Nursing Homes: Why They Cost So Much

One of retirees’ biggest fears is that they will have to go into a nursing home. This fear isn’t just psychological – it’s also financial.

Roughly half of older Americans will find themselves in a nursing home at some point, according to a 2015 estimate. These stays usually last months, but sometimes years, and the costs add up quickly for those who have to pay for them out of their own pockets.

At an average price of at least $225 per day for a semi-private room, a nursing home stay can put a big dent in retirees’ savings.

A new study in the journal Medical Care Research and Review on how much seniors pay out-of-pocket for facilities in eight states – California, Florida, Georgia, New York, Ohio, Oregon, Texas, and Vermont – found that prices across the board are rising at about two times the general inflation rate.

Some of the fastest price increases are in California and Oregon – 5 percent to 6 percent a year. There is also a large disparity between high- and low-cost states: the price tag for a typical New York nursing home is more than double the cost in Texas.

Yet little is understood about what’s behind the disparities. In this study, conducted for the Retirement Research Consortium, the researchers begin to uncover some of the things that determine whether an individual happens to live in a high-cost state.

One factor affecting the prices is the competitiveness of each nursing home market, which works in ways one would expect. When a small number of operators dominate in local markets, they can charge more. The results also suggest that prices are higher in markets where limited competition is combined with a high demand for beds.

Another important factor is who owns the nursing homes, and each state has a different mix of private and non-profit chains and smaller operators. For-profit companies own about 70 percent of U.S. nursing homes. More than half of the for-profit facilities are chains, and these chains charge the lowest prices.

The non-profit chains are the most expensive. Their prices, adjusted for staffing levels, location and other facility-level factors, are about 6.6 percent more than the for-profit chains – or about $4,160 more annually – the study found. …Learn More

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College Graduates Cope with Money

College upperclassmen and recent graduates have a lot on their minds. One thing they don’t always like to think too hard about is money.

Maggie Germano

But Maggie Germano, a financial coach, encourages them to get things out in the open and talk about it. At a recent personal finance session here at Boston College, she answered students’ questions about their credit ratings, student loans, and how to avoid spending money they do not have.

Here are the five best tips from Germano, a 2009 graduate of the State University of New York in Fredonia. She now lives in Washington D.C.

Pay attention. The first step to getting control of one’s finances is to pay attention to them, she said. Not dealing with credit card bills and student loan statements doesn’t make the problems go away. “The opposite is true: the more you pay attention, the more in control you’ll be,” she said.

Get a credit rating – or fix it. The key is to have a credit card but use it judiciously. Germano advises young adults to get what’s known as a secured credit card with a low spending limit – say $500. Secured credit cards typically require users to put up a cash deposit. To slowly establish a sound credit history, spend no more than 30 percent of the card’s limit and pay it off at the end of each month.

Student loans are hard work. Germano said that, after she graduated, her rent and student loan payments equaled all of her income. She signed up for the federal government’s income-based repayment program. In this program, the government reduces the payments to reflect the low incomes many recent graduates are earning at the start of their careers. Germano said she paid off her $26,000 loan balance off about four years ago.

Quote by Maggie Germano

The secret to not overspending. She learned this trick from a client. Set up two separate checking accounts. One account is for paying monthly bills – rent, Netflix, electricity – and the payments are deducted automatically. For all other spending, use a second account with a debit card and “don’t touch” the money in the first account. Using a debit card for discretionary expenses makes it easy to keep track of how much is left to spend each month – maybe it’s better to walk than take another Uber.

“It’s very human to want new things, be social, and spend money you’ve never had before,” she said. So put “systems into place that will prevent [that] from getting out of control.” …Learn More

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Workers, Machines and Constant Change

Anyone who drives on the nation’s toll roads has used a job-eliminating device: electronic tollgates.

Unemployment due to new technologies – and workers’ resistance to them – are as old as the industrial revolution. In the early 1900s, glassblowers were replaced by mechanized bottle makers. Today, autoworkers are no longer necessary to bolt car parts to carriages – robots do it with speed and precision. Toll takers are the latest disappearing breed.

Workers who lose their jobs to progress face painful transitions, and pessimists throughout history have warned about technologies increasingly rendering human effort obsolete. Indeed, jobs can seem to vanish overnight after an entire industry or occupation adopts a laborsaving machine, presenting displaced individuals with difficult choices. They must either invest in a new skill or move into a low-skill, lower-paying job.

But in the long arc of history, technology is continually creating new jobs to replace the old ones.

“The cycle of job destruction and creation has produced a labor force where, over the long run, workers have generally found jobs – albeit jobs that largely did not exist 100 years ago,” concludes the Center for Retirement Research in the first of three reports on technology’s impact on older workers for the Retirement and Disability Research Consortium.

The changing nature of work encourages new forms of growth by expanding the economic pie.  For example, about a third of U.S. workers used to be on the farm before being largely replaced by agricultural machinery like combines and threshers, the report said. But during and after World War II, new technologies adopted by industry supplied manufacturing and office jobs to the farmers who had migrated to the cities to work. Wages rose and the economy grew rapidly during this period of unprecedented abundance.

Another way that technology helps the economy is by making goods cheaper to produce and buy, freeing up demand for other products. For example, Americans spend 15 percent of their budgets on food – less than half of what they spent in 1900 before farms became fully mechanized. More money for cell phones. …Learn More

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Happy Thanksgiving to All!

Whether you’re having Thanksgiving with family or your celebration will take the form of a Friendsgiving, the staff at Squared Away and the blog’s sponsor, the Center for Retirement Research at Boston College, wish you a wonderful holiday. …Learn More

The Art of Persuasion and Social Security

Retirees could get substantially more in their Social Security check if they would just wait longer – up to age 70 – to sign up.

Bar graph showing Social Security claiming agesBut only a tiny fraction of workers make it to 70, and more than a third get the minimum monthly benefits because they start them as soon as the program allows, at 62. A Bocconi University professor and three UCLA professors have set about trying to change minds by testing 13 ways of encouraging older workers to hold off and lock in a larger Social Security check.

The techniques, which they tried on various groups of workers between ages 40 and 61, ranged widely in approach. But two of the most successful tests had one thing in common: participants were asked to engage in a little reflection about the personal impact of choosing when to start receiving their Social Security. This approach departed from the more common strategy of trying to influence people by feeding them financial or other information.

Everyone began the same way: they saw a table showing how much more they would receive from Social Security for each year after 62 that they delayed. One of the most effective tests was an exercise in self-reflection. The participants were asked to list “their own reasons” for how delaying would help them personally. Only after this step did they list the reasons to start their benefits at a younger age.

The order of these requests was intentional and intended to counteract the tendency by most people to focus on their short-term desires. This group reported that they intended to sign up 10 months later than the control group, which wasn’t exposed to the test, according to the study conducted for the Retirement Research Consortium. …Learn More

Oldest Women, Often Poor, Need a Hand

In this video, Elena Chavez Quezada introduces two working women in her family who didn’t get a fair shot at a comfortable retirement.

Her mother-in-law, a single mother and immigrant from the Dominican Republic, pieced together a living for herself, her parents, and her children. She never had a 401(k) or owned a house. Each time she built up a little savings, an emergency depleted it. Now in her 70s, she is supported by her son and Quezada.

Quezada’s aunt possessed the personality of a chief executive but worked as a housekeeper and sold snow cones and hot dogs at her husband’s stand in Albuquerque. After his death, she worked well into her 90s as a receptionist for a hair salon.

The goal for retired women like them should be “to age comfortably and with dignity,” said Quezada, a senior director for the San Francisco Foundation, which supports communities in the Bay area.

That’s very difficult for many older women to do. They have less wealth, and although their poverty rate has declined, women – many of them widows – still make up the vast majority of poor people over 80. This is rooted in part in their years as working women, when they earned less. Women are also the majority of single parents raising their families on a single paycheck.

A lack of a retirement plan is a common problem. More than half of the women employed full-time or part-time in the private sector are not saving in a retirement plan at any given time. …Learn More

Unbalanced scales

Social Security Eases Racial Disparities

Social Security is a major source of income for most retirees. It is even more important to blacks and Hispanics in a nation that is becoming increasingly diverse.

Social Security is helping to even out the racial and ethnic inequities in income and wealth that exist in the working population and continue in old age, according to a study by the Center for Retirement Research for the Retirement and Disability Research Consortium.

The researchers estimate how much Social Security reduces this inequality by comparing retirement wealth for white, black, and Hispanic-Americans.

Wealth is defined broadly to include obvious things like home equity and financial assets such as 401(k) retirement accounts, certificates of deposit, and money market accounts. In addition, the researchers converted the income that workers get from Social Security and defined benefit pensions into wealth by estimating the total value today of their future benefit checks.

The estimates of wealth, when Social Security is excluded, reveal enormous disparities. The typical white worker in his early- to mid-50s can expect to have about $177,000 in non-Social Security wealth in retirement, compared with just $24,000 for blacks – about a 7 to 1 ratio. Hispanics have $35,000 – or a 5 to 1 ratio.

These ratios improve dramatically, dropping to roughly 2 to 1 when Social Security is added in. The white worker has $378,000 in total wealth, compared with $173,000 for blacks and $186,000 for Hispanics.

Social Security’s progressive benefit formula reduces retirement inequality by replacing more of the income of lower-paid workers. The program also provides nearly universal coverage, whereas many workers do not have access to retirement plans at work. These features help black and Hispanic workers, who tend to have lower incomes and are also less likely to have retirement plans.

“Social Security is the most equal form of retirement wealth and the most important source for most minority households,” the researchers conclude. …Learn More