lottery

Lottery-like Prizes Spur Saving

Jessica Smith, mother of four, was never much of a saver.  But a credit union that dispenses prizes has changed all that.

She now saves $150 every month out of her pay and bonus as a restaurant buffet manager.  Each $25 deposited into her account gives her one more entry in a monthly drawing for cash prizes at the Communicating Arts Credit Union in Detroit.

Jessica Smith and her winnings.

By coincidence, she won three times last fall – a total of $100 in prizes. But in contrast to throwing money away on a lottery ticket with bad odds, she earns a little interest on her credit union account.

These so-called prize-linked accounts aren’t a new concept: one of the first appeared in 1694 in the United Kingdom to help people pay off war debts.  Today in this country, nearly 18,000 individuals like Jessica participate in Save to Win programs.  Launched in 2009, they’re offered at more than 60 credit unions in four states.

Michigan handed out $100,000 in prizes last year, including six $10,000 grand prizes; Nebraska, North Carolina, and Washington each gave out between $25,000 and $50,000 in a year. …Learn More

Image of falling money

Retirement Tax Credit for Low Earners

The IRS effectively gives money away to low-income Americans who save for retirement.

Workers meeting the agency’s income requirements can receive a Saver’s Tax Credit equal to as much as half of their total deposits into a 401(k) or IRA. The lower one’s income, the bigger the credit.

The program, which was made permanent in 2006, gives a nice boost to the nation’s lowest-paid workers, who are also most vulnerable in retirement. And not taking advantage of the credit, said Jim Blankenship, a financial planner in New Berlin, Illinois, “is a lot like giving up an employer match for a 401(k).”

Low-income workers do just that, a previous study found: 40 percent decline to participate when their employer offers a 401(k). But the Savers Tax Credit may provide another avenue to this under-covered population.

The annual income requirements for the credits, shown in the following table, apply to calendar year 2013 tax filings due April 15. …

*Note: Credits are equal to 10 percent, 20 percent, or 50 percent of total contribution.

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TV’s “Shameless” Takes on 401(k)s

In this video clip from “Shameless,” young adults may relate to Fiona’s reaction to “the 401(k) talk” by a manager who pops into Fiona’s cubicle.

This popular television dramedy, “Shameless,” is about the dysfunctional Gallagher family of Chicago, and oldest daughter Fiona (played by Emmy Rossum) does what she can to keep things together.  But how to cope with the 500-page 401(k) binder her manager drops on her desk with a thud?

It’s been rare that 401(k)s are mentioned on television.  So, why have retirement savings accounts entered our popular culture?Learn More

balance

Gen-X Retiree Income Inequality to Widen

There’s a growing awareness of the chasm between average working Americans and those at the top of the earnings scale.

What isn’t widely recognized is that this broad economic trend is spilling over into retirement incomes, which depend on how much people earn and save while they’re still working.

“The increasing wage inequality we see during the working years plays out over the life course and will result in more unequal incomes at older ages,” said Richard Johnson, an economist with the Urban Institute in Washington.

Johnson recently compared the incomes of today’s retirees with his income projections for the youngest members of Generation X who will enter retirement in about 30 years.  He found that the imbalance between those at the top and bottom is expected to be wider for Gen-X.

In his study, retiree income includes Social Security benefits, pensions from traditional defined benefit plans, and employment earnings.  Johnson also assumes that people spend down their 401(k)s, but he does not include equity in one’s home, which retirees can also convert to income. …Learn More

debt climber

Retirement Delayed to Pay the Mortgage

Older Americans who are in debt are choosing to delay their retirement, researchers conclude in a new working paper.

In earlier findings released last summer, the researchers, Barbara Butrica and Nadia Karamcheva of the Urban Institute, documented the growing prevalence of borrowing since the late 1990s among adults ages 62 through 69. Median debt levels among those who owe also surged from $19,000 to $32,100, adjusted for inflation – and debts as a share of their assets increased.

Now comes the rest of the story. When the researchers controlled for health, financial assets, home values, and other forms of wealth, as well as spouses’ earnings and other factors that play into decisions about retiring, they found that individuals with debt, especially mortgages, behave differently than those who are debt-free.

Here are their main findings:

  • Nearly half of all people in their 60s with debts continue to work, compared with only one-third of those who have no debt. …

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HHS Website Decodes Long-Term Care


Every day, some 10,000 Americans are turning 65, and every day, more of them start thinking about their long-term care.

For help, try the U.S. Department of Health and Human Services’ recently redesigned website, Longtermcare.gov. It’s very easy to navigate and is packed with reliable information to help visitors:

  • Search for specific types of services in your area, by zip code.
  • Learn whether your home and location are compatible with aging in place.
  • Analyze long-term care costs, by type of service and state.

Learn More

Clocks in sand

Parents’ Longevity Sways Plans to Retire

Penny DeFraties, a teacher, shared her reaction to a 2012 article that appeared on this blog:

The day I hit my minimum retirement age, I’m gone. I look forward to traveling, gardening, spending time with my grandkids, and volunteering at church, the American Red Cross and USO. My first husband died of a heart attack at 49-years-old, and my current husband lost his first wife to MS at 50-years-old.

The notion that life is short is a valid reason to retire – to travel or enjoy the grandchildren before it’s too late. And the academic literature clearly shows that the age at which people exit the labor force is related to how long they expect to live.

Building on this research, a new study nails down how we arrive at our personal estimates of our life expectancy and provides new insight into the critical retirement decision.

Using data for individuals between the ages of 50 and 61, economists Matt Rutledge and April Yanyuan Wu with the Center for Retirement Research (CRR) and Boston College doctoral candidate Mashfiqur Khan confirmed that individuals estimate their own life expectancy based in part on how long their parents lived. (Full disclosure: the CRR supports this blog.)

They went on to link this “subjective life expectancy” with when older workers plan to retire, as well as when they actually do retire. …Learn More

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