September 18, 2014
On Moms, Deadbeat Boomers, and Utopia
This blog has a single writer posting just two articles a week. So it’s impossible to keep up with all the news that crosses the transom.
But perhaps because the work world is gearing back up this fall, there have been a lot of interesting stories lately about financial behavior. Here are three worth noting:
Fatherhood adds to paychecks – motherhood, not so much. A new study estimates that women actually face about a 7 percent “wage penalty” for each child. So, having two children reduces a woman’s hourly wages by 14 percent, according to a new study out of the University of Massachusetts at Amherst. In contrast, annual earnings for fathers are about 8 percent higher than similarly situated men who have no children. This research sheds more light on the wage gap.
Baby boomers are having to pay off college loans they took out decades ago. Some 155,000 older Americans are now seeing deductions from their Social Security checks to pay their federal student loans – up from 31,000 a decade ago – according to the U.S. Government Accountability Office. Parents often co-sign loans for a child’s education, but the GAO report says that about three out of four dollars of boomers’ loan balances are for their “own education.” Baby boomers never borrowed the large amounts that today’s steep college tuitions demand. But what’s not discussed in the report is that the garnisheeing of Social Security benefits may be due to a cultural artifact of the 1960s and 1970s – when attitudes toward repaying student debt were, well, loose. Laws requiring repayment have become more stringent. …Learn More
September 16, 2014
Canadian Pension Reform: the Long View
Policymakers often worry that increasing government pension benefits won’t necessarily help retirees, if the reforms cause workers to change their behavior in ways that counteract them. For example, some workers might save less if they know pension benefits are rising, offsetting the income boost they’ll get from a larger pension.
However, researchers examining Canada’s pension reform over five decades confirm that they have materially improved the financial well-being of retirees there.
To reach this conclusion, Kevin Milligan of the Vancouver School of Economics and David Wise of Harvard University tracked the financial status of older Canadians from 1960 through 2010. They analyzed some 100,000 families between 55 and 80 years old using Canada’s Survey of Consumer Finances, the Survey of Labor and Income Dynamics, and the Family Expenditure Survey.
They conducted simulations to estimate what benefits would have been if no policy changes had been made since the 1960s. This simulation showed that the poverty rate, based on the incomes of Canadians from ages 70 through 79, would have been 34 percent. But today, in the aftermath of reforms, only 4 percent of older Canadian families are poor. [The researchers did a second simulation based on an alternative poverty measure: how much older Canadians spend on shelter, food, clothing and other goods. This also showed a decline in the poverty rate, albeit smaller.] …Learn More
September 11, 2014
Life Spans Not Falling for Less Educated
A September 2012 article on page one of The New York Times reported “disturbingly sharp drops” in life expectancy between 1990 and 2008 for Americans who do not complete high school – five years less for white women and three years less for white men.
This flatly contradicted past studies documenting rising longevity throughout the developed world. Much was also at stake in this dramatic new finding for U.S. retirement experts concerned about the growing financial pressures on retirees from what they’d assumed were virtually uninterrupted gains in longevity
Everyone wants to live longer, but it’s expensive. So who’s right?
In reaction to the 2012 study, a new group of researchers, funded by the U.S. Social Security Administration, took another run at calculating life spans and found that life expectancy is not on the decline for Americans with the least education.
The researchers, from the University of Michigan and Urban Institute, used the same data as in the 2012 study – U.S. Census data and National Vital Statistics. But they refined the statistical technique. One criticism of the prior paper had been its blunt measure of Americans with the least education, defined simply as those who had not graduated high school.
Yet the segment of the U.S. population that doesn’t graduate high school has shrunk dramatically, becoming an increasingly selective – and disadvantaged – group. That’s a change from the experience of people born a century ago for whom leaving high school to begin working or marry was the norm. …Learn More
September 9, 2014
How Much For the 401(k)? Depends.
How much must 30-somethings save in their 401(k)s to prevent a decline in their living standard after they retire?
No two people are alike, but the Center for Retirement Research estimates the typical 35 year old who hopes to retire at 65 should sock away 15 percent of his earnings, starting now. Prefer to retire at 62? Hike that to 24 percent. To get the percent deducted from one’s paycheck down into the single digits, young adults should start saving in their mid-20s and think about retiring at 67.
These retirement savings rates are taken from the table below showing the Center’s recent estimates of how much workers of various ages should save to achieve a comfortable retirement; they represent the worker’s contribution plus the employer’s contribution on their worker’s behalf. Expressed as a percent of their earnings, they also vary depending when a worker retires.
To derive these savings rates, the Center’s economists assumed that a retired household with mid-level earnings needs 70 percent of its past earnings. They then subtracted out the household’s anticipated Social Security benefits. The rest has to come from employer retirement savings plans, which determine the percent of pay required to reach the 70 percent “replacement rate.” …Learn More
August 19, 2014
Retirees Live on Less
Many recent U.S. retirees in a new survey receive less than two-thirds of what they earned during their working years, and they’ve made significant adjustments along the way.
That finding for baby boomers who’ve retired in the past five years is contained in a larger national survey conducted by T. Rowe Price, the Baltimore mutual fund company. The full survey covered some 2,500 working and retired individuals, age 50 and over. All of them have at least some savings in a 401(k) account.
The majority of the recent retirees reported their annual income is between $25,000 and $100,000. Social Security is the largest single source of that income, and smaller but equal shares come from defined benefit pensions and from retirement savings plans.
Many of the retirees report their households are managing to get by on less than the 70 percent to 80 percent of their pre-retirement income that most financial planners and retirement experts estimate they need. And four out of 10 are living on 60 percent or less.
The retirees surveyed said they’ve had to lower their living standards, and four out of 10 described their situation as adjusting “a great deal.” …Learn More
August 7, 2014
An Anti-Retirement Advocate
At 89 years old, retirement is one of the few things that has not made it onto Robert E. Levinson’s vita.
Levinson almost single-handedly seems to be trying to start an anti-retirement movement. He feels so strongly that he once wrote a book titled, “The Anti-Retirement Book.”
“I just feel very strongly that one should never retire, or if they’re forced to retire they should try to find something productive to do,” he said.
Though not wealthy, Levinson is one of the lucky Americans. The long-time businessman and fund-raiser for a Florida college is college educated and said he is comfortable financially. But when he looks around his luxury senior community in Delray Beach, he sees pain and regret. Many residents seem idle. For example, a retired physician sits in the lobby waiting for people to drop by and consult him on their ailments. …Learn More
July 24, 2014
Retirement Research Sessions: Aug. 7, 8
Which idiosyncrasies affect the decision to retire? What’s driving the widening longevity gap between high- and low-income Americans? Are workers’ retirement savings really falling short, and is working longer good for your well-being?
These are among the research topics that will be presented two weeks from today at the 16th annual meeting in Washington D.C. of the Retirement Research Consortium, which receives support from the U.S. Social Security Administration. The agenda and details about the Aug. 7 and 8 meeting can be found here. Register to attend in person – it’s free – or view the meeting online in real time.
The consortium’s members are the Center for Retirement Research at Boston College (which supports this blog), the University of Michigan Retirement Research Center, and the NBER Retirement Research Center.
In coming weeks, the Squared Away Blog will cover some of the studies presented at the meeting. …Learn More