Squared Away Blog

November 6, 2018

Parents’ Education Key to Child’s Security

“Seven Up,” a famous British documentary series, interviewed 7-year-old schoolchildren in 1964 and filmed them every seven years after that.

Over the documentary’s 49-year span, viewers watched the children’s lives take shape. A boy at an upper-crust boarding school goes to college and on to teach math at a prestigious private school. A girl educated in a working-class school in London’s East End is just able to make ends meet as an adult. A young equestrian from a wealthy family raises her own privileged children. A boy in an orphanage becomes a bricklayer.

These personal profiles at the heart of “Seven Up” reverberate in a recent, unrelated, academic study that has reached a similar conclusion: parents’ investment in educating their children is the ticket to financial security as an adult.

The researchers estimated that people with the college-educated fathers earned nearly $400,000 more over their lifetimes (at today’s pound-dollar exchange rate) than the people from less-educated families. They analyzed periodic surveys of 9,436 people in England, Scotland, and Wales between ages 7 and 55. …Learn More

October 25, 2018

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

September 13, 2018

College Debt Can Limit 401(k) Saving

The share of students borrowing money to pay for college increases year after year, and they’re borrowing more every year.  Total student debt, adjusted for inflation, has tripled in just over a decade.

The loan payments, which can be a few hundred dollars a month, take a big bite out of young adults’ still-low levels of disposable income. The debt makes them more prone to bankruptcy and lower homeownership rates.

A key question is whether this pressing financial obligation might affect their preparation for a retirement that is several decades away.  Here’s what researchers Matt Rutledge, Geoff Sanzenbacher, and Francis Vitagliano of the Center for Retirement Research learned about student debt:

• By age 30, the college graduates who are loan-free have saved two times more in their retirement plans than the graduates who are paying off debt. (Perhaps surprisingly, the presence of student loans do not seem to affect the amount saved by students who didn’t graduate, though they do have substantially less in their 401(k)s than the graduates.)

• The amount owed by college graduates with loans does not matter. The mere existence of the debt is enough to constrain saving. …

Learn More

August 23, 2018

Maybe You Can Slow Cognitive Decline

After decades of study devoted to describing the negative effects of dementia, a new generation of researchers is pursuing a more encouraging line of inquiry: finding ways that seniors can slow the inevitable decline.

One vein of this research, still in its infancy, considers whether seniors could reduce the risk of dementia if they engage in volunteer work. Several studies focus on volunteering, because most of the population with the greatest risk of dementia – people over age 65 – is no longer working.

There’s no suggestion that volunteering can prevent dementia. However, one new study, by Swedish and European researchers, found that Swedes between 65 and 69 who volunteer had a “significant decrease in cognitive complaints,” compared with the non-volunteers. The seniors answered a survey questionnaire at the beginning and end of the 5-year study that gauged whether they had experienced any changes in each of four complaints: “problems concentrating,” “difficulty making decisions,” “difficulty remembering,” and “difficulty thinking clearly.”

The study didn’t go so far as to claim that volunteering actually caused the improvements either. But it highlighted how volunteering might reduce the symptoms, possibly because it keeps older people more physically and mentally fit.

Indeed, the cognitive benefits of exercise have been understood for so long that they’ve become a perennial topic in the mainstream media. Supreme Court Justice Ruth Bader Ginsburg, 85, has become the poster child for elderly exercisers, with a personal trainer overseeing her push-ups and turns on an elliptical machine in a CNN Films documentary, “RBG.”

The research confirms that she’s doing what she needs to do to stay sharp for her beloved job: aerobic exercise in particular protects seniors’ brain matter from deterioration; weight training and stretching exercises do not.

A research team’s 2014 review of 73 prior studies on volunteer work found multiple benefits: “volunteering in later life is associated with significant psychosocial, physical, cognitive, and functional benefits for healthy older adults.” The paper, which appeared in the Psychological Bulletin of the American Psychological Association, defined psychosocial well-being as having greater life satisfaction, higher executive function, being happier and having a robust social network. …Learn More

August 9, 2018

Divorce Very Bad for Retirement Finances

When a marriage ends in divorce, there are no fewer than seven ways that it could damage a person’s finances.

Divorce can rack up costly legal fees; force a house or stock sale in a down market; increase living expenses; increase tax rates; hamper the ability of the primary caregiver – mothers – to earn money; require fathers to pay alimony; and reduce each partner’s access to credit.

A new study looking at their impact on workers’ future finances concludes that divorce – the fate of four in 10 marriages – “substantially increases the likelihood” that their standard of living will decline after they retire. …Learn More

August 2, 2018

Boomers’ Employment Options Improving

It’s not difficult to find baby boomers out in the job market who will tell you that they have fewer employment options than they used to.

The turning point occurs around age 55. According to a recent study, only 4 percent of people in their early 50s who find a new job are moving into what the researchers label as “old-person jobs” – that is, jobs in occupations that disproportionately employ older workers. The share in these jobs increases sharply, to 13 percent, by the time they reach their late 50s and to 22 percent in their early 60s.

Given the more difficult job market, this cloud has a silver lining. Older workers are actually better off today than they were in the late 1990s and have experienced a “broadening of occupational opportunities,” concluded researchers Matt Rutledge, Steve Sass, and Jorge Ramos-Mercado of the Center for Retirement Research, which sponsors this blog.

Specifically, the situation has improved for two of the three age groups they analyzed. The share of new hires who are in their early 50s and end up in old-person jobs has fallen by more than two-thirds since the late 1990s. For people in their early 60s, it has fallen by nearly one-fifth.

Various possible reasons for the improvement include an aging labor force – managers included. As managers age, they may become more amenable to hiring older workers.

The study also found that things have improved for both educational groups: those who have spent at least some time in college and those who never attended college. …Learn More

July 24, 2018

Mom-Dad Pay Gap Grows After First Child

Moms don’t need a research study to tell them that their earnings will never be high as dads’.

Nevertheless, a new study confirms this – and the pay gap may be larger than some suspect. In the two years surrounding the baby’s birth, mothers’ earnings fall by 12 percent, on average, as their careers stall or they take a hiatus from work to care for the child. Meanwhile, fathers’ careers clip along, with bonuses, pay raises, more hours, or better jobs bumping up their pay by 34 percent.

Mothers don’t get back to their pre-baby income levels until the child is 9 or 10 years old. The mom-dad wage gap will never be smaller than it was before the baby, because “the earnings of the male spouse do not undergo the initial shock” of childbirth, according to the U.S. Census Bureau researchers. They tracked wage changes starting in 1978, when baby boomer women were streaming into the labor force.

Their comparison of the husband-wife pay gap helps to overcome a big disadvantage of analyzing the popularized version of the gap: women earn 82 cents for every dollar a man earns. This headline statistic applies to all men and all women.

It’s neater to compare spouses, because both of them experience the baby bump at the same time, allowing estimates of the changes in each one’s earnings during the same time period and life circumstances. Just as important, husbands and wives usually bring to a marriage similar levels of education, the major determinant of earnings throughout workers’ lives.

The big issue in this study, however, is that data limitations prevented the researchers from controlling for the hours each spouse works after the baby’s birth. There are several potential explanations for mothers’ smaller paychecks but reduced hours are a major reason.

Maternity leave can be the start of several years of part-time employment at lower pay or even a hiatus from work for childrearing. If new mothers do return to the labor force fairly quickly, prioritizing the child can mean a job with less responsibility and lower pay than they earned in the past.

The increasing pay gap illuminates the financial sacrifices that moms make. Here are other findings in the study: …Learn More