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Downturns Fuel Bridge Jobs, Retirement

Older workers may have every intention of deciding when they’ll retire, but economic conditions can undermine their well-laid plans.

A new study investigating whether macroeconomic events “leave workers with less control over their retirement timing” found that various transitions from career jobs into retirement sharply accelerated during periods when more Americans, including more older workers, were losing their jobs.

The researchers analyzed whether periods of rising unemployment over the past 50 years have affected three specific retirement transitions made by older workers: 1) from full-time work to “bridge jobs,” which pay less; 2) from bridge jobs to full retirement; and 3) from full-time work to full retirement.

These transitions were tracked based on changes in individuals’ employment earnings documented in U.S. Social Security Administration data from 1960 through 2010. An individual was considered to have shifted to a bridge job after he experienced at least a 50 percent decline in his earnings with an existing or new employer – the earnings floor on this group was $5,000 per year.  When earnings fell below $5,000, the worker was considered fully retired.

The researchers said that they focused on white men between the ages of 55 and 75, because their labor force participation patterns were more stable during the period studied than those of women and minorities.

They found that a 1-percentage-point rise in the U.S. unemployment rate increased the number of men moving each year from full-time work to bridge jobs by 7 percent.

Rising unemployment also pushed more men into full retirement.  A 1-percentage-point rise in the unemployment rate increased the number of men who retired – either from full-time work or from a bridge job – by 5 percent each. …Learn More

1 in 4 Seniors Have Little Home Equity

Chart: Home equity held by Medicare beneficiariesRetirees can use the equity sitting in their homes to pay for their daily expenses, out-of-pocket medical bills or nursing care, especially toward the end of their lives.

Cash-strapped older retirees can access that equity by taking out reverse mortgages or home equity loans or by downsizing to less expensive homes or condominiums.

But one in four Medicare recipients has less than $12,250 in home equity, according to a new report by the Kaiser Family Foundation, a healthcare non-profit.

Kaiser’s calculations also show that the distribution of home equity among older Americans is – like the distribution of income and financial assets – top heavy.  While 5 percent of Medicare beneficiaries in 2013 had more than $398,500 in home equity, half have less than $66,700.

According to Kaiser’s projections, that gap will widen in the future. By 2030, those whose home equity places them in the top 5 percent will see that equity grow more than 40 percent, but it will rise less than 10 percent for those with mid-level – or median – amounts of equity.

The analysis was part of a study to examine the ability of older Americans to absorb rising out-of-pocket retiree medical costs and increasing Medicare premiums.  This blog also reported the study’s similarly grim findings about the meager financial savings held by many retirees to cover their health care costs.Learn More

1 in 4 Seniors Have Meager Savings

Chart: Savings Among Medicare BeneficiariesLess than $11,300 – that’s how little savings one-quarter of all Medicare beneficiaries have in their 401(k)s, IRAs, and other financial accounts.

This grim statistic comes out of a report by the Kaiser Family Foundation, a health care and policy non-profit. Kaiser’s goal was to gauge whether older Americans will be able to absorb rising Medicare premiums, co-pays, deductibles and related costs.

“Most people on Medicare are of modest means with relatively low incomes, low savings and low home equity,” concluded Gretchen Jacobson, the foundation’s associate director of the Medicare policy program and lead author of the report.

When retirees’ incomes can’t cover their out-of-pocket costs, they need money in the bank to pay for care. But half of all Medicare beneficiaries have annual incomes below $23,500 and have less than $61,400 in the bank – less than the cost of a year in a nursing home – Kaiser said.

The foundation’s report also projects beneficiary incomes and wealth over the next two decades, as baby boomers age: much of the growth in incomes and wealth will be skewed toward individuals in the higher income and wealth brackets.

This report should “raise questions about the extent to which the next generation of Medicare beneficiaries will be able to bear a larger share of costs,” Kaiser said.Learn More

cognitive decline

Many with Dementia Manage Finances

When dementia enters an elderly couple’s home, it can bring financial mismanagement with it.

But since both spouses don’t usually become cognitively impaired at precisely the same time, couples have the option of turning over the household financial responsibilities to the person who’s not yet impaired.  The question is whether this transfer of control happens quickly enough.

Most couples are waiting until after cognition is very low to make this change, according to a new study.

Economists Joanne Hsu with the Federal Reserve Board and Robert Willis with the University of Michigan found that 80 percent of married older Americans who had been in charge of their household finances continued to manage them after a test revealed they were approaching or already experiencing dementia. …Learn More

Post Recession: Strugglers vs Thrivers

The Federal Reserve Bank of St. Louis, based on its analysis of data from the Survey of Consumer Finances, estimates that the recession has ended for only about one-quarter of the U.S. population – the thrivers, who have paid down their debts and restored their savings.  That would leave three out of four Americans who are still struggling. Squared Away interviewed Ray Boshara, director of the Center for Household Financial Stability at the bank; Bill Emmons, senior economic adviser; and Bryan Noeth, policy analyst, for their insights into why most Americans’ net worth – their assets minus debts – hasn’t recovered.

Q: You distinguish “thrivers” from “strugglers.” Who are these two groups?

Boshara: The thrivers versus strugglers construct is a simple way to make the point that some demographically defined groups are doing better, on average, than others in terms of net worth – what you save, own, and owe, or your entire balance sheet. We found that age, race, ethnicity and education levels are pretty strong predictors of who lost wealth and who’s recovered wealth over the past few years, as well as over a longer period of time.

Q: Describe the typical thrivers.

Emmons: Whites and Asians with a college degree who are over 40 – that’s the typical thriver. Remember, this is a construct, and it’s not 100 percent foolproof.  But you would tend to say these groups are more likely to have outcomes consistent with recovering.

Q: How about the typical strugglers?

Emmons: By age – they’re younger – and they’re African-American or Latino. They also do not have a college degree, and they have too much debt. They’re the other three-fourths of the population. They are not holding enough liquid assets, so they’re just one paycheck away from a crisis. They do not have a diversified portfolio and aren’t benefitting from the stock market gains. They’ve got too much in the house, which has declined in value.

Q: What have you learned about young adults and their wealth – or lack of it?

Emmons: It jumps off the page in our analysis: It doesn’t matter if you’re white or college educated.  If you’re young, you’re vulnerable, and you’ve made the same portfolio mistakes as people with less education: low levels of liquid assets, too much in the house, an issue that is related to portfolio diversification, and more leverage. …Learn More

incentive

Do Incentives Create Lax Loan Standards?

The answer to the above question is definitely “yes,” according to new research by professors Sumit Agarwal at the National University of Singapore and Itzhak Ben-David at Ohio State.

They examined 30,000 small business loans made in 2004 and 2005 to compare the loans made by salaried bank officers with those made by officers working under a commission system.  The commissioned lenders were paid 80 percent of their former salary, plus commissions based on the number of loans they originated, their dollar amount, and how quickly they were approved.

Not surprisingly, the researchers found that commissioned officers, responding to these incentives, originated 31 percent more loans and the dollar amounts per loan were nearly 15 percent greater – they were also often larger than what their clients had requested. …Learn More

Group of young adults jumping

Money Habits Set Millennials Apart

Millennials, now in their 20s or early 30s, are ethnically more diverse and better educated than any previous generation.  They also demonstrate different financial behaviors that may partly reflect new trends in society and in technology.

Millennials’ financial struggles are a natural consequence of being new entrants to the labor force. Two-thirds of them earn less than $50,000 annually, and they are more likely than Generation X (now mostly in their 40s) to spend more than they earn, according to the FINRA Investor Education Foundation’s newly released survey of some 25,000 adults of all ages.

But FINRA’s survey provides clues to the financial habits that may set Millennials apart from previous generations:

Chart: Millenials and Their Student Loan Debt

  • More than one in three has taken on debt for college.  The share rises to half of Millennials who are either full-time or part-time students.
  • Millennials are slightly more likely than prior generations to be offered financial education and to participate in it. Millennial men have higher financial literacy than their female peers, but this gender gap has shrunk from prior generations. This improvement still might not offset the greater need for financial capability, due to their higher student debt levels. …

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