Immigrant Flows Impact Social Security

Manuel Carvallo immigrated from Mexico at age 40 and became a U.S. citizen at 51.  The Georgia pension consultant just reached another milestone, accumulating the 10 years of U.S. work experience required to receive a small Social Security pension when he retires.

Chart: Changing Tide of Mexican Immigrants

Millions of immigrants from around the world who work here illegally could get the same opportunity as Carvallo under President Obama’s executive actions on immigration, which propose to give many of them temporary legal work papers and Social Security numbers.  Great uncertainty remains about where U.S. immigration policy is heading as Congress actively seeks to reverse the president’s administrative actions

What is clear is that when undocumented immigrants – farm workers, hotel workers, and household and restaurant staff lacking green cards or other legal status – do pay into Social Security, they often have little prospect of ever receiving benefits.  In 2010, some 3 million such workers with fake or expired Social Security numbers added a $12 billion bonus to the Social Security Trust Fund, the U.S. Social Security Administration estimated. …Learn More

SSA-1099 Tax Forms Are Now Online

Lose your SSA-1099 tax form showing your total Social Security benefits in 2014? Or perhaps you moved and never received it in the mail.

SSA form

Last year, more than 156,000 retirees did just that and had to call the U.S. Social Security Administration for a replacement. But help has arrived.

For the first time, retirees can go to the agency’s website to retrieve and print out a duplicate SSA-1099 form.

The SSA-1099, which is mailed in January, provides benefit information necessary for filing an individual’s income taxes. The SSA-1042S, a similar form for immigrants and other non-residents, is also available online. …Learn More

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Investment Managers Are Human Too

Mutual fund managers would seem to possess myriad advantages over the average individual investor: a business degree, a deep understanding of corporate finance, and years of experience.

But you wouldn’t know it based on how their personal portfolios fare.

A new study of mutual fund managers in Sweden found that that they “do not exhibit superior security-picking ability” when managing their personal portfolios, compared with similarly situated private citizens who also invest for themselves.

Using detailed tax and investment information contained in Swedish government data bases, researchers from the University of Notre Dame and Michigan State University were able to link individual fund managers to their personal equity portfolios and returns, which were then compared with the returns of non-experts with similar socioeconomic characteristics, such as education and age.

Based on the risk-adjusted returns for each group, the researchers found that the fund managers’ personal equity portfolios – individual company stocks and also the stock mutual funds they hold – performed no better than the private investors’ equity portfolios. …Learn More

The Impact of Taxing Health Premiums

Excluding the health insurance premiums paid by employers and employees from workers’ taxable earnings is the federal government’s largest single tax expenditure, amounting to some $250 billion a year in lost revenue.

Eliminating the exclusions – as some in Washington have proposed – would sharply increase how much is taken out of workers’ paychecks for payroll taxes and for income taxes. But any such proposal would also put more money in their pockets when they retire by increasing the earnings base on which their Social Security benefits are calculated.

Urban Institute researchers Karen Smith and Eric Toder recently estimated the policy’s impact on workers’ taxes and benefits and found that it varied widely for different income groups and among people born in five different decades, the 1950s through the 1990s.

Their analysis took into account the myriad idiosyncrasies of the U.S. tax code, including a regressive payroll tax, a progressive income tax, Earned Income Tax Credits paid to the lowest-wage workers, and the cap on payroll taxes for the highest earners.  To evaluate the proposals’ impact, the researchers added the premium amounts paid by both the employer and employee to workers’ taxable incomes – just as the deficit reduction proposals would do.

The resulting tax bite would be largest for the middle class.  That’s because middle-income workers are more likely to have employer-provided health insurance than lower-income workers, and their insurance premiums are a larger share of their income than they are for higher-income groups.  Under the proposal, middle-income workers’ federal income and payroll taxes would rise by an amount equal to 3.5 percent of their lifetime earnings. …Learn More

Retirement Saving: Excuses and Regrets

U.S. workers have a long list of reasons, many of them legitimate, for why they can’t come up with the money for a retirement savings plan.

But here’s the rub: we live in a 401(k) world. Workers who aren’t convinced of the urgency of saving should listen to people who have already retired.  Even though many current retirees have defined-benefit pensions, they have become largely unavailable to most people still working today. And these retirees say they’ve learned the hard way that saving is key.

Excuses now and regrets later – these two takeaways came out of a nationally representative survey of workers and retirees by HSBC, a global financial institution.

Chart: Why It's Hard to Save

Saving for retirement is not a major priority for 81 percent of the workers surveyed. The chart shows that saving takes a back seat to myriad other financial concerns, topped by the impact of the global economic downturn and the U.S. job market.

Things are much clearer to retirees.  Nearly half of them, when asked for the latest age at which people should start preparing to retire, said before 30.  Many retirees – about two out of five – said “they did not realize that their preparation had fallen short until it was far too late.”

Whatever obstacles they face, the question facing workers is: what can they do to save or save more? …Learn More

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Inequality Fuels Drop-Out Rate

Education is the holy grail of success.  But too many young men in this country don’t graduate high school, much less aspire to a college degree.

It’s clear that completing high school improves one’s chances of moving up the economic ladder.  So why doesn’t this incentive always work?

At a time of greater attention to the nation’s widening inequality, new research supports the argument that income inequality may actually discourage disadvantaged low-income teenagers from finishing high school.

The study examined whether there is a relationship between inequality and the drop-out rate, measuring inequality as the ratio of the lowest incomes in each state – the bottom 10 percent – to incomes in the middle.  The study found that drop-out rates for teenage boys in states with the greatest inequality were 4.1 percentage points higher than drop-out rates in the states with the least inequality – this is a big difference, amounting to more than one-third of the 11.1 percent average drop-out rate. …Learn More

snowy path

Winging It in Retirement?

Saving should be the centerpiece of any retirement plan today.  But a new survey indicates that many Americans on the cusp of retiring have given little thought to the other key issues they’ll face in retirement.

A majority of older Americans recently surveyed by the American College of Financial Services, an educational organization for financial professionals, said they have set a goal for how much money to save to “live comfortably” as retirees.  And, when asked to assess their own progress, they feel they’re doing a good job of it.  Granted, the survey was limited to a select group of about 1,000 people over age 60, all of whom have at least $100,000 in investable assets.

But the financial risks posed by the transition away from full-time work and a regular paycheck are complex and continual – and preparing for them goes well beyond contributing to a 401(k).

Only a minority of people planning their retirement take into account these important financial issues: …Learn More

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