Edward Cash would really rather spend his hard-earned paychecks from the Memphis Police Department on his daughter than on humdrum necessities like student loans, replacing a broken-down car, or saving.
“I need money, as much money as I can to take care of this new human in my life,” Cash said about 4-year-old Kirby.
Of course, he and his wife, Ashley Cash, a Memphis city planner, pay their bills, in between doting on Kirby. But college loans are different: they get help. The city government pays down $50 a month on each of their loan balances – as it does for some 600 employees.
In May, Memphis joined Fortune 500 companies in the vanguard of employers offering this benefit, including to its police force, which requires some college education, and the fire department, where time in college is not required but also not uncommon.
With college debt exceeding $1.4 trillion nationwide, help with student loans appeals to young employees, who say in surveys that paying them off is their No. 1 financial priority. Recognizing this, major employers are using the tuition benefit to recruit talent, including Fidelity Investments, Live Nation, Natixis Global Asset Management, Pricewaterhouse Coopers, and Staples Inc., according to company and media reports. …Learn More
Hilarious examples of “instant garbage” are offered up in this Portlandia clip by the show’s characters, Bryce Shivers and Lisa Eversman (played by Fred Armisen and Carrie Brownstein).
The price point for an unwanted consumer product that becomes instant garbage is $4.99. “We found the exact point between price and hassle that guarantees you won’t bother returning” the product, Eversman explains in the video below.
Is the following theory a stretch? There seems to be a direct line between Americans’ relentless buying of stuff we do not need and our inadequate attempts at saving money.
Try walking into a craft superstore or browsing Target’s $1 shelf and suddenly imagining the stuff all piled up at its ultimate destination, the local landfill.
Then walk back out and save the money for retirement.
The typical baby boomer couple had $135,000 in retirement savings last year, up from $111,000 in 2013 amid a rising stock market and a strong job market that has kept them employed, according to a report on the new Survey of Consumer Finances (SCF) by the Federal Reserve.
Yet $135,000 – the balance for working couples who have a 401(k) – won’t go very far. This amount, held in both their 401(k)s and IRAs, will generate about $600 per month, said the SCF analysis by the Center for Retirement Research, which supports this blog. That’s obviously not enough to supplement most retirees’ primary source of income: their Social Security benefits, which are slowly eroding for various reasons. The purchasing power of the $600 will also be eroded by inflation over time.
Another way to assess retirement preparedness for 60-year-olds couples hoping to retire in five years is that they need assets equal to 8.5 times their household income at age 60. They actually have around 2.5 times income, on average, the researchers found. This assumes a replacement rate of 75 percent, a reasonable target for how much of a working couple’s income they will need to maintain their standard of living into retirement.
It’s Halloween today, and here is more evidence of just how scary Americans’ retirement prospects are: the $135,000 applies only to older people with retirement savings – about half don’t have a retirement plan at all at work. … Learn More
Behavioral economist Richard Thaler, winner of the 2017 Nobel Prize for economics, regards his field’s greatest contribution as showing that people are more likely to save if the saving happens automatically.
“I’m all for empowerment and education, but the empirical evidence is that it doesn’t work,” he said in a 2015 Wall Street Journal interview. “That’s why I say make it easy.”
To make saving for retirement easier, employers have increasingly turned to automated 401(k)s. Automation has taken two basic forms. The first, automatically enrolling each employee, is pervasive and has had notable success in increasing participation in retirement savings plans. The second form, automatically increasing the amount employees save – a concept originated by Thaler and economist Shlomo Benartzi – is catching on. It’s hoped that the second will correct a problem created by the first.
Last year, 45 percent of Vanguard’s client base used auto-enrollment plans, according to its “How America Saves 2017” report. Historically, employees were asked to enroll in their employer’s 401(k). Today, more employers are – as Thaler would say – “nudging” workers by automatic enrolling them, usually when they are hired. Although they then have the freedom to opt out, inertia tends to keep them in the plans.
Participation in all types of 401(k)s has roughly increased in lock-step with the spread of auto-enrollment. Last year, 79 percent of workers participated in Vanguard-administered plans, up from 68 percent a decade ago, when a new federal pension law made auto-enrollment more appealing to employers.
The irony, however, is that while auto-enrollment encourages more people to save, Vanguard partly blamed a 2016 drop in employee contributions on their popularity. The average employee contribution in all types of 401(k) plans declined from 6.9 percent in 2015 of pay to 6.2 last year, well below the 7.3 percent rate prior to the Great Recession, according to Vanguard. … Learn More
The unemployment rate is an incredibly low 4.4 percent, and a Federal Reserve survey released last week shows that American households’ net worth is increasing.
Yet all is not well.
One in three Americans say they are suffering financial hardships, and another third report they are making it but aren’t exactly thriving. One in five struggles to cover what is most basic: food, housing and medical care. These new findings, which came out of a report by the federal Consumer Financial Protection Bureau (CFPB), aren’t about economists’ traditional, objective measures of security, income and wealth levels. This is about how people are feeling about their financial state of affairs.
The common, everyday financial distress expressed in the report is one marker of the familiar socioeconomic chasm that persists in this country. The CFPB highlights the most significant – and unsurprising – differences separating the secure from the struggling: education and income levels, the presence of health insurance, and how much of one’s budget is consumed by housing costs. “Access to jobs, benefits, sufficient income, and family resources likely play a major role in a person’s financial well-being,” the CFPB said.
But it’s also more complicated than that. For example, some lower-income people might, despite their challenges, be able to find their comfort level, CFPB said, while not all higher-income people do. One thing the survey can’t get at is the extent to which feelings of financial security or insecurity are being influenced by how Americans are doing relative to co-workers or people in their communities.
The agency used answers to its 2016 survey to assign financial well-being scores, ranging from 0 to 100, to nearly 6,400 participants. The findings are summarized in a new report.
Myriad factors influence how individuals feel, sometimes leading to surprising results in the CFPB report: …Learn More
Workers usually don’t know the difference. Yet employers increasingly are asking them to choose. Nearly two-thirds of private-sector employers with Vanguard plans today offer both a traditional and a Roth 401(k) in their employee benefits. Just four years ago, fewer than half did.
For tips on navigating the traditional-vs-Roth decision, we interviewed two members of the American Institute of CPAs: Monica Sonnier is an investment adviser in the Salt Lake City, Utah, area; and Sean Stein Smith is an assistant professor in the economics and business department at Lehman College in New York.
The difference in the two types of plans is the timing of federal income taxes:
In a traditional 401(k), a worker who contributes to his or her account will see taxable income reduced by the dollar amount of the contribution. For example, contributing 6 percent of a $30,000 annual salary ($1,800 per year) means the worker pays federal income taxes on just $28,200. The taxes will be paid decades later, when the IRS will require the retiree to pay income taxes on the amounts withdrawn from the traditional 401(k).
In a Roth, a worker pays income taxes on his or her full $30,000 salary, as usual. The 6 percent is an after-tax contribution that does not reduce the tax bill. The benefit will come decades later, because a Roth does not require the retiree to pay income taxes when the savings – including the Roth account’s investment earnings – are withdrawn.
If a retiree is taxed at the same rate as he was taxed as a worker, there is no difference in the after-tax retirement income the two 401(k) plans provide. However, traditional 401(k)s have generally been viewed as more advantageous, because people typically have lower incomes – and lower tax rates – in retirement than when they were working.
But things might also be changing. Over the long-term, increasing federal deficits due to increased spending pressures from popular programs to support aging baby boomers are expected to push up individual income tax rates. When that occurs, many retirees might be better off with a Roth so they won’t be taxed when they withdraw their savings.
Of course, each individual’s or couple’s tax situation is unique. Given all these caveats, here are the accountants’ rules of thumb for deciding between a traditional and Roth 401(k): …Learn More
When it comes to wealth, Asian-Americans aren’t much different than whites. The typical household’s net worth is around $133,000 in each group, and about 10 percent have no wealth at all.
And like white America, Asian-American inequality is high and rising. Asian-Americans ranking in the top 10 percent (in terms of their wealth levels) have $1.45 million in savings and home equity – about 170 times more than those in the bottom 20 percent. In the 1990s, the top 10 percent had 75 times more wealth.
Given this high concentration of wealth, “many Asian Americans, especially Asian American seniors who need to live off of their savings, live in an economically precarious situation,” according to a Center for American Progress study in December. The Urban Institute in a newer study concluded that “Asian American seniors are often left out of the national conversation on poverty.”
A deeper analysis reveals the dynamics at work in this rapidly growing and diverse socioeconomic group.
The timing of immigration is key to socioeconomic status. The Japanese, who came to this country in large numbers in the early 1900s, have had plenty of time to improve their lot. A new report by the Federal Reserve Bank of San Francisco, focused on the Los Angeles area, found that people of Japanese descent are, by far, the wealthiest segment of the Asian community there. Remarkably, the median household’s net worth approached $600,000 in 2014.
Immigration from Korea, by contrast, didn’t pick up steam until the 1980s and 1990s. Not surprisingly, the typical Korean household lags behind, with about $25,000 in wealth. But that could be changing: one in five Koreans owns a business, the highest rate of business ownership for Asians in the Los Angeles area.
Inequality also emerges between generations in upwardly mobile Asian-American families. … Learn More