October 20, 2016
Your Social Security: 35 Years of Work
This blog is for a part-time Macy’s saleswoman and immigrant whom I met in a hospital waiting room – she’d never heard of Social Security.
It is also for a 22-year-old contingent worker I know who lacks steady employment and isn’t regularly accruing credit toward the Social Security pension he will probably need when he retires.
And it is for a 62-year-old eager to claim his benefit right away, possibly short-changing his retirement.
A substantial share of retirees would fall into poverty were it not for the Social Security program passed during the Great Depression. It’s especially important for two groups of people to understand how Social Security calculates their pension benefits: young adults making employment decisions that will impact them decades from now and older people figuring out when to retire.
Yet research shows that many people do not know the basic workings of a program that is crucial to their financial security.
Steve Richardson, a Social Security official in Boston, holds regular seminars to explain the pension program to the public. “The first thing I ask is – before I say my name – ‘How many people in this room know how many years Social Security looks at to determine your pension payment?’
“Not many of them know it’s your high 35 years of earnings.”
To qualify for a pension benefit at all, a person must work full- or part-time for 40 quarters – a total of 10 years. That’s not a difficult hurdle for most to clear during decades in the labor force. What’s central is the size of your future benefit check, which is determined by your highest 35 years of indexed earnings, Richardson said – and that brings us to the math thing. …Learn More
September 27, 2016
Annuities Have Real Value
The value that annuities can provide to retirees may not be obvious, but it is real.
Annuities are also becoming increasingly valuable as fewer people have that traditional source of reliable retirement income: an employer pension.
Insurance company annuities, like pensions, pay out a monthly income no matter how long you live. These payments come from three sources: 1) the initial amount invested to purchase the policy; 2) the interest earned on the amount that’s invested before it is paid out; and 3) “mortality credits.”
These mortality credits are the essential element that protects retirees from outliving their savings. As a retiree moves through her 80s, a growing share of the other people in the annuity pool die. The funds they leave behind in the pool are used to continue making monthly payments to those who are still living.
This is the starting point for a new summary of academic research on annuities by the Center for Retirement Research at Boston College, which supports this blog. To fully understand the individual studies, it’s necessary to read the report. But here are some takeaways: …Learn More
September 22, 2016
Seniors Enjoy More Disability-Free Years
Persistent increases in U.S. life expectancy are widely recognized. But if we’re living longer, what’s also important is whether those additional years of life are healthy years.
Even using this higher standard, the news is good.
A 65-year-old American today can expect to live to about age 84 – or about one year and four months longer than a 65-year-old in the early 1990s, according to a new study. But there was a bigger increase – one year and 10 months – in the time the elderly enjoy being free of disabling medical conditions that limit their quality of life.
The researchers, a team of economists and biostatisticians at Harvard, pinpointed two conditions that are the dominant reasons the elderly are remaining healthier longer: dramatic declines in cardiovascular conditions in the form of heart disease and stroke, and improved vision, which allows seniors to remain independent and active.
The study used medical data from a Medicare survey that asks a wide range of questions about the respondents’ ability to function and perform basic tasks. The researchers found a decline in the share of seniors reporting they have some sort of disability – to about 42 percent currently – and most of this decline occurred during the final months or years of a person’s life.
They also tried to identify the primary reasons for the health improvements, though they were cautious about these results. Heart attacks and strokes are major causes of death in this country. But cardiovascular disease is being treated aggressively – with statins, beta-blockers, even low-dose aspirin – and the treatments might have reduced mortality and the prevalence of heart attacks. …Learn More
September 13, 2016
Parents’ Dilemma: Kids Who Don’t Launch
Karen James and John Kingrey remember very clearly breaking the news to their Millennial son that they would no longer support him.
After struggling through his first year in college, Michael was sitting on his parents’ bed tossing around whether or not he should join the U.S. Navy. “I said, ‘You don’t have to join the Navy, but you’re not living here. And winter’s coming,’ ” Karen James recalled.
And then she thought, but did not say, what many parents before her have thought about the offspring they love: “You’re not living here doing nothing.”
Easing their son out the door in the run-up to the couple’s 2014 retirement “was one of the toughest things we ever did,” John Kingrey said. Their son’s story had a happy ending.
But more parents than ever are being torn between supporting adult children who haven’t yet launched and getting ready for their own fast-approaching retirement. Record numbers of 18- to 34-year-olds are living with their parents, a result of later marriages and a tough job market for that age group.
I am not a parent and am unqualified to write this blog from their perspective. But as a cold financial calculation, supporting a 20-something is problematic for older parents at a time that nearly half of U.S. baby boomers are at risk that their standard of living will decline after they retire.
With little time left to prepare, the most effective thing people in their 50s or early 60s can do is plan on delaying retirement, which sharply increases the size of a monthly Social Security check. But paying down a mortgage faster or putting more money into a 401(k) retirement plan is also a good idea.
“You shouldn’t be helping them if you want to put more money into your retirement,” says Minnesota financial planner Mark Zoril. But he’s quick to add that getting tough on offspring isn’t easy for parents – or their advisers. “It’s a pretty difficult [conversation] to have with your client.” …
September 8, 2016
Women Often Quit Work to Help Parents
Here’s just some of the evidence of the enormity of the challenge of caring for our elderly parents:
- One in three baby boomer women cares for an elderly parent.
- Even if they work, these caregivers devote anywhere from eight to 30 hours per week to that parent.
- The estimated value of informal senior care provided by family members approaches $500 billion in this country – or double the amount spent on formal, paid care.
Caring for an elderly parent is usually done with love or out of a feeling of familial obligation. But there are real costs to taking on this responsibility, which most often lands squarely on a daughter’s shoulders. These costs could come in the form of lost wages and employer health insurance or in sacrifices of future pay raises or promotions. It’s also more difficult for older women to find a new job if they drop out of the labor force to help an ailing parent.
According to preliminary findings in a new study that used 20 years of data, taking care of a parent does significantly reduce the chances that women in their early 50s to early 60s are working. Interestingly, the number of hours devoted to caring for a family member do not seem to affect women’s decisions about whether or not to work (though the researchers plan to revisit this finding).
But Sean Fahle of the State University of New York in Buffalo and Kathleen McGarry of UCLA said caregivers “may simply leave a job in order to provide care.” Their paper was part of a series presented at the National Bureau of Economic Research this summer. …
September 6, 2016
Wives Pay Price to Retire with Husbands
Wives like to retire around the same time as their older husbands – so they can play. But what a difference the baby boom generation has made.
For boomer wives, as members of the first generation of women to enter the U.S. labor force en masse, there can be a steep cost to leaving the labor force at a relatively young age to retire with an older husband. New research by Nicole Maestas of the Harvard Medical School bears out this logic.
It’s obvious that working wives can increase their earnings from work by resisting the urge to retire at a relatively young age. And married women generally earn much more, relative to their husbands, than in the past.
But, more often than their mothers and grandmothers, boomer wives can increase their own Social Security benefits by continuing to work.
To understand how this works, compare boomers with their grandmothers. Their grandmothers were probably housewives for most of their lives and worked sporadically or part-time. As a result, their husbands’ earnings determined the size of the spousal retirement benefits they received from Social Security.
The situation is very different for boomer wives, who often have worked enough to earn their own benefits and wouldn’t qualify for a spousal benefit. Social Security calculates their benefits, as they do for all workers, using the average of her highest 35 years of earnings. But here’s the rub: many boomer mothers still haven’t accumulated 35 years of substantial earnings, because they took some time off or worked part-time to raise children. …
September 1, 2016
Finances Change with US Family Structure
- One out of every 10 Generation X mothers is single – many more than in the generation born during World War II.
- Nearly two-thirds of single older people are the survivors of divorce – far more than in the past.
- About one in three couples has moved away from their hometowns and from both of their mothers – blame this geographic mobility on the growing share of U.S. workers who are college educated.
These are just a few of the dramatic changes in U.S. family structure and behavior that have developed over the past half century. These changes have had enormous financial consequences for everyone, especially women.
Squared Away has documented some of the financial impacts in previous blogs. A Lucky 7 such blogs, most of them based on studies by the Retirement Research Consortium, are summarized below (with links to each one):
- Women are having babies five years later, on average, increasing their earnings substantially over their lifetimes.
- About half of Americans don’t live near their mothers, creating new pressures for caregivers. This video explains who they are.
- In the aftermath of divorce, many women figured out how to rebound in the labor force and earn more.
- But when it comes to retirement preparedness, a doubling in the divorce rate since 1990 has put more baby boomers at a financial disadvantage.
- Stepchildren, divorced parents, blended families – the structure of the parent-child relationship has grown more complex, and so have the parents’ wills. …