January 24, 2017
The Late-1950s Boomers: Hit by Divorce
It’s old news that the many baby boomers who did not get married and stay married are worse off financially than those who did. Unfortunately, the financial damage to one segment of this generation has broken new ground.
Only 44 percent of “middle boomers” – those born in the late 1950s – have remained married to their original spouses, down from 52 percent of their parents’ generation. Middle boomers are also far more likely to have lived with partners without marrying, remained single all their lives, or even to have divorced twice.
The heart of a study is determining which of middle boomers’ choices were most likely to have led to financial distress when they reached their pre-retirement years.
About 11 percent of middle boomers had negative net worth by the time they were in their early 50s – more than double the share for the generation born during the Great Depression when they reached this age. Negative net worth means that middle boomers’ mortgages and other debts exceed the value of their assets; in this study, assets included everything from retirement plans and taxable bank accounts to primary and vacation homes.
To understand why, the researchers culled marital histories from a survey of older Americans. They found that four lifestyles are most strongly linked to middle boomers’ negative net worth: never marrying, going through one divorce and becoming single again, separating from a second marriage, and divorcing from a second marriage.
In all of these situations, the individuals were about three times more likely to have negative net worth than were the continually married middle boomers. The study controlled for age, gender, race, education, health, household income, and the number of offspring.
Middle boomers are the “least prepared for retirement” out of four groups studied, the researchers concluded, and their choices around marriage have been important contributing factors.Learn More
January 17, 2017
2.8 Million Seniors Have College Debt
The number of Americans over age 60 who are paying back federal or private student loans has reached a critical mass, quadrupling to 2.8 million over the past decade, a new report finds.
These older borrowers owe $23,500, on average, and two-thirds of them also have mortgages and credit card bills at a time their medical expenses are typically increasing, according to the report issued this month by the Consumer Financial Protection Bureau (CFPB). Separately, nearly 40 percent of those with federal loans have defaulted on their payments.
The response of many older student loan borrowers, the CFPB said, is to “skip necessary health care needs such as prescription medicines, doctor’s visits, and dental care because they could not afford it.”
Suzanne Martindale, a staff attorney at Consumer Reports, said CFPB’s report illuminates the link between the country’s college debt crisis and the retirement crisis. …Learn More
January 3, 2017
Our Readers’ Favorite Blogs in 2016
The 10 articles that received the most attention from our readers last year are ranked below in the order of their total page views. Retiree taxes and Medicare made up the top three:
Why Most Elderly Pay No Federal Tax
Medicare Advantage: Know the Pitfalls
Federal Taxation Drops for Retirees
Financial Fallout from Gray Divorce
Stress is One Reason People Retire
How Many Years Can You Do Your Job? …Learn More
December 20, 2016
Financial Misinformation Shared Online
My mother sent an anxious email that included the above picture, which one of her elderly friends had emailed to her as a warning about coming tax increases.
“Have you seen this?” my mother asked in her email.
I’m glad she inquired, because it took 15 seconds to learn on factcheck.org that this misleading information has made the rounds on the Internet for three years in a row, updated to the new year – 2017 this time.
There are nuggets of truth in the misinformation above. The Medicare tax already increased as part of the Affordable Care Act. However, it applies only to employed couples earning more than $250,000 and employed individuals earning more than $200,000. The retirees living in my mother’s very modest senior community – and most working Americans – are not affected. Yet “shocking” information like this rears its head over and over again on Facebook, Twitter and other social media.
At a time that misinformation is deliberately being fabricated, and one such lie coursing through the Internet even spurred gun violence at a Washington, D.C., family pizza joint, it’s time to bring attention to false financial information that, unwittingly, people may be sharing online. …Learn More
December 13, 2016
Retirement Isn’t Always Fair
More than half of older Americans with the lowest socioeconomic status can expect to face an income gap if they retire when they’re planning to.
That finding is from a study by the Center for Retirement Research, which supports this blog. The researchers quantified and compared the gaps in the retirement preparedness of more than 3,000 older U.S. households, grouped by four levels of educational attainment.
First, the researchers estimated the target income that each working household will need in retirement to maintain its current standard of living. That target income will be less than its current income from working, because retirees no longer need to save money, and they pay less in taxes. Then, the researchers projected the income each household will actually have – at each different retirement age – from their Social Security, employer retirement plans, regular savings, and home equity.
When a household’s projected income reaches the target, that’s the age at which they can expect to retire comfortably. But people don’t necessarily make decisions that are in their best financial interest. …
December 8, 2016
Inside the Minds of Older Workers
A decade of research into the impact of cognitive aging shows that workers throughout their 50s and 60s are generally just as productive as the younger people working alongside them.
A new summary of this research, by the Center for Retirement Research at Boston College, explains how older people are able to adapt to the gradual loss of brain mass in the parts of the brain associated with memory and an ability to think on one’s feet – their “fluid intelligence.”
The highly skilled pharmacy profession is a good example of how workers in their 50s or 60s adjust to this changing dynamic. These pharmacists have an advantage over their younger coworkers in what psychologists call “crystallized intelligence,” which is the deep reserve of information stored up over decades of working in their profession. They can no longer process drug interactions and other new information as rapidly as they once did. But they can tap into their reserves to solve the myriad issues that crop up in their work. This crystallized intelligence – for pharmacists and many other types of skilled jobs – is effectively making up for their loss of fluid intelligence.
Interestingly, older workers who execute routine tasks usually aren’t at risk of aging out of their jobs for cognitive reasons either. That’s because even though their fluid intelligence is in decline, they have more than enough of it in reserve to complete their relatively simple tasks.
While the majority of older workers do not lose their productivity due to cognitive aging, two groups are vulnerable. One group is those for whom the work demands on their fluid intelligence are extremely high. A 2009 study of air traffic controllers highlighted this challenge – and demonstrates the logic behind a Federal Aviation Authority requirement that controllers retire at age 56. …Learn More
December 1, 2016
Retirees’ Tax Puzzle: Pay Now or Later?
The majority of retirees pay no federal taxes. But taxes should be a concern for retirees who have retirement savings. That’s because the money they take out of their retirement accounts for living expenses will be treated as federal taxable income. It’s difficult enough to figure out how much money to withdraw – and when. Taxes are a separate but related issue.
In this blog, we interviewed Michael Kitces, a well-known financial adviser and partner with a Maryland financial firm, who writes the “Nerd’s Eye View” blog. He discusses the basics of navigating the tax code. The challenge facing retirees is to make tax decisions today that will minimize taxes now and in the future.
Question: Do you find that new retirees are surprised by their retirement tax situation?
Kitces: It’s usually not even on their radar screen. Pre-tax and post-tax income, different tax buckets – I don’t think most people even think about it once they’re in retirement. That’s why we’re still seeing people who are “surprised” when they turn 70½ and the required minimum distributions (RMDs) begin, and their tax bill gets a whole lot higher. They say, “Why didn’t we plan for this?” We say, “We’ve been recommending you plan for this for years!” …Learn More