Relocating Can Boost Living Standards

COVID-19, by rearranging work arrangements, is allowing people to rethink where they live.

As the virus started to spread in Manhattan last spring, some residents fled the city and began snapping up houses in Westchester County and on Long Island. There is preliminary evidence some people are moving farther afield, to rural areas where small populations create the potential for lower COVID-19 transmission rates.

In a Pew Research Center survey, about one in five Americans said the pandemic had either prompted them or someone they know to relocate.

The map below shows the big changes in living standards that can accompany a move from a high- to a low-cost part of the country. In each location, the Tax Foundation calculated each region’s purchasing power, based on what $100 will buy, on average, nationwide.

For example, $100 will purchase $75 to $80 worth of goods in Manhattan. By moving to Upstate New York or New Mexico, someone who keeps her job and works remotely can increase her purchasing power to around $110 – the equivalent of at least a 37 percent increase.Map of cost-of-living

Typically, an area’s cost-of-living is correlated with local incomes. For example, employers must pay more to attract workers to high-cost areas. But not in North Carolina, which has “higher-than-average incomes without corresponding higher-than-average prices,” the Tax Foundation said.

Offsetting the benefits of relocating to a low-cost area is the employment risk. If a remote job evaporates, it may be difficult to find a suburban or rural employer that pays as much or an employer in a larger city willing to hire someone new to work remotely. Poor wifi connections are a common problem in rural areas.

Moving is a complex decision with an array of considerations, from the health benefits to the difficulty collaborating with coworkers over Zoom. But what seems clear is that working remotely is, for many, becoming the new normal. …Learn More

Recession’s Hit to Cities Varies Widely

The COVID-19 recession is unlike anything this country has seen.

If the second-quarter contraction were to continue at the same pace for a full year, the economy would shrink by a third! This is the deepest downturn since the Great Depression, and low-income Americans are feeling the brunt of it.

Chart about two California citiesWhat makes this recession unique, however, is that the low-income people living in the most affluent metropolitan areas are worse off than low-income residents of less affluent cities, Harvard economist Raj Chetty explained during a recent interview on Boston’s public radio station, WBUR.

“What’s going on is that affluent folks have the capacity to self-isolate, to work remotely, to not go on vacation,” he said. “So in affluent areas, you see enormous drops in consumer spending and business revenue.”  In these areas, more than half of the lowest-income workers have lost their jobs, and many of them worked in small businesses, he said.

In less affluent cities, people have to go to work and “are out and about more, and business revenue hasn’t fallen nearly as much,” he told his radio host. “In previous recessions, we haven’t seen those sort of patterns.”

Chetty’s point is demonstrated by comparing what happened to consumer spending this year in San Francisco and Fresno, California, on the tracktherecovery.org website he and other economists have created. (Visitors can sort the spending data by state, industry, and consumer income levels, as well as by city.) …Learn More

low-income older workers

Financial Survival of Low-Income Retirees

Watch these six videos and walk in the shoes of low-income older Americans. It’s an arduous journey.

Social Security is the primary or only source of income for the retirees who agreed to be interviewed for the videos. Since their income doesn’t cover their expenses, they live with family, frequent the Salvation Army, and continually stress about money.

“You’re lucky if you come out even or a little behind” at the end of the month, said Howard Sockel. The 81-year-old resident of Skokie, Illinois, supports two sons – one with autism and one unemployed – on his Social Security, a small Post Office pension, and credit cards.

The older workers who were interviewed are on the same road to a difficult retirement. Cathy Wydra, who was 64 when the videos were made, shares the expense of a two-bedroom apartment in a Chicago suburb with her daughter and grandson and sleeps on an inflatable mattress.

“It’s a little scary. I think, am I going to be able to retire in two years?” she says.

One out of three older people can’t cover their costs comfortably, often because they lack savings, said Sarah Parker with the Financial Health Network, which produced the videos in conjunction with AARP Foundation and Chase. “You often have to rely on debt, and that’s a very precarious financial situation to be in,” she said.

The video topics are: “When Fixed Incomes Fall Short,” “All in the Family,” “The Caregiver Conundrum,” “A Shock to the System,” “When Retirement Won’t Work,” and “Good Advice Never Gets Old.”

Some of the retirees admitted to making strategic mistakes around their retirement finances. Many other people have made these same mistakes, but they are catastrophic for people who were already on shaky ground. Verner Reid, a former Chicago teacher, was forced to retire when she became ill. Rather than a teacher’s pension, she took a lump sum and is now short on funds – “the mistake of my life.” …
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A Downwardly Mobile Boomer Survives

The unemployment rate has rocketed to double digits. But older workers’ struggles in the job market are not new.

An Urban Institute study, reported here, estimated that about half of workers over age 50 left a job involuntarily at some point between 1992 and 2016 – a period that included strong economic growth and two recessions. After the workers found new employment, their households were earning just over half of what they earned in their previous jobs, researcher Richard Johnson told PBS’ NewsHour.

The baby boomers being laid off now might relate to Jaye Crist, who was featured in this NewsHour video last February when unemployment was still at record lows. He had been a manager at a national printing company for three decades – until his 2016 layoff. Through sheer determination, he found a full-time job packing and delivering printed materials to customers for a print shop in Lancaster County, Pennsylvania. But his income dropped sharply.

“It’s frustrating that, in my mind, somebody who has done the things you were told as a kid you need to do – stay at a job, work, learn, be helpful, get promotions – and then you find yourself, at this point, that your career doesn’t mean [anything],” Crist said in the pre-pandemic video.

“You just do whatever you have to do to keep everything else afloat,” he said.

With the country now in a recession, I checked in with Crist to see how he’s doing. His financial situation deteriorated further after Pennsylvania shut down the economy to contain the virus. He briefly lost his three jobs – at the printing company and two part-time jobs, at a local brewery and a workout gym.

He was relieved when the printer brought him back in April from a three-week furlough after the company received a stimulus loan under the federal Paycheck Protection Program. But business is slow, and Crist worries he might lose the job again. “Knowing that you’re almost 60 years old,” he asked, “now what do you do?”

The gym is also reopening, but it’s unclear how much he can work since he used to be on the night shift and the gym will no longer be open 24 hours a day. He also returned to the brewery to handle takeout orders but it, like many eating establishments, is struggling to make it at a time of social distancing.

Prior to the pandemic, Crist had already gone through many of the financial struggles boomers are facing today. With his wife unable to work, he said he depleted his 401(k) after his 2016 layoff.  He was having difficulty keeping up his mortgage payments and paying part of his daughter’s college loans, and now it’s even harder.

He said he can’t imagine being able to retire. “I’ll be working and paying for stuff until I can’t.”Learn More

Art saying Now what?

Recession Destabilizes Boomers’ Finances

The COVID-19 recession has changed everything.

This extreme disruption in our lives is always top of mind, which was reflected in our most widely read articles so far this year, based on the blog’s traffic.

Baby boomers, their retirement plans having been deeply affected by the Great Recession, are once again reassessing their finances. One popular article explained that the boomers who were in their early to late 50s during the previous recession lost about 3 percent of their total wealth at the time. This put their retirement planning at a distinct disadvantage compared with earlier generations in their 50s, whose wealth, rather than shrinking, grew 3 percent to 8 percent. The current recession is the second major setback in just over a decade.

Prior to the pandemic, readers liked articles about making careful retirement plans. Post-pandemic, the most popular article was about laid-off boomers desperate for income who may have to start their Social Security prematurely. The retirement benefits can be claimed as early as age 62, but doing so locks in the smallest possible monthly Social Security check – for life.

Even before Millennials were hit by the recession, they were already farther behind older generational groups when they were the same age. One article explained that the typical Millennial had just $12,000 in wealth. They are “the only generation to have fallen further behind” during the pre-pandemic recovery, the Federal Reserve said.

Here are a dozen of this blog’s most popular articles for the first half of 2020. They are grouped into three topics: COVID-19 and Your Finances, Retirement Planning, and Retirement Uncertainties.

COVID-19 and Your Finances:

Social Security Tapped More in Downturn

Lost Wealth Today vs the Great Recession

Boomers Facing Tough Financial DecisionsLearn More

Crowd of people

Readers Lament Decline in Boomer Health

The share of people in their late 50s with the second most severe form of obesity has tripled since the early 1990s. This grim fact, featured in a recent Squared Away article, clarifies COVID-19’s danger to older Americans.

The article, “Our Parents Were Healthier at Ages 54-60,” summarized research establishing that baby boomers are less healthy than their parents’ generation due to several conditions related to obesity, including diabetes, pain levels, and difficulty performing daily activities. The poorest Americans’ health deteriorated the fastest – and COVID-19 is preying on them.

“This decline in markers of metabolic health seems to correlate with increased vulnerability to the pandemic,” wrote one reader, Dan O’Brien, who was among several who commented on recent health-related blogs.

That’s what happened during the H1N1 flu pandemic in 2009. Hospitalizations – and possibly death rates – were tied to obesity in adults with multiple health conditions, according to the National Institutes of Health.

“The vast majority of [COVID-19 patients] who reach the ICU suffer from comorbidities. My takeaway is that metabolic dysfunction is tied to immune-system failure in ways we don’t yet understand,” O’Brien said.

Another reader, Lorraine Porto, advocated a simple way for people to keep their weight in check: walk. An elderly woman she knows “walked miles every week.” Porto believes this healthy habit saved the woman’s life when she broke her hip in her 80s and was “walking around, sprightly as ever, less than two months later.” The woman lived into her 90s, Porto said.

A second health-related blog popular with readers looked at the unexpected costs of treating medical conditions that become more common in old age.

Older workers and retirees who try to anticipate their future medical expenses might feel a bit like they’re throwing a dart at a dartboard. The researchers did the work for them in a study described in the blog, “Unexpected Retirement Costs Can be Big.” …Learn More

Fintech artwork

Fintech Lenders Discriminate Less

Do online financial companies give minorities a fair shake?

Researchers and consumers have found some early evidence that this fast-growing segment of the financial industry – Fintech – may be mitigating, though not eliminating, the legacy of discrimination that has been widely documented in the brick-and-mortar mortgage industry.

First came bank redlining, a conceptual line lenders drew around black neighborhoods. In a famous study, banks rejected black loan applicants more often than white borrowers with the same incomes. Lenders have also been found to discriminate by charging black borrowers higher interest rates for their mortgages.

Discrimination took a different form when subprime lending invaded the mortgage market prior to the 2008 financial collapse. Commissions to subprime loan brokers gave them an incentive to make as many loans as possible, and the high-interest-rate mortgages more often found their way into minority communities, even to the high-income people who could have qualified for regular mortgages.

But Fintech’s algorithms have improved the dynamics of lending for minority borrowers. The danger now is that the progress they have seen might be reversed as the pandemic batters the mortgage industry and loans dry up.

A November study by the Federal Reserve Bank of Philadelphia found that Fintech lenders have made more loans in under-served minority and rural neighborhoods. The theory behind this is that old-style bankers discriminated against minorities because they met loan applicants face-to-face. Fintech’s computer algorithms, the argument goes, are blind to race, and loan approvals are more anchored in a borrower’s creditworthiness.

Economists at the University of California at Berkeley found more mixed but still promising results. FinTech lenders “do not discriminate at all in the decision to reject or accept a minority loan application,” the researchers concluded from an analysis of lending patterns.

But the other common form of discrimination against minority borrowers does exist: they are charged interest rates that are about one-tenth of a percentage point more than the rates charged to white borrowers. These higher rates cost African-American and Hispanic borrowers an estimated $765 million in extra interest annually. …Learn More