Millennial Retirement ‘Discouraging’

Baby boomers have limited time and only a few options to improve their financial prospects when they retire and give up a regular paycheck. Millennials have more time to do something about it.

They should start thinking about it, indicates a study by the Urban Institute’s Richard Johnson, Karen Smith, Damir Cosic, and Claire Xiaozhi Wang.

millennial chartTheir test of a comfortable retirement was set at a 75 percent replacement rate, meaning retirees need 75 cents in monthly income for every dollar earned in their final decade of working. For this analysis, the researchers estimated retirement income at age 70 – an age when most people have already retired – for every individual in the federal data sources used in their analysis.

They found that about a third of boomers and boomers’ parents don’t have enough retirement income to make that 75 percent cutoff. Millennnial households will be significantly worse off at age 70: nearly half are at risk.

The prospects for Millennials are “discouraging,” the researchers said. …Learn More

baby on mom's shoulder

Earnings Gap Hits Mom’s Social Security

Mothers often work less because, well, they’re also moms.

Still, they generally work consistently enough to qualify for Social Security pensions based on their own earnings records – rather than on their husbands’, as was common when more women were full-time housewives or worked just a few hours a week while the kids were at school.

Yet today’s working mothers do take a hit to their earnings when they temporarily reduce their hours or take a hiatus from work for childcare. The upshot of lower earnings is less Social Security income later for mothers, according to a new study by researchers for the Center for Retirement Research (CRR supports this blog).

The researchers, Matt Rutledge, Alice Zulkarnain, and Sara Ellen King, used data on all older women – married or single, mother or not.  First, they confirmed past studies showing that the typical mom earns about $2,760 per month – or 28 percent less than a childless woman earns. Having two children translates to nearly 32 percent less income, and three children, to 35 percent less. (The analysis adjusts for some things – education is one – but not all the factors that distinguish mothers from non-mothers.)

Mothers’ lower Social Security benefits reflect this earnings penalty, though by a smaller percentage.  Mothers’ benefit checks are 16 percent less than women who had no children to care for.  Benefits are also lower if they had more children – by 18 percent for two children and nearly 21 percent for three. …Learn More

How Social Security Gets Fixed Matters

Line chart showing who's spending is reduced: workers or retirees? As more baby boomers retire, Social Security’s impending financial shortfall will become more pressing.

To restore solvency, Congress can either cut Social Security’s pension benefits or increase the payroll taxes deducted from workers’ pay.

Both policies would impact how much is available for households to spend. Researchers at the Center for Retirement Research find that the benefit reductions would have an appreciably larger annual impact on retirees than would the higher taxes on workers. But the taxes would be spread over a longer time period.

The new study looks at four specific policies, two that cut retirement benefits and two that raise taxes.  Each policy analyzed would equally benefit Social Security’s finances.

Gauging their separate effects required using a model to predict workers’ behavior. This was necessary because some workers might feel they should retire earlier if more taxes are being taken out of their paychecks. On the other hand, if their future pension benefits will be trimmed, they might decide to work a few more years to increase the size of their monthly checks.

One option for reducing Social Security payouts would be to delay the full retirement age (FRA) at which retirees are eligible to collect their “full” benefits. A second option is trimming Social Security’s annual cost-of-living (COLA) increases.

A two-year increase in the FRA, to 69, would reduce annual consumption in retirement by 5.6 percent for low-income, 4 percent for middle-income, and 2.2 percent for high-income retirees. …Learn More

array of different workers

Older Americans Handling Work Demands

Older workers face fewer headwinds and better working conditions than their younger co-workers, according to the first analysis of a new survey of 3,900 blue- and white-collar workers between ages 25 and 71.

The U.S. workplace overall is “very physically and emotionally taxing,” according to the study – that’s why they call it “work.”  Two out of three workers of all ages reported in the 2015 survey that they are often required to move at high speeds under tight deadlines, feeling intense pressure to accomplish too much in too little time.

But after people pass the age of 50, things get a little easier.  Older workers report having more flexible work schedules, more predictable hours, fewer scheduling changes, less stress, and greater ease in arranging time off to take care of personal matters, the analysis found.

Their workplace situation isn’t all rosy.  Larger shares of older workers feel under-employed or have unsupportive bosses – this held true whether they had college degrees or not.

The analysis of the new American Working Conditions Survey (AWCS), by researchers led by Nicole Maestas at Harvard Medical School and recently published in an e-book, is an introduction to what will inevitably be more research using this new, publicly available data. The AWCS might, for example, provide new fodder for studying the factors that influence older Americans to continue working or to retire.

The new study found some striking differences between older and younger workers – and among different groups of older workers: …Learn More

Statue of bear and bull

Impact of Stocks on Retirement System

U.S. stock market performance has implications for our entire retirement system – not just your 401(k).

Three studies addressing the big-picture relationships between the market and retirees’ financial security were produced in 2017 by the Center for Retirement Research, which sponsors this blog. Here are summaries of each one:

  • State and Local Pension Plan Funding Sputters in FY2016 – Public pension plan returns were very weak in fiscal year 2016. But even though stock market performance improved in 2017, it will be difficult to compensate for the plans’ funding shortfalls over the long-term: “To achieve more meaningful progress,” the researchers concluded, state and local governments “need to establish contribution levels that will actually reduce unfunded liabilities.”
  • How Will More Retirees Affect Investment Returns? – This interesting paper reviews the effect of the competing demographic forces driving investment returns. This is an extremely complex economic calculation, but the upshot is that our retirement accounts are receiving less interest and dividend income per dollar invested.
  • What are the Costs and Benefits of Social Security Investing in Equities? – Young adults are told to throw their 401(k) contributions into the stock market and forget about them for a few decades. That’s because stocks are riskier but generally outperform bonds. The Social Security Trust Fund, which currently invests only in bonds, is just another long-term investor, and projections show that its finances would also benefit from investing in stocks.

Learn More

Grandmother with baby

Slightly More Seniors Living With Family

In the 19th and early 20th centuries, it was not unusual for older Americans to live with their adult children and grandchildren. But more seniors could afford to live on their own after passage of Social Security and then Medicare.

By the 1990s, fewer than 10 percent of people over age 65 lived with relatives, usually offspring.  This number has crept back up to around 12 percent in recent years, according to an analysis by the Center for Retirement Research.

Economic disadvantage is the common thread among older people living in these multigenerational households, a new study finds. This held true whether the seniors moved in with their adult children and grandchildren or the offspring moved into their parents’ homes.

“Experiencing economic distress increased the odds of a senior forming a multigenerational household,” concluded researchers from Arizona State University and George Mason University.

Here are their main findings, based on an analysis of U.S. Census data for more than 49,000 people who were 65 or older between 1996 and 2008: …Learn More

Growing tree

Women Get a Bigger Social Security Bump

The magic number is 35.

That’s how many years of earnings the U.S. Social Security Administration (SSA) uses to calculate every worker’s pension benefit.  But 35 years can be a tall order for the many boomer women who took time off or cut back on their hours to raise their children.  Nearly half of 62-year-old working women today didn’t make any money for at least one year in their earnings history on record with SSA.

But this also means they have more to gain financially than men from working longer, because each additional year of work substitutes for a zero- or low-earning year during motherhood in the benefit calculation, according to research by Matt Rutledge and John Lindner at the Center for Retirement Research, which sponsors this blog.

Beefing up one’s earnings record is actually one of the two ways that working longer raises monthly benefits.  The other, more familiar way is a benefit increase from delaying collecting Social Security.

Delaying claiming compresses the time period over which workers will receive benefits.  The resulting increase when they finally do start is known as Social Security’s “actuarial adjustment.”  Take the most extreme example: both men and women who begin their Social Security at age 70 receive 76 percent more per month from this adjustment than they would’ve gotten had they started at 62.

But it is women who generally gain much more from additional years in the labor force.

By working to 70, rather than retiring at 62, the average woman can increase her monthly Social Security check by 12 percent, the researchers found.  Adding this to the standard actuarial adjustment produces an 88-percent increase, from roughly $1,112 per month at 62 to $2,090 at age 70.

The earnings bump that 62-year-old men get from working to 70 is half as big – about 6 percent – because men typically already have had more years of higher earnings during their working lives.

A woman doesn’t have to work all the way to 70 either to benefit. Any period of delay will increase monthly benefits – and that will help. …Learn More

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