September 29, 2015
Don’t Worry About Money. Just Be Happy
The adage that money won’t buy happiness has been proved wrong – at least up to a point. One famous study found that one’s well-being increases as income rises, though the benefits subside around $75,000 per year.
But what about the reverse? Do people who are happy earn more money? Yes, say two British economists.
Their study in the Proceedings of the National Academy of Sciences concluded this after following American teenagers for a more than decade through the National Longitudinal Study of Adolescent Health. In 1994 and 1996, this survey asked high school students to react to statements like “You were happy” and “You felt hopeful about the future.” In a 2008 follow-up survey, when most of them were around age 30, they were asked how much money they were making.
People who reported having a happy adolescence earned about $3,400 more than the average gross income of all the survey respondents; the average was $34,642. However, the opposite effect was more consequential: young adults who had a “profoundly unhappy adolescence” were earning 30 percent less – equivalent to a $10,000 hit to their earning power. …Learn More
September 24, 2015
Changes to Reverse Mortgages Continue
The federal government continues to work out the kinks in its reverse mortgage program. The latest change allows a non-borrower to remain in her home after her spouse, who signed the reverse mortgage, has died.
The federal government established its reverse mortgage program in the 1990s to provide an alternative source of income for retirees over age 62. These Home Equity Conversion Mortgages (or HECMs) are secured by the equity in borrowers’ houses, and the loans are repaid only when they move or die. The loans are federally insured to ensure that borrowers get all the funds they’re promised, even if the lender fails, and that lenders are repaid, even if the value of the property securing the loan declines.
A June 2015 regulation effectively allows lenders to permit a surviving, non-borrowing spouse to remain in the home, postponing loan repayment until she moves or dies. To qualify, the original reverse mortgage must have been approved by the Federal Housing Administration prior to August 4, 2014, and the property tax and insurance payments must be up to date and other conditions met.
The spousal provision adds to earlier changes, detailed in a 2014 report by the Center for Retirement Research, aimed at improving the HECM program’s fiscal viability while protecting borrowers and lenders. These regulations were a response to riskier homeowners who had tapped their home equity to cope with the Great Recession. The regulations reduced the amount of equity that borrowers could extract upfront and also introduced financial assessments of homeowners to ensure they’re able to pay their taxes and insurance. …Learn More
August 11, 2015
Medicare Primer: Advantage or Medigap?
Traditional Medicare with a Medigap plan or Medicare Advantage? My Aunt Carol in Orlando wrestled with this decision for some five hours in sessions with her Medicare adviser, which she followed up with multiple phone calls – and a raft of additional questions.
“You have to ask these questions. You really have to think about it,” she said. “It’s confusing.”
Essentially every 65-year-old American enrolls in Medicare, and many get additional coverage. One form of additional coverage is through supplements to traditional Medicare, which include a Part D prescription drug plan and/or a Medigap private insurance plan to cover some or all of Medicare’s co-payments, deductibles, and other out-of-pocket costs. The other is through Medicare Advantage, a managed care option that typically provides prescription drug coverage and other services not included in the basic Medicare program.
So which to choose? Consumer choices have proliferated since private plans were added to Medicare 40 years ago. The typical beneficiary today has about 18 Medicare Advantage options, a multitude of Medigap plans for people who choose the traditional route, and 31 prescription drug programs, according to the Kaiser Family Foundation.
This primer is for new enrollees like my aunt. A future blog will provide suggestions from leading Medicare experts about ways to think about this important decision and the financial issues at stake.
The following compares the primary advantages and disadvantages of traditional Medicare and Medicare Advantage plans. But everyone is unique, and it’s impossible to simplify a process that requires each individual to research his or her best options, based on the severity of their health issues, their preferences and financial situation, and the policies available in their state’s insurance market. …Learn More
August 4, 2015
Tax Refunds Advanced to Low Earners
Things are looking up for Shirley Floyd of Chicago.
Her daughter just earned a college scholarship, and Floyd has landed a better job. The new job requires the 37-year-old to stand on a concrete floor, sometimes 10 to 12 hours a day, inserting automobile gaskets into cardboard sleeves for shipping. But her earnings, including overtime, are much larger than her $216 biweekly paychecks in 2014, when she was a part-time home health aide.
When Floyd was unable to keep her head above water last year, she received a financial lifeline from a program run by the Center for Economic Progress in Chicago. Under the pilot program, which was supported and funded by the Chicago mayor’s office and housing authority, 343 low-income recipients of the federal Earned Income Tax Credit (EITC) signed up for quarterly advances on their current year’s EITC payments, which they otherwise would have had to wait to receive the following year at tax time.
“It was an awesome program,” Floyd said about the advances, which always seemed to arrive at just the right time. “That pressure is relieved – for a little while. You’re able to do what you need to do.” She also believes quarterly payments are better than a large, one-time tax refund in February, because “the entire thing is gone” by March.
Under the Periodic Payment Pilot Program, low-wage workers with at least one child could get up to 50 percent of their estimated future EITC refunds as quarterly advances, up to a maximum of $2,000 per year. Floyd used her advances of nearly $400 per quarter to pay utility bills, rent, or her daughter’s tuition at a Catholic high school. …Learn More
July 16, 2015
Misconceptions About Social Security
It is the most important source of retirement income for most workers. Yet too many older Americans lack a basic understanding of certain aspects of Social Security benefits.
In fairness, many people got some key questions right in a survey that quizzed them about the program’s rules and incentives. But a significant minority, and sometimes a majority, revealed a poor understanding of several major features of the program. As the researchers note, misunderstanding Social Security benefits could lead to poor financial decisions about retirement.
They analyzed responses by more than 2,300 people – all between ages 50 and 70 – to a nationally representative survey administered online in 2008. The survey, which took about half an hour, started with basic demographic questions before moving to various questions about components of the Social Security program.
Brief explanations of some program features appear below, followed by the percentage of survey respondents who provided incorrect answers, according to the researcher’s analysis of the results:
- The U.S. Social Security Administration calculates pensions using a formula based on the average of a worker’s 35 highest years of earnings. This information is important, because each additional year of work could substitute current earnings for an early year of low earnings – or even zero earnings prior to the worker’s entry into the labor force.
68 percent were incorrect in their responses to a multiple choice question that included the correct calculation as one of four options.
- A married person who has never worked is eligible for a pension equal to half of her spouse’s “full retirement age” benefit if the non-working spouse claims at her own full retirement age, and a reduced benefit if she claims earlier. …
July 9, 2015
Financial Bonus of (Same-Sex) Marriage
Two important U.S. Supreme Court decisions in two years removed not only the obstacles to same-sex marriage but also most of the financial inequities couples faced.
The June decision upholding same-sex marriage opened up financial advantages of marriage that either had been completely unavailable to gay and lesbian couples or were complicated by marrying in a different state than the state in which they live. The decision came on the heels of the high court’s 2013 ruling against sections of the federal Defense of Marriage Act, a ruling that made Social Security benefits available to gay and lesbian couples in states that permitted them to marry.
In the wake of these decisions, “If marriage is an option and it makes sense emotionally for the couple, that’s also the best financial strategy,” said Sheryl Garrett, a certified financial planner in Eureka Springs, Arkansas.
There are disadvantages to marrying. Filing joint tax returns can mean higher income taxes or less financial aid for college-bound offspring. Nevertheless, Garrett, co-author of “Money without Matrimony: The Unmarried Couple’s Guide to Financial Security,” said the court rulings together make a compelling argument for marrying.
She provided Squared Away with five financial benefits of same-sex marriage listed below. They’re the same advantages that were always available to heterosexual couples who could produce a marriage license. …Learn More
June 25, 2015
Avoidance Comes with Financial Anxiety
Knowing how to budget or invest one’s retirement savings are useful skills. But managing money isn’t just about what you know – it’s also about how you feel.
That’s the gist of a handful of recent studies into a newly identified emotion known as financial anxiety. These early studies look at two things: 1) is financial anxiety real?; and 2) does it explain why people do things like avoiding money issues or going into debt to paper over their financial problems?
The evidence says yes to both questions.
A 2012 study established financial anxiety as an identifiable psychological condition that can be measured using a standard psychological test. The researchers gauged their subjects’ reaction times to pairs of words flashed on a computer screen – negative financial words (debt), positive financial words (jackpot), neutral financial words (bank), or anodyne control words (camp). The subjects were timed on how long it took to identify a word after an on-screen icon replaced one word in the pair.
When only the negative financial word was left on the screen, people with higher financial anxiety were slower to respond than when only the positive word was visible. The prevalence of longer delays for negative words suggests that most subjects had at least some financial anxiety. …Learn More