Posts Tagged "credit card"
April 29, 2021
Retired People of Color Struggle with Debt
The oldest minority retirees are struggling with debt, a new Urban Institute study finds.
The researchers’ starting point is that people generally reduce their debt as they age. To prepare for retiring, older workers try to pay down their mortgage balances and pay off credit cards. Once retired, their debt continues to shrink.
But on closer inspection, retirees in their 70s and 80s in the nation’s predominantly minority neighborhoods have shed less of their debt than their counterparts in mostly white neighborhoods, who tend to be better off financially.
In a sign of financial distress among the oldest lower-income and minority retirees, 20 percent of their loans go to collections for non-payment – double the rate for higher-income and white retirees. Minority retirees also have lower credit scores and longer spells of poor credit, according to the study, which compared U.S. households with debt in four age groups: 50s, 60s, 70s, and 80s.
The researchers concluded that disadvantaged retirees “may heavily rely on debt to support their standard of living in retirement.”
To get some perspective on this racial disparity, first compare workers in mostly white and mostly minority neighborhoods. White households in their 50s typically owed $43,000 on their credit cards, car loans, and mortgages in 2019, the most recent year of survey data.
But in minority neighborhoods, 50-somethings owe half as much – in large part because financial companies and mortgage lenders extend less credit to lower-income customers.
(These debt levels may seem small, but the analysis included renters, who don’t have a mortgage, which is the single largest debt for most Americans, and homeowners who have whittled down their mortgages or even paid them off entirely).
For retirees, the racial pattern is very different. Borrowers in their 80s in minority neighborhoods typically owed $3,250 in 2019 – more than their white counterparts. And $3,250 is a substantial burden for retirees relying mainly on Social Security. Since they’re more likely to be renters, the debt is concentrated in auto loans and high-rate credit cards, which aren’t backed by an appreciating asset like a house. …Learn More
January 5, 2021
Our Popular Blogs in the Year of COVID
2020 was a year like no other.
But despite the pandemic, most baby boomers’ finances emerged unscathed. The stock market rebounded smartly from its March nosedive. And the economy has improved, though it remains on shaky ground.
Our readers, having largely ridden out last spring’s disruptions, returned to a perennial issue of interest to them: retirement planning.
One of their favorite articles last year was “Unexpected Retirement Costs Can be Big.” So was “Changing Social Security: Who’s Affected,” which was about the toll that increasing the program’s earliest retirement age could take on blue-collar workers in physical jobs who don’t have the luxury of delaying retirement.
COVID-19 in the nation’s nursing homes has caused incomprehensible tragedy. A nursing home advocate explained how this happened in “How COVID-19 Spreads in Nursing Homes.” And the mounting death toll in nursing homes surely confirmed a longstanding preference among baby boomers – as documented in “Most Older Americans Age in their Homes.”
Despite the economy’s halting recovery, layoffs due to COVID-19 still “may be contributing to the jump in boomer retirements,” the Pew Research Center said. Pew estimates that 3.2 million more boomers retired last year than in 2019, far outpacing the increases in recent years.
The layoffs have no doubt forced some boomers to start their Social Security earlier than planned, as explained in “Social Security: Tapped more in Downturn” and “A Laid-off Boomer’s Retirement Plan 2.0.” But unemployed older workers who are still too young for retirement benefits might apply for disability insurance, according to a study described in “Disability Applications Spike in Recession.”
Baby boomers hoping to ease into retirement on their own terms liked a pair of articles about ongoing research by Harvard Business School professor Teresa Amabile: “Mapping Out a Fulfilling Retirement” and “Retirement is Liberating – and Hard Work.”
Other 2020 articles popular with our readers included: …Learn More
April 2, 2020
1st Quarter: Our Most Popular Blogs
People born smack in the middle of the baby boom wave, including many of this blog’s readers, are now in their mid-60s and have retired – or, at least, they were planning to retire before the stock market crashed.
Some of your favorite articles in the first quarter, based on the blog’s traffic, were about the nuts-and-bolts of retirement, including one that ranked retiree living standards by state.
The 10 most popular blogs listed below ran before the coronavirus changed our lives but they may still hold kernels of wisdom that will be useful in these trying times.
For example, one article reported on the $38 million in misplaced retirement funds from prior employers. If you think you have a long-lost retirement plan, search the unclaimed property account in the state where you worked.
Or, if you’d already committed to retiring before the market drop, it’s become more important to fashion a satisfying lifestyle. One blog explores how to prepare for retirement.
Our readers’ most popular blogs in the first quarter were:
Have You Misplaced a Retirement Plan?
Can’t Afford to Retire? Not all Your Fault
Mapping Out a Fulfilling Retirement
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.) …
October 15, 2019
Does Increased Debt Offset 401k Savings?
Roughly half of U.S. employers with a 401(k) plan enroll their workers automatically, deducting money from their paychecks for retirement unless they explicitly opt out of this arrangement. This strategy is widely viewed as a good way to get people to save.
But auto-enrollment might not be as effective as it seems, if individuals are compensating for a smaller paycheck by borrowing more.
A new study of civilian employees of the U.S. Army used credit and payroll data to gauge whether debt increased for employees who were automatically enrolled in the federal government’s retirement savings plan. The researchers compared changes in debt levels for people hired after the government’s 2010 adoption of auto-enrollment with hires prior to 2010.
The good news is that since the broadest debt category, which includes high-rate credit cards, did not increase, it did not offset the employees’ accumulated contributions. Their credit reports showed no increase in financial distress either, the study concluded.
However, the findings for car and home loans were ambiguous, so auto-enrollment “may raise these latter types of debt,” said the researchers, who are affiliated with NBER’s Retirement and Disability Research Center.
If workers are, in fact, borrowing more, the question, again, is whether the new debt is offsetting the additional savings under auto-enrollment. Auto and home loans – in contrast to credit cards – are used to finance an asset that has long-term value. Whether these forms of debt improve or erode net worth depends on the asset’s value and whether the value rises (say, a house in a growing city) or falls (a car after it’s driven off the lot).
The researchers did not have access to data on federal workers’ assets, which they would need to see what’s happening to their net worth. This remains an important question for future research. …Learn More
July 18, 2019
Why Americans Can’t Come Up with $400
In Beavercreek, Ohio, the cleanup from a recent tornado has begun. But debris is still piled high on many residents’ lawns.
“What we’re seeing following this tornado is people not having enough cash to pay upfront for house debris removal even though insurance companies will reimburse them,” former mayor Brian Jarvis said on Twitter. The debris cleanup comes on top of other costs like temporary housing in this city east of Dayton.
Much was made recently of a survey in which four of every 10 American families said they could not cover an unexpected $400 expense. But no one explained why. New research has some answers.
Even when people have $400 in their checking or savings accounts, they don’t always feel like they have the money to spend. That’s because they may have already committed the funds to paying off their credit cards, according to an analysis by Anqi Chen at the Center for Retirement Research.
This problem isn’t confined to low- and middle-income people either: 17 percent of households earning more than $100,000 would have to scramble to find the extra $400.
The study uncovered what cash-strapped families have in common. …Learn More
July 31, 2018
Financial Data Brokers Have You Pegged
In the world of Big Data, do you fall into the industry’s Extra Needy category, or are you viewed as American Royalty? Perhaps Ethnic Second City Struggler or Small Town Shallow Pockets is a more apt description of you? Or how about Eager Senior Buyer or Tough Start: Young Single Parent?
While the media are focused on Facebook’s privacy breaches, a growing multibillion-dollar industry of data brokers is mining personal information online in order to sell our data dossiers to financial and other companies – sometimes to the detriment of our personal finances.
Big Data collection also can be innocuous, when it is used for marketing. In this form, it’s just the high-tech version of snail mail solicitations for credit cards, retail catalogs, or the services of a neighborhood real estate agent.
But Pam Dixon, the executive director of the World Privacy Forum, said evidence is growing that some consumers are being exploited by the unfettered sharing of personal data. Further, individuals generally do not have a legal right to see their dossiers, which are proprietary – “and we don’t know what they’re being used for,” she said.
In one egregious case, brokers sold data on an elderly veteran, who was then victimized by a scam that stripped him of his life savings. Some brokers compile lists of people living in trailer parks to sell to companies making “predatory offers to those in financial trouble,” Dixon testified before the Senate. …Learn More