January 7, 2020
Credit Cards are the Most Stressful Debt
Debt is stressful. But did you know your stress level depends on the type of debt you have?
Credit cards cause far more stress than first mortgages and lines of credit, a study by Ohio State researchers finds. The more striking finding is that reverse mortgages, which allow people over age 62 to tap the equity in their homes, may reduce stress – at least temporarily.
The researchers used a simple example to illustrate the magnitude of credit card stress. Charging $640 on a card is as stress-producing as adding $10,000 to a mortgage. Credit cards are more stressful than home loans, because the balances on high-rate cards increase quickly when they’re not paid off, and the debt is not backed by an asset.
The researchers considered households to be debt-stressed if they said in a survey that they have had recent difficulty paying bills or have generally experienced financial strains.
This study focused on people over 62. As the share of older Americans carrying debt into retirement has increased, so have the amounts they owe. Debt arguably is very stressful for older workers, who have a dwindling number of years to get their finances under control before retiring, and for retirees, who have to live on fixed incomes.
The findings for reverse mortgages were nuanced – and interesting. Reverse mortgages create less stress than a standard mortgage and are much less stressful than consumer debt. On average, four years after taking out a reverse mortgage, the household’s stress level is 18 percent lower than it was at the time of the loan’s origination, according to the researchers, who did the study for the Retirement and Disability Research Consortium.
But things can change over time. Retirees often use federally insured reverse mortgages to pay off debt or as a regular source of income. But the amount owed on a reverse mortgage increases over time, because retirees do not have to make payments, and the interest compounds. (The loans are paid off when the owner either sells the house or dies.) …
December 17, 2019
Older Workers Ride Out Computer Age
The computer revolution, unleashed in the 1970s, has not stopped. Minicomputers replaced mainframes, and IBM introduced its personal computer. Then came the Internet, laptops, robots, iPhones, and increasingly intelligent software that can drive cars and discern music preferences.
Continual technological change has reshaped and regenerated the economy several times over, creating new types of jobs unimaginable a few years earlier. But the past four decades have also been tumultuous for the workers who were either replaced by machines or couldn’t keep up with the evolving demands of their jobs.
This is a pressing issue for the older workers who would benefit from working longer to improve their retirement finances. An erosion in their physical stamina or mental agility conceivably makes them more vulnerable to losing out to progress. And it can be difficult for people who have invested years in a job to train for and find new employment.
But a new study of labor force trends by the Center for Retirement Research finds this has not been the case. The computer age has had about the same impact on workers over age 55 as it has had on the labor force overall.
Two factors have proved essential to whether people – whatever their age – have had job security in this period of change: whether the work is routine and whether it requires a college education.
Since the 1970s, job options have narrowed for many workers who did not attend college, because computers have been especially good at rapidly and tirelessly performing the routine tasks this group’s work often entails. Examples are the computerized financial transactions that replaced back-office workers who entered the data manually and the robots inserted into assembly lines. The more routine a worker’s job, the more vulnerable he is to being replaced by a machine.
The upshot is that this segment of the labor force is shrinking: roughly a third of U.S. workers hold routine jobs currently, down from more than half in 1979. Nevertheless, the magnitude of this decline has been roughly the same for workers over 50 as for the labor force overall, according to the study, which was conducted for the Retirement and Disability Research Consortium.
In contrast, computerization has not affected the demand for non-routine work that is physical in nature, such as construction and food preparation. These jobs typically do not require a college education either, but it has been virtually impossible to program computers to do non-repetitive work. “The rules governing our innate abilities are a mystery,” and this has protected jobs that emphasize uniquely human abilities, the researchers said.Learn More
November 7, 2019
A Brighter Future for a Graying Workforce
Perceptions of older workers haven’t caught up with the reality of their increasingly prominent role in the labor force.
The federal Administration for Community Living reports that the U.S. population over age 60 has surged nearly 40 percent in just the past decade. By 2030, retirees will outnumber children for the first time in history, the U.S. Census Bureau predicts. The world population is on a similar path.
But in the face of this significant demographic shift, discriminatory views of older people persist in obvious and subtle ways. This discrimination colors coworkers’ beliefs about, among other things, older workers’ mental ability, efficiency, and competence on the job, according to one international review of studies on aging.
When people think about the future, “they fail to appreciate the potential that older workers present as workers and consumers,” Paul Irving, an expert on aging, writes in a special November edition of the Harvard Business Review exploring issues relevant to our aging workforce.
Research backs him up. Older people are living longer than past generations, which gives them more capacity to extend their work lives. They’re also generally healthier and enjoy more disability-free years, thanks to innovations like cataract surgery to restore their vision.
But ageism’s consequences are still apparent in the workplace. An Urban Institute report said that older workers, for a variety of reasons, are frequently pushed or nudged out of a long-term job at some point late in their careers. Some are forced into early retirement. And for those who do find another job, the new opportunities, while less stressful, are often a step down in terms of prestige and pay.
Irving, who is chairman of the Milken Institute’s Center for the Future of Aging, wants to chart a more hopeful path for our graying U.S. workforce, one that views it as an opportunity – rather than a looming crisis. …Learn More
September 5, 2019
Social Security: the ‘Break-even’ Debate
Our recent blog post about the merits of delaying Social Security to improve one’s retirement outlook sparked a raft of comments, pro and con.
In the example in the article, a 65-year-old who is slated to receive $12,000 a year from Social Security could, by waiting until 66 to sign up for benefits, get $12,860 a year instead. By comparison, it would cost quite a bit more – about $13,500 – to buy an equivalent, inflation-adjusted annuity in the private insurance market that pays that additional $860 a year.
The strategy of delaying Social Security “is the best deal in town,” said a retirement expert quoted in the article.
Aaron Smith, a reader, doesn’t agree. “It will take 14 years to make that ($12,000) up. Sorry but I’ll take the $12k when I’m in my early 60s and can actually enjoy it,” he said in a comment on the blog.
Smith is making what is known as the “break-even” argument, which is behind a lot of people’s decisions about when to start collecting their Social Security.
But other readers point out that the decision isn’t a simple win-loss calculation. The benefit of getting a few extra dollars in each Social Security check – between 7 and 8 percent for each year they delay – is that it would help retirees pay their bills month after month.
This is a critical consideration for people who won’t have enough income from Social Security and savings to maintain their current standard of living after they stop working – and 44 percent of workers between 50 and 59 are at risk of falling short of that goal.
One big advantage of Social Security is that it’s effectively an annuity, because it provides insurance against the risk of living a long time. So the larger check that comes with delaying also “lasts the rest of your life,” said Chuck Miller, another reader. …Learn More
March 21, 2019
Men Who Work Longer, Live Longer
In 2007, the majority of workers in The Netherlands were retiring by their early sixties to take advantage of the country’s generous pension scheme. Then came a sweeping 2009 policy that rewarded older workers with a tax break if they remained employed and active.
In a new study, researchers used this tax break – the Doorwerkbonus, or continued work bonus – to ask the question: do people who worked longer in response to this policy also live longer? The short answer is “no” for women but “yes” for men. Delaying retirement increased men’s lifespans by three months, compared with a group that was not eligible for the bonus, possibly because working longer improved their health.
The tax break was the equivalent of a wage increase for all older workers in every sector of the Dutch economy. The bonus started as a 5 percent tax cut for working people in the year they turned 62, increased to 7 percent at 63, and 10 percent at 64. After that, the rewards from work dwindled, falling to 1 percent for everyone over 67. (In 2013, the size of the tax break was reduced.)
Prior to the new study, other researchers had examined whether earlier retirements caused people to die younger. But Alice Zulkarnain and Matthew Rutledge at the Center for Retirement Research took the opposite tack. They asked: were the Dutch living longer because they delayed retirement after the Doorwerkbonus went into effect?
While the policy did increase men’s life spans slightly, women seemed unaffected, because fewer of them responded to it by working longer.
Is there a lesson in the Doorwerkbonus for American boomers? This study indicates that working longer will not only put more money in retirees’ pockets, it might also add to their life spans. …Learn More