops cold.

Most retirees live on what they get from Social Security and what they can spend from their savings, if they have any.  So how many older Americans with fixed incomes can accurately be described as being in difficult straits financially?

Only about 10 percent of retired people today are being forced to cut back on food and medications to pay their other bills, concludes a summary of recent studies on retirement income by the Center for Retirement Research (CRR), which supports this blog.

Tomorrow’s retirees have a more troubling outlook, in part because they will be dramatically more reliant on 401(k)s.

The typical middle-income worker in Generation X, who ranges in age from 37 to 53, can expect his savings to supply 42 percent of his total income when he retires.  Savings are necessary for just 27 percent of the total income of current retirees born during the Great Depression and World War II, according to one of the studies summarized by CRR and conducted by the Urban Institute and U.S. Social Security Administration. …Learn More

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