Screenshot of SS statement

Social Security Statement Has Impact

When a Social Security statement comes in the mail, most people do not, as one might suspect, throw it on the pile of envelopes. They actually open it up and read it.

But are they absorbing the statements’ detailed estimates of how much money they’ll get from Social Security? RAND researcher Philip Armour tested this and found that the statement does, in fact, prompt people to stop and think about retirement: workers said their behavior and perceptions of the program changed after seeing the statement of their benefits.

The study was made possible after Social Security introduced a new system for mailing out statements. Workers used to get them in the mail every year. In 2011, the government took a hiatus and stopped sending them out. The mailings resumed in 2014 – but now they go out only before every fifth birthday (ages 25, 30, 35 etc.).

Armour was able to use the infrequent mailings to compare the reactions of the workers who had received a statement with those who had not during a four-year period, 2013-2017.

The statements bolstered their confidence that they could count on Social Security when they retire. More important, receiving them in the mail spurred some people to work more. To be clear, this is what they said – it isn’t known what they actually did.

Those who had been out of the labor market were much more likely, after getting a statement, to say they had returned to work. Working people under age 50 increased their hours of work.

Social Security benefits, on their own, usually are not enough to live on in retirement, and half of U.S. working-age households are at risk of falling short in retirement. But unfortunately, the study wasn’t able to detect another critical aspect of their retirement preparation: saving. …Learn More

Photo of a waitress

When Your Health, Job Demands Clash

Home health aides, nurses, teacher assistants and servers do a lot of lifting or standing for long periods, which takes a toll on their bodies.

For a middle-aged waitress, it might be a bad knee. For a baby boomer caring for an elderly person, it might be the strain of lifting a patient out of a chair.

In a new study, researchers calculated the percentage of workers who cite health-related obstacles to performing their jobs for nearly 200 occupations. A ranking of these percentages proved a fairly reliable indicator of what one would expect workers to do. Workers in the occupations with the largest share of people having difficulty performing their jobs were more likely to quit work and file for Social Security Disability Insurance (SSDI).

The chart below shows the occupations with the highest percentages of health-related obstacles. For example, some of the most hazardous jobs are welders and brazers, who assemble equipment made of aluminum. …Learn More

Photo of mom and daughter

Moms Help Jobless Sons and Daughters

“Families often serve as the first line of defense against adverse events,” a RAND study starts out.

In this case, the researchers are talking about a mother who protects her unemployed adult child by providing financial assistance, a request that’s not easy for a mother to resist.

RAND researchers Kathryn Edwards and Jeffrey Wenger find that women of all ages are very likely to help out and “significantly alter their behavior” when a son or daughter loses a job.

How much mothers’ sacrifices affect their standard of living are beyond the scope of this study. But although unemployment is at historic lows today, when a child does lose a job, a mother who provides assistance is potentially exposing herself and her husband to financial problems down the road.

The types of the assistance the women in the study provided varied for different groups. The youngest group, working-age mothers between 35 and 62, were the most willing to help an unemployed child, though women of all ages did to some extent.

Mothers employed full-time, and in some cases their partners or husbands, worked more to earn additional money, an option largely closed off to the retired women. Another way working mothers adjusted was to reduce their contributions to employer retirement funds. All of the women also cut their own food budgets for a year or more.

This study is a conservative take on their assistance, because it doesn’t include an indirect, but often costly, source of support that is an obvious solution for unemployed offspring: moving back home. Moving back in will, at minimum, increase their parents’ utility and grocery bills. …Learn More

Vignettes Improve Social Security Savvy

Screenshots of Social Security videosThere’s an informal rule in journalism: put too many numbers in an article, and readers will drop like flies. A similar phenomenon might also be at work when someone looks at a Social Security statement filled with numbers.

The statement, which is intended to help workers plan for retirement, shows the size of the monthly benefit check increasing incrementally as the claiming age increases. Yet many people still choose to claim their benefits soon after becoming eligible at 62, which means smaller Social Security checks, possibly for decades.

In a recent experiment, a friendlier approach proved effective in helping people process this information: tell a story.  Researchers at the Center for Economic and Social Research at the University of Southern California created a fictional 3-minute video of a 62-year-old man talking with a financial adviser about retirement. The researchers showed it to workers between 50 and 60 years old.

Here’s one exchange in the video:

Adviser: [Social Security has] a tradeoff: you can decide to claim earlier. In that case, you would have a lower monthly benefit, but you’d get to enjoy these benefits for a longer period.

Worker: So if I claim sooner, I get less money per month?Learn More

Logos of various gig companies

Self-employed Lose Some Social Security

Self-employed and gig workers who fail to report all of their earnings to the federal government will pay a price: a smaller monthly Social Security check when they retire.

Gauging the magnitude of this problem is tricky since the IRS doesn’t know how much is not being reported by a group of workers not easily identified in the available data. As a first step, new research derived estimates of the unpaid self-employment taxes that result from the under-reporting, using a combination of U.S. Census data on the workers’ incomes and past studies on the prevalence of the problem.

Specifically, the researchers found that more than 3 million self-employed people – construction contractors, small business owners, and other independent contractors – did not disclose some or all of their earnings to the IRS in 2014. This under-reporting translated to unpaid self-employment taxes of $3.9 billion to Social Security and another $900 million to Medicare.

An additional 2.3 million Americans sell goods and services on platforms like Airbnb, Lyft, and Etsy every month. A large share of these gig workers are not reporting all of their income either. Their under-reporting resulted in an estimated non-payment of $2 billion to Social Security and $500 million to Medicare in 2014.

In fact, the estimates are conservative, and the true level of the missing payroll taxes is probably larger, said the study’s authors, a tax expert at American University and a private policy consultant.

Independent contractors are most likely to be baby boomers over 55, while Generation Xers are more common on the online platforms. Self-employed people fail to disclose earnings for a couple of reasons: they are confused about the tax law or they want to increase their disposable income. But responsibility also falls on the platform companies that process payments for their workers and sellers, the researchers said, because the companies are not required to file 1099 earnings forms with the IRS for a majority of their workers.

Whatever the reasons for the underreporting, self-employed workers will one day get less from Social Security. This study raises an obvious question for future research: how much less? …Learn More

Millennial moving into an apartment

Class of 2019: Low Rent Key to Survival

The first and arguably most important decision a new graduate will make is how much to pay for rent.

If it’s too high, the rent – on top of those annoying student loans – will push out other priorities necessary to prevent financial trouble down the road.

Rick Epple, a certified financial planner in Minnesota’s Twin Cities area, counsels his daughter’s friends and clients’ children entering the labor force to keep their rent at around 20 percent of their income.

“Nobody ever talks about what they should spend,” he said. He worries about young adults who pay a third of their income – the standard recommendation – for an apartment. If the rent blows a hole in the budget, paying student loans every month and on time becomes a much bigger challenge.

A paycheck, Epple said, “just goes quick.”

A manageable rental payment also leaves room to prepare for the inevitable unexpected expense – and, yes, retirement. …Learn More

Picture of an elderly woman

Husbands Ignore Future Widow’s Needs

The amount of money a widow receives from Social Security can mean the difference between comfort and hardship.

Husbands have a lot of control over how this will turn out. Each additional year they postpone collecting their own Social Security adds another 7.3 percent to the amount a future widow will receive every month from the program’s survivor benefit.

But husbands can be a stubborn lot.

Previous research has shown that a large minority fail to take their wives into account when deciding to start their Social Security. A new study confirms this in an online experiment designed to raise husbands’ awareness of the financial impact their claiming age could have on a spouse. The men’s ages ranged from 45 to 62.

In the experiment, the researchers displayed Social Security’s benefit information to the men three different ways. In the first format, a control group saw the basic information: the husband’s full retirement benefit, and then a link to a second page displaying his benefits for various claiming ages. A second format also displayed his full benefit, but the link went to a page with estimates of his widow’s survivor benefits, based on the husband’s various claiming ages – the later he files, the more she would receive. The third format had the same information as the second format, but it was presented on a single web page.

Regardless of the way the survivor benefits were displayed, the men weren’t persuaded to postpone their own benefits to one day help their widows. Potential explanations include their feelings about work, existing health issues, and whether they will get a defined benefit pension from an employer.

Whatever their motivation, simply educating husbands on the financial impact of choosing a claiming age “is unlikely to improve widows’ economic outcomes,” concluded the study by the Center for Retirement Research at Boston College.

The impact of widowhood is often significant. An average widow’s total income drops 35 percent when a husband passes away, the researchers estimated from financial data for married men who had retired. The earlier the husband had started his benefits, the larger the drop in the widow’s income after the couple’s second Social Security check stops coming in. …Learn More

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