April 18, 2017
The Picture of Investment Diversity
Most people see multicolored chaos in the chart below, which is a visual representation of the returns each year to various types of investments.
Morningstar Inc.’s director of quantitative research, Timothy Strauts, sees something else: the need for a diverse portfolio.
Strauts, like most investment professionals, knows the Callan Periodic Table of Investment Returns. It has been around for 20 years and was just updated with 2016’s returns. Here’s how to read it. A colored square is assigned to each type of stock- and bond-market index. For example, the Bloomberg Barclay’s Aggregate (Agg) bond index is bright green, and the Standard & Poor’s 500 stock index is khaki green – the boxes also give each index’s return for each year. …Learn More
April 13, 2017
Hispanic Retirees: Low Saving, Long Life
Just one in three native-born and immigrant Hispanics working in this country has a retirement plan through their employers. If they do have one, three out of four save money in their plans, which is somewhat less than their coworkers.
One reason for the first abysmal statistic is that many Hispanics and Latinos, recent immigrants in particular, hold down part-time restaurant or hotel jobs at very low wages. But even among Hispanics working full-time, access to an employer savings plan is still much lower (44 percent) than it is for their white and black counterparts (more than 60 percent).
Low rates of saving are compounded by the fact that elderly Hispanics and Latinos will need more money over their longer-than-average retirements. A 65-year-old Hispanic man can expect to live 16 months longer than a white, non-Hispanic man in this country, and Hispanic women live 11 months longer. [One theory is that less healthy immigrants are more likely to return to their home countries, so the U.S. immigrant population that remains is healthier.]
“Longevity is a big issue, but there is little awareness of this” in the Hispanic population, said retirement consultant Manuel Carvallo, a Chilean immigrant to the United States. …Learn More
April 11, 2017
Blood for Student Loans
Illustration by: Kjell Reigstad
Interest in the student loan problem from the media and politicians seems to be ebbing.
The issue does not go away for Joshua Roiland. Every day, money worries grind him down – him and millions of other young adults working through the emotional fallout and shattered relationships caused by debt.
Roiland owes $200,000-plus and earns only $52,000 as a newly minted University of Maine journalism professor. He begins his article on Longreads by describing a 340-mile round-trip drive to a clinic in Lewiston, Maine, that pays him $50 for a pint of his youthful blood. …Learn More
April 6, 2017
Retirees Don’t Touch Home Equity
Remarkably, middle-class Americans have at least as much money tied up in their homes as they have in all their retirement plans, bank accounts, and other financial assets combined.
A hefty share of older U.S. homeowners are even better off: 41 percent between ages 65-74, and 63 percent over 74, have paid off their mortgages and own their homes free and clear.
But only one in five retirees would be willing to use their home equity to generate income in a new survey by the National Council on Aging (NCOA). This reluctance seems to be on a collision course with financial reality for working baby boomers, when so many are at risk that they won’t be able to maintain their living standards when they retire.
Retirees can get at their home equity to improve their finances a couple of ways. One is to sell, say, the three-bedroom family home on Long Island for a pretty penny and buy a condo on Long Island or a cheaper house in Florida. Yet only a tiny sliver of older Americans actually downsize to reduce their living expenses, according to a new report by the Center for Retirement Research at Boston College, “Is Home Equity an Underutilized Retirement Asset?”
Another avenue is available to people over 62 who don’t want to move: a reverse mortgage. While these loans against home equity are not for everybody, they’re one option if retirees want to pay off the original mortgage or withdraw funds when they’re needed. But only about 58,000 homeowners took out federally insured Home Equity Conversation Mortgage (HECMs) in 2015, according to the U.S. Department of Housing and Urban Development.
The NCOA’s survey, which was funded by Reverse Mortgage Funding, a lender, uncovered one reason for the lack of interest: retirees are not clear about how reverse mortgages work and how they differ from a standard home equity line of credit. …Learn More
April 4, 2017
Why Parents’ Home is the Millennial Crib
A couple years ago, Daniel Cooper noticed something at the commuter rail station near his home in suburban Boston. A lot of parents were dropping off their adult children every morning to catch the train into the city.
This fit with something he’d been thinking about as a Federal Reserve senior economist and policy adviser interested in macroeconomic issues like the housing market. Are millennials living with their parents longer than previous generations? And, if so, why?
His suspicion was confirmed in recent research with his colleague at the Boston Federal Reserve, María Luengo-Prado. They found that, on average, 16 percent of baby boomers born in the late 1950s and early 1960s lived with their parents when they were between 23 and 33 years old. That jumps to 23 percent of the millennial generation born in the 1980s. These young adults are also more likely to return home after living independently for a spell.
The economists landed on two primary explanations for the big shift. One is that young adults today earn less relative to rents in their area. Second, higher state unemployment rates impact millennials more. In short, young adults often live with their parents for the simple reason they can’t afford to live on their own. …Learn More
March 30, 2017
Older Workers’ Job Changes a Step Down
When older workers change occupations, many of them move into a lower-status version of the work they’ve done for years, according to a new study by University of Michigan researchers who tracked the workers’ movements among some 200 different occupations.
Aging computer scientists were likely to become programmers or computer support staff. And veteran high school teachers started tutoring, financial managers transitioned to bookkeepers, and office supervisors became secretaries.
Late-career transitions need to be put into some context: a majority of Americans who were still working in their 60s were in the same occupations they held at age 55, the study found. And these occupations ran the gamut from clergy to life scientists to cooks.
Interestingly, while teachers, thanks to their defined benefit pensions, often retire relatively young, primary and high school teachers were also at the top of the list of older workers who have remained in one occupation into their 60s, along with radiology technicians and bus drivers.
But about 40 percent of Americans who were still working when they turned 62 had moved to a new occupation sometime after age 55, according to the researchers, who tracked individual workers’ employment changes using the federal government’s coding system. …Learn More
March 28, 2017
Black America’s New Retirement Issue
The retirement issues facing black Americans can’t necessarily be lumped together for many reasons – there are high- and low-income blacks, and there are recent immigrants as well as longstanding families. A similar problem arises when treating the U.S. Hispanic-American population or the Asian-American population as a homogenous group.
Having acknowledged this, however, some recent studies have highlighted the financial challenges particular to each group. For Hispanic-Americans, a major issue is that they live a long time but have low participation in employer retirement plans. For Asian-Americans, extremely high wealth inequality in their working population spills over into retirement inequality.
This blog looks at the recent erosion in homeownership among black Americans since 2000, which threatens to further undermine their retirement security – Generation X is most at risk.
Black workers’ relatively low incomes are probably the first challenge of saving for retirement. In 2015, the typical black family earned $36,898, substantially less than the $63,000 earned by white families, according to the U.S. Census Bureau. Not surprisingly, their participation in employer retirement plans was also lower in a 2009 study, even though white and black Americans have roughly similar access to 401(k) plans through their employers. More than 77 percent of whites with this option save in a 401(k), and only 70 percent of blacks do.
Homeownership is also crucial to building wealth for retirement: the largest asset most older Americans possess is their house. This asset can translate into additional disposable income if the mortgage is paid off. Retirees can also downsize to a smaller home or take out a reverse mortgage loan that doesn’t have to be repaid until the homeowner moves out or dies.
The problem for black Americans is that homeownership is going in the wrong direction. …