Study: College Debt Hurts Retirement

College graduates learn very quickly that paying hundreds of dollars toward student loans each month makes it difficult to afford things like a nice apartment or a car.

But they might not appreciate the long-term consequences of their record levels of borrowing: college debt is an added threat to their retirement security, according to a new study by the Center for Retirement Research.

Chart: More Young Adults Today are in DebtThe researchers gauged the debt’s impact by looking down the road to retirement and projecting what would happen if working people of all ages had started out with the same profile as young adults: 55 percent of today’s 20-something households have student debt, and they owe $31,000, on average.

College debt has a bearing on retirement security through two avenues. First, money going into loan payments is not available for a retirement savings plan. Second, lenders place limits on how much total debt a homebuyer can have, forcing many borrowers to delay home purchases; and getting a home loan would be very hard for the 17 percent of student loan borrowers delinquent on their debt.

Based on these assumptions and using 2013 data, the Center’s National Retirement Risk Index shows that those at risk of a lower standard of living when they retire would increase sharply to about 56 percent of working U.S. households – compared with 52 percent at risk when the student loan projection isn’t figured into the NRRI calculation.

This “represents a substantial increase in the already alarming rate of households at risk,” said the Center, which supports this blog. …Learn More

Photo of apartment buildings

Rising Rents Slam the Middle Class

Chart: Renters are paying moreFirst it was the Irish, then Portuguese, then Brazilians – for more than 150 years, Somerville, Massachusetts, absorbed wave after wave of immigrants. Today, hipster professionals are pouring into this city next door to Boston.

Somerville rents have shot up as much as 50 percent in 15 years, and a two-bedroom apartment for under $2,000 in a shabby chic neighborhood is a rare find.

A similar trend is playing out all over the country – from Boston and Miami to Los Angeles and Seattle – and it’s squeezing working- and middle-class families the most, according to the Joint Center for Housing Studies at Harvard University. …Learn More

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Loneliest Seniors Vulnerable to Fraud

“Lost my husband to 9/11 terror attack” – using heartbreaking stories like these, a U.K. scam that became public last month persuaded some lonely older men to turn their money over to widows.

This report is a dramatic illustration of a relationship between loneliness and fraud that has been uncovered in recent research. That study found that people over 50 have been vulnerable to being victimized by fraud in recent years – but the prevalence of fraud was three times higher among people who are extremely depressed or lonely.

The 2013 study in the journal Clinical Gerontologist might be the first to examine financial exploitation from the point of view of psychological vulnerability. It was based on a general survey of older Americans that asks each participant if they’ve “been the victim of financial fraud in the past five years.”

The psychological survey questions pin down whether they suffer from depressive symptoms and whether their social needs are fulfilled. The social needs questions address loneliness and a lack of social affirmation, asking the survey’s respondents whether they “have people to turn to, people to talk to, people to feel close to” and are “part of a group” and “appreciated.” …Learn More

Woman gardener

Home Equity: a Retirement Resource

The National Council on Aging (NCOA) has redesigned its website providing information for “house rich but cash poor” older people who want to think about tapping their home equity.

Home equity – the house’s market value minus the amount owed on the mortgage – remains a largely unused source of income that many older Americans could be putting toward their medical care or to improve their lives.

wagesHome equity held by Americans age 62 and over reached $5.76 trillion last year – an increase of nearly 30 percent since 2013. A marker of how much of this retirement resource remains untapped is the small number of federally insured reverse mortgages – about 50,000 – that seniors take out every year against the value of their home equity. Reverse mortgages, which are available to homeowners at age 62, are equity loans that do not have to be repaid until the senior permanently leaves their home. …Learn More

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8 College Repay Plans – and Counting

This was going to be a quick blog post about the new student loan repayment program rolled out by the federal government in January. But the differences between it and the seven plans that preceded it were too confusing to figure out on a tight deadline.

This isn’t just the view of one cranky blog writer. Craig Lemoine, a financial planning professor and student loan expert at the American College of Financial Services, which trains financial planners, also admits to being confused about the repayment options, which keep increasing in number.

If Lemoine were a student, he asked, “How on earth would I know which one to pick?”

His confusion pales in comparison with that of a lovely and loved young member of my family. She’s vague on the details of how her own student loans work. Here’s a rough approximation of our recent telephone conversation: …Learn More

U.S. Workers Got a Raise Last Year

It probably doesn’t feel like it, but workers got a decent pay raise in 2015.

wagesInflation last year was an improbably low 0.7 percent, and the fairly strong job market helped, too, by pushing up average hourly wages by 2.6 percent. Together, these translate to nearly a 2 percentage point increase in workers’ pay. Wages rose again in January by one-half percent, which was the second-best monthly increase in the current economic expansion. Minimum wages are also going up in many states.

It gets even better, based on an analysis by the American Institute of Economic Research (AIER) in western Massachusetts. An inflation measure designed by AIER that it calls the everyday price index, or EPI, actually declined last year. As its name implies, the EPI gauges changes in prices for things that are necessary for daily living, such as utilities and groceries, and excludes infrequent big-ticket items such as cars, homes, appliances, and even clothing. For this reason, it also weights gasoline more heavily than the standard consumer price index (CPI). The EPI declined 1.4 percent for the 12-month period ending in November, the latest data available, compared with the 0.7 percent increase for the CPI. …Learn More

Illustration: Quiz!

Can You Pass this Retirement Quiz?

Most people in a recent retirement survey fielded by the American College of Financial Services were confident that they had saved enough money to live in comfort in retirement.

But how do they know if they’re on-track? Four out of five also flunked the survey’s retirement planning quiz, answering less than 60 percent of its 38 financial questions correctly.

What’s striking about the poor results is that the quiz takers were a select and relatively well-off group: 60- to 75-year-olds with at least $100,000 in financial assets, excluding their home equity. A majority of them also have a financial adviser. One would think that people with both investment and retirement experience would do better. This also raises the question of what the quiz results say about the financial outlook for retirees with fewer advantages.

Think you can do better? With the American College’s permission, Squared Away selected five of its questions for a short quiz for our readers. Some of the answers incorporate the American College’s expertise with that of the Center for Retirement Research, which supports this blog.

Button linking to quizLearn More

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