February 19, 2019
Tweaking Social Security for the Future
Social Security remains as vital today as it was after its 1935 passage. But advocates for the nation’s most vulnerable retirees have proposed ways to enhance their benefits.
Consider the minimum benefit. Put on the books in the early 1970s, its goal was to prevent poverty among retirees who had worked for decades in low-paying jobs. The benefit’s value has diminished due to a design flaw that rendered it largely ineffective.
A recent policy brief by the Center for Retirement Research analyzed various modest proposals to increase the minimum benefit and improve low-income retirees’ financial security.
This brief was the last in a series on modernizing Social Security. The relatively low cost of these proposals, many of which have bipartisan support, could be offset by benefit reductions for less-vulnerable retirees. The House of Representatives is planning hearings later this year looking into ways benefits might be enhanced.
The following are synopses of the policy problems and proposals discussed in the other briefs and covered in previous blogs: …Learn More
January 24, 2019
Hispanic Retirement Outlook Gets Worse
One thing really stood out in a recent study: the deterioration in Hispanics’ retirement prospects since the 2008-2009 recession.
Workers’ success at saving for retirement is becoming increasingly important to their financial security in old age. This puts Hispanic households at a clear disadvantage: they earn half as much as white households, which makes it that much more challenging to build retirement wealth by buying a house or saving more in their 401(k)s – two-thirds of Hispanic workers don’t even participate in an employer 401(k).
White Americans aren’t exactly in great shape either. Today,
48 percent of them are at risk of experiencing a drop in their standard of living after they retire – this is 6 percentage points higher than before the recession, according to a new study by the Center for Retirement Research. Black Americans are worse off than whites, though their situation hasn’t changed much over the past decade.
But 61 percent of Hispanic workers are at risk – a 10-point jump since the recession – the study found. A big reason is that Hispanic homeowners were hit especially hard by plunging house prices during the mortgage crisis in states like Florida, Nevada, Arizona, and California, where they are heavily concentrated. Their home equity values dropped 41 percent, a result of buying “houses in the wrong place at the wrong time,” the researchers said.
The loss of home equity has a big impact on retirees by reducing the amount they can extract from their properties by purchasing less expensive housing or taking out a reverse mortgage. (The researchers assume that when workers retire, they will use reverse mortgages.) …Learn More
January 8, 2019
From NYC to Boise, Babies are Pricey
If a new baby is in the works for the new year, prepare yourself now.
Despite the pure joy of having a child, the fact of the matter is that the basics – daycare plus a second bedroom, extra health insurance, food and personal items – are expensive even in Little Rock, Arkansas, which is at the bottom of Magnify Money’s new ranking of the cost of adding a family member in 100 U.S. major cities. Monthly expenses for an infant exceed $700 a month in Little Rock, or nearly $8,500 a year.
The big budget buster everywhere is day care, which is a financial shock for most new parents. The bills can easily reach or exceed $1,000 a month, and day care represents 70 percent to 80 percent of the money spent on a baby, whether the parents live in New York City, Birmingham, Alabama, or Boise, Idaho.
Magnify Money’s estimates do not even include the college savings parents should start socking away immediately. They do include the federal tax credits for children.
Click here to get a rough idea of what your new baby will cost where you live. …Learn More
November 15, 2018
Why Couples Retire Together – or Don’t
Married couples don’t necessarily know what the other spouse is thinking about retirement.
This insight came out of a new Fidelity Investments survey that asked some 1,600 people if they knew when their significant other planned to retire. Only 43 percent answered the question correctly. This disconnect reveals just how few couples are talking about retirement, said Fidelity spokesman Ted Mitchell, who worked on the survey.
Fidelity’s survey went out to adults of all ages, so the younger ones no doubt felt they’re too young to be thinking – much less talking – about what their lives will be like decades from now.
But things change as couples age. When retirement comes into sharper focus, it’s natural to start talking through the options – mine, yours, and ours.
One option is to retire around the same time, and prior research has shown that roughly half of older couples do so.
New research takes a more nuanced look at how couples retire and finds a more complicated picture. Mixed arrangements are common in the pre-retirement years. Perhaps one spouse continues working full-time, even though their partner has retired, or one spouse might shift down to part-time work while the other is either still in a full-time job or has already retired.
Two sentiments are usually in conflict when older workers are trying to decide whether to retire: a longing for more leisure time and a need to bank more in savings, Social Security, and pensions.
Spouses often influence one another’s retirements for a variety of reasons, including their health, their relative ages, and how much each one likes their job. But financial security is usually a major consideration. …Learn More
November 8, 2018
A Proposal to Reduce Widows’ Poverty
A dramatic decline in widow’s poverty over a quarter century has been a positive outcome of more women going to college and moving into the labor force.
Yet 15 percent of widows are still poor – three times the poverty rate for married women.
A new study by the Center for Retirement Research takes a fresh look at Social Security’s widow benefits and finds that increasing them “could be a well-targeted way” to further reduce poverty.
Widows are vulnerable to being poor for several reasons. The main reason is that the income coming into a household declines when the husband dies. The number of Social Security checks drops from two to one, and any employer pension the husband received is reduced, or even eliminated if the couple didn’t opt for the pension’s joint-and-survivor annuity.
While one person can live more cheaply than two, the drop in income for new widows often isn’t accompanied by a commensurate drop in expenses.
Another issue begins to develop as much as 10 years before a husband dies. Prior to his death, his declining health may increase the couple’s medical expenses and reduce his ability to work, depleting the couple’s – and ultimately the widow’s – resources.
The irony today for wives who worked is that their decades in the labor force generally improve their financial prospects when they become widowed. Yet, under Social Security’s longstanding design, they receive less generous benefits than housewives – relative to the household’s benefits prior to the husband’s death. …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 27, 2018
Medicaid Expansion Reduces Unpaid Debt
One in five Americans is burdened by unpaid medical bills that have been sent to a collection agency. Medical debt is the most common type of debt in collections.
This burden falls hardest on lower-paid people, who have little money to spare between paychecks. These are the same people the 2014 Medicaid expansion under the Affordable Care Act (ACA) was designed to help. Some 6.5 million additional low-income workers were getting insurance coverage just two years after Medicaid’s expansion, which increased the program’s income ceiling for eligibility in the states that chose to adopt the expansion.
The evidence mounts that this major policy has improved the precarious finances of vulnerable households.
A new study of the regions of the country with the largest percentage of low-income residents found that putting more people on Medicaid has reduced the number of unpaid bills of all kinds that go to collection agencies and cut by $1,000 the amounts that individuals had in collections.
The impact in states that did not expand Medicaid is apparent in Urban Institute data. Five of the 10 states with the highest share of residents owing money for medical bills – North Carolina, South Carolina, Oklahoma, Tennessee and Texas – decided against expanding their Medicaid-covered populations under the ACA option. About one in four of their residents have medical debt in collections.
That’s in contrast to Minnesota, which has one of the most generous Medicaid programs in the country and the lowest rate of medical debt collection of any state (3 percent of residents), said Urban Institute economist Signe-Mary McKernan.
“Past due medical debt is a big problem,” she said. “When [people] have high-quality health care, it makes a difference not only in their physical health but in their financial health.” …