It probably doesn’t feel like it, but workers got a decent pay raise in 2015.
Inflation 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
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.
As the American family becomes increasingly complex, so do parents’ wills.
The result has been a dramatic increase over the past two decades in the share of wills in which parents distribute their estate’s assets unequally among their genetic offspring and stepchildren.
New research, based on surveys of older Americans, finds that about one-third of parents today do not distribute their assets equally. The reasons range from the greater incidence of divorce and the inherent disadvantage of being a stepchild to the fact that some children naturally take on the role of caring for their aging parents. With parents now living longer and needing more care, children may receive compensation in the will for providing that care.
About 42 percent of older parents have not written a will, though it’s unclear why, according to the study. But when there is a will, here is how complexity affects the distribution of bequests, based on the research findings: …Learn More
Two out of three working Americans grade their retirement readiness at no better than a “C.”
So how about using the Social Security Statement that lands in their mailboxes, grabbing their attention, to spur them to action?
The statement is already valued by millions of Americans. A survey funded by the U.S. Social Security Administration (SSA) found that people who received statements were “dramatically” more knowledgeable about their basic pension benefits than people who had already retired when SSA started mailing them out in the mid-1990s.
Social Security is the nation’s most important source of retirement income, and the information in the statements is essential to most workers’ retirement planning. Mailed out before every fifth birthday – 25, 30, 35, etc. – and annually at age 60, the statement provides estimates of each worker’s future benefits at three different claiming ages: 62, when they have access to their smallest monthly benefit; the “full retirement age”; and 70, when workers receive their highest monthly benefit. It clearly lays out how much workers can increase their monthly retirement income by delaying when they start collecting their benefits. …Learn More
This video examines wealth through the prism of race.
It compares the share of the nation’s African-American, Hispanic, Asian-American and white populations who have net worth exceeding $1 million; net worth equals financial and other assets minus mortgages and other debts. If the fact that there is a racial divide isn’t surprising, the magnitude of it might be.
Other factors also have an enormous influence over who gets rich, and understanding this becomes increasingly important amid rising inequality. The biggest determinant of wealth is whether our parents are rich, as recent research has shown. Age and education are also crucial. That’s because older people have more time to save and accumulate wealth, and a college education typically leads to jobs that can add an estimated $1 million to the total amount that a worker earns over a lifetime.
But even when the data are sliced by age and education, there are deep economic inequities in our diverse society, as this video produced by Bloomberg Business shows.Learn More
Economists like to joke about free lunches. The subtext is that there’s a cost to everything.
A free lunch is also literally how high-pressure financial companies sometimes lure older Americans into a room to hear their investment pitches. The FINRA Investor Education Foundation says some 6 million older Americans have attended seminars in return for a free lunch. Every year, my mother’s retirement community outside of Orlando hosts a handful of these seminars, which are presented by financial firms, insurance companies, and even funeral homes.
FINRA warns that they can pressure seniors into making “unsuitable, even fraudulent investments.” The above FINRA video explains what’s behind the free-lunch presentations and proposes some questions that people can ask to determine the legitimacy of what’s being sold.
But it’s probably better to do what my mom does: find something fun to do instead.Learn More
The wealth of good financial information available from government, university, and non-profit organizations is an antidote to the television and Internet advertisements selling financial products. Squared Away regularly compiles these resources for our readers’ benefit. This newest installment starts with some that are available in Spanish for the nation’s growing Hispanic population:
The FINRA Investor Education Foundation translated its short video about why people make bad financial decisions into Spanish. “Pensando Dinero: la psicología detrás de nuestras mejores y peores decisiones financieras” – or “Thinking Money” – explores how emotions get in the way of common sense when making decisions about money. Several other FINRA resources also in Spanish include a glossary of online financial publications and a video about financial fraud. (“Pensando Dinero” is based on a documentary produced for public television; a free DVD of the English-language documentary is also available.)
“Thinking Fast and Slow” by Daniel Kahneman was an international bestseller about behavioral economics. To explore another insider’s take on this field, read what one of the field’s founders says about it. Richard Thaler’s latest book, “Misbehaving,” will be published in paperback in May. A New York Times review called it “a sly and somewhat subversive history of his profession.”
In just two years, the housing boom taking place in many parts of the country has added $1 trillion to the value of home equity held by people ages 62 and older, reports the National Reverse Mortgage Lenders Association. For retirees wondering whether it’s appropriate to turn some of their equity into income, the Center for Retirement Research at Boston College, which supports this blog, has produced a booklet on ways retirees can use their home equity, including through reverse mortgages. The online version is free, and a paper version costs a whopping $2.75.