Posts Tagged "Social Security"

2 heads in illustration

Why Couples Retire Together – or Don’t

Married couples don’t necessarily know what the other spouse is thinking about retirement.

This insight came out of a new Fidelity Investments survey that asked some 1,600 people if they knew when their significant other planned to retire. Only 43 percent answered the question correctly. This disconnect reveals just how few couples are talking about retirement, said Fidelity spokesman Ted Mitchell, who worked on the survey.

Fidelity’s survey went out to adults of all ages, so the younger ones no doubt felt they’re too young to be thinking – much less talking – about what their lives will be like decades from now.

But things change as couples age. When retirement comes into sharper focus, it’s natural to start talking through the options – mine, yours, and ours.

One option is to retire around the same time, and prior research has shown that roughly half of older couples do so.

New research takes a more nuanced look at how couples retire and finds a more complicated picture.  Mixed arrangements are common in the pre-retirement years. Perhaps one spouse continues working full-time, even though their partner has retired, or one spouse might shift down to part-time work while the other is either still in a full-time job or has already retired.

Two sentiments are usually in conflict when older workers are trying to decide whether to retire: a longing for more leisure time and a need to bank more in savings, Social Security, and pensions.

Spouses often influence one another’s retirements for a variety of reasons, including their health, their relative ages, and how much each one likes their job. But financial security is usually a major consideration. …Learn More

Woman looking at mountains

A Proposal to Reduce Widows’ Poverty

A dramatic decline in widow’s poverty over a quarter century has been a positive outcome of more women going to college and moving into the labor force.

Bar graph showing percentage of povertyYet 15 percent of widows are still poor – three times the poverty rate for married women.

A new study by the Center for Retirement Research takes a fresh look at Social Security’s widow benefits and finds that increasing them “could be a well-targeted way” to further reduce poverty.

Widows are vulnerable to being poor for several reasons. The main reason is that the income coming into a household declines when the husband dies.  The number of Social Security checks drops from two to one, and any employer pension the husband received is reduced, or even eliminated if the couple didn’t opt for the pension’s joint-and-survivor annuity.

While one person can live more cheaply than two, the drop in income for new widows often isn’t accompanied by a commensurate drop in expenses.

Another issue begins to develop as much as 10 years before a husband dies. Prior to his death, his declining health may increase the couple’s medical expenses and reduce his ability to work, depleting the couple’s – and ultimately the widow’s – resources.

The irony today for wives who worked is that their decades in the labor force generally improve their financial prospects when they become widowed. Yet, under Social Security’s longstanding design, they receive less generous benefits than housewives – relative to the household’s benefits prior to the husband’s death. …Learn More

Gears

Longevity Affects Social Security Benefit

It’s long been known that people with high earnings tend to live longer than low earners. But this gap in life expectancy has widened into a gulf.

For example, high-earning men born back in 1912 lived about eight months longer than their counterparts in the bottom half of the income range. This longevity gap increased to five years for men who were born in 1941 and are now in their late 70s. The disparity for women is similar, but not as extreme.

This growing longevity gap has important implications for Social Security. The program’s intent is to be progressive – more generous to lower-income retirees.  But the unequal life spans have significantly reduced that progressivity, concludes Matt Rutledge in a new synopsis of research in this area for the Center for Retirement Research, which sponsors this blog.

The reason low-income workers are losing ground is that they don’t live as long, so they don’t collect Social Security for as many years as high-income workers do.

A study by the National Academy of Sciences, one of several demonstrating the decline in the program’s progressivity, found that the value of lifetime Social Security benefits, adjusted for inflation, increased nearly 30 percent for the highest-income retirees born in 1960, compared with the top earners born 30 years earlier. But benefits either fell or stagnated over that time for retirees on the lowest two tiers of the income scale – the people who rely far more on Social Security. …Learn More

The Marshmallow Test for Retirement

Walter Mischel, who used marshmallows to test children’s ability to delay gratification, died recently, but his lesson never grows old.

For those who aren’t familiar with his famous test, a young girl or boy sits at a table with a single marshmallow on a plate. The tester tells the child that he or she can eat the marshmallow right away, but waiting to eat it until the tester comes back into the room will bring a big payoff: a second sweet, puffy morsel.

Watching the children in this video squirm as they wrestle with their decisions brings to mind the adult equivalent. A desire for immediate self-gratification can come at the detriment of any number of personal financial decisions.

Like the marshmallow test, consuming now means having less money in the bank later.  The test also applies to deciding when to retire. Retiring becomes extremely tempting for baby boomers who want to escape from work after decades in the labor force.  But those who wait patiently for a few more years will have a sweeter retirement: a much larger Social Security check and more 401(k) savings distributed over fewer total years in retirement.

Children, when faced with the marshmallow test, struggle mightily to exercise self-control. They pick up the marshmallow to examine it, play with it, nibble it, and move it out of reach – but impulse gets the better of them, and they pop it into their mouths.

The lesson here is the same for children and adults: resist temptation and be rewarded. …Learn More

uphill battle

Why Less-educated Men Retire Younger

retirement age by educationMen with high school diplomas are retiring around age 63 – three years before college-educated men.  The gap in their retirement ages used to be smaller.

The reasons behind the current disparity are explained in a review of research studies on the topic by Matt Rutledge, an economist with the Center for Retirement Research.  The trend for women is similar, though their story is complicated by a sharp rise in their participation in the labor force in recent decades.

Rutledge provides four reasons that less-educated men are still the lion’s share of early retirees:

Health. Older Americans are generally getting healthier and living longer – so why not wait to retire? Well, the health of less-educated people is poorer and has improved less over time than their more-educated coworkers. And health problems trump unemployment and other types of job losses as the single biggest reason for their early retirements – more so than for better-educated workers.

Labor Market.  Two aspects of the labor market are relevant to less-educated workers.  In the past, a large share of the retiree population could count on a guaranteed monthly income from a pension. Today, the workers who have a retirement savings plan have an incentive to delay retirement, because they will have to rely on the often inadequate and uncertain income that can be withdrawn from their 401(k)s. But less-educated workers haven’t been affected very much by the change, because they’ve never been big beneficiaries of employer retirement plans. In the 1990s, they could claim just 11 percent of the value in pensions, and today they hold 11 percent of the wealth in 401(k) plans.

A second change in the labor market is plummeting U.S. manufacturing employment since the 1980s, which reduced the physical demands of work.  But myriad working conditions remain relatively poor for less-educated workers and are still a powerful reason for them to retire. …Learn More

airplane

Readers Like a Travel Twist on Finances

Two of our readers’ favorite articles so far this year connected difficult bread and butter issues – personal finance and retirement – with a far more pleasant topic: travel.

The most popular blog profiled a Houston couple scouting locations for a dream retirement home in South America, which has a lower cost of living.  Another well-read blog was about Liz Patterson, a young carpenter in Colorado who built a $7,000 tiny house on a flat-bed trailer to radically reduce her expenses – so she could travel more.

The downsizing efforts of 27-year-old Patterson inspired several older readers to post comments to the blog about their own downsizing. “From children’s cribs and toys in the attic, to collectible things from my parents’ 70-year marriage!” Elaine wrote. “Purging has been heart wrenching and frustrating and long overdue!”

The following articles attracted the most interest from our readers in the first six months of 2018. Topics ranged from 401(k)s, income taxes, and Americans’ uneven participation in the stock market to geriatric care managers. Each headline includes a link to the blog. …Learn More

hospital

Despite Medicare, Medical Expenses Bite

Medicare pays for the bulk of the medical care for Americans over 65, but a lot of their income is still eaten up by medical expenses.

The list of expenses is long. The lion’s share goes toward various insurance premiums – for Medicare Part B coverage, Part D prescription drug coverage, and supplemental insurance, whether Medigap, a Medicare Advantage plan, or employer health insurance for retirees. The remaining costs, for copayments and deductibles, are also significant.

These out-of-pocket costs, when added together, averaged about $4,300 annually per person, finds a new study by researchers Melissa McInerney, Matthew Rutledge, and Sara Ellen King of the Center for Retirement Research.

Out-of-pocket costs consume a third of the amount that retirees receive from Social Security, which is the most significant source of retirement income for a wide swath of the nation’s seniors, including many people in the middle-class. Half of seniors get at least half of all their income from the federal program.

The Medicare Part D prescription drug program has given some relief to retirees. After it became effective in 2006, the share of seniors’ income consumed by out-of-pocket costs declined slightly and then declined again after a follow-up reform of Part D began to close a big gap in drug coverage – known as the donut hole – in 2010. …Learn More

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