April 6, 2017
Retirees Don’t Touch Home Equity
Remarkably, middle-class Americans have at least as much money tied up in their homes as they have in all their retirement plans, bank accounts, and other financial assets combined.
A hefty share of older U.S. homeowners are even better off: 41 percent between ages 65-74, and 63 percent over 74, have paid off their mortgages and own their homes free and clear.
But only one in five retirees would be willing to use their home equity to generate income in a new survey by the National Council on Aging (NCOA). This reluctance seems to be on a collision course with financial reality for working baby boomers, when so many are at risk that they won’t be able to maintain their living standards when they retire.
Retirees can get at their home equity to improve their finances a couple of ways. One is to sell, say, the three-bedroom family home on Long Island for a pretty penny and buy a condo on Long Island or a cheaper house in Florida. Yet only a tiny sliver of older Americans actually downsize to reduce their living expenses, according to a new report by the Center for Retirement Research at Boston College, “Is Home Equity an Underutilized Retirement Asset?”
Another avenue is available to people over 62 who don’t want to move: a reverse mortgage. While these loans against home equity are not for everybody, they’re one option if retirees want to pay off the original mortgage or withdraw funds when they’re needed. But only about 58,000 homeowners took out federally insured Home Equity Conversation Mortgage (HECMs) in 2015, according to the U.S. Department of Housing and Urban Development.
The NCOA’s survey, which was funded by Reverse Mortgage Funding, a lender, uncovered one reason for the lack of interest: retirees are not clear about how reverse mortgages work and how they differ from a standard home equity line of credit. …Learn More
March 16, 2017
A Modest Victory in Financial Education
With so many Americans in the dark about how to prepare for retirement, educating them about why it’s critical to save seems an obvious way to tackle this problem. But very few solid studies prove that financial education actually works.
This field research should be counted as a positive result for a modest, low-cost financial education program.
Carly Urban at Montana State found that tellers and other low-level employees working at 45 randomly selected credit unions around the country clearly made progress after spending just 10 hours in an online financial education program. The information-based program required the workers to do some reading and walked them through specific examples and scenarios they might face.
Their improvements weren’t limited to increasing their knowledge of finances and retirement saving either. They also saved more, Urban said while presenting her findings at a webinar sponsored by the Center for Financial Security at the University of Wisconsin.
In the fall of 2009, the credit union employees completed the online education on the basics of everything from financial planning and investment risk to saving for college and working with a financial adviser. They were allowed to choose how much time to spend on each of 10 modules, and their employers let them take the courses at work – rather than use up valuable free time. …Learn More
March 14, 2017
1 in 3 Can Barely Afford Medical Care
More Americans have health insurance, but they’ve also become increasingly worried over the past two years about how to pay for every aspect of their medical care.
While the majority of insured adults still can afford their health care, the minority who say it’s “difficult” to pay their monthly premiums, doctor and prescription copayments, and deductibles is growing.
Potential explanations for these concerns, revealed in a new Henry J. Kaiser Family Foundation poll, include rapidly rising prescription drug costs and the fact that employer-provided health insurance plans with high deductibles are far more common than they used to be.
To be sure, the Affordable Care Act (ACA) has expanded Americans’ access to health insurance, and federal subsidies have made the premiums more affordable for millions of previously uninsured workers, who now purchase coverage through the ACA’s state health exchanges. But the program hasn’t eliminated concerns about cost. …Learn More
March 2, 2017
Retirement, Saving and Your Taxes
Just one in four of the low-income workers eligible for the federal tax credit for retirement saving are even aware that it exists.
The IRS, as I said in a previous blog, practically “gives money away” through its Saver’s Tax Credit, which returns as much as half of the amount saved to the tax filer. The credit was designed to encourage the nation’s lowest-paid workers, who largely don’t save.
Yet a survey last year by the Transamerica Center for Retirement Studies found that people who are not eligible for the credit know more about it than people who are eligible. There was a pervasive lack of awareness in three groups in particular: workers earning under $50,000, women, and people with no more than a high school education.
We’re getting into the thick of the tax season, so we’ve assembled a list of our previous tax-oriented blogs – the first article explains the saver’s credit. The blogs, listed below, explore a variety of issues to consider when you’re doing your taxes: …Learn More
February 14, 2017
Unpaid Water Bills Open Door to Advice
Nearly half of the low-income residents in some sections of Louisville are delinquent on their city water bills. In Newark, water customers’ unpaid balances have been known to reach $4,000.
The shutoff and reactivation fees that some cities charge when they stop a customer’s water service create another problem in places like Houston: they add to the unpaid balances of customers who are already struggling financially. Cities are also becoming more aggressive about collecting on their debts, hiring third-party collection firms.
Researchers and the National League of Cities tried an alternative in the form of an ambitious pilot program involving five city water departments: Houston; Louisville, Kentucky; Newark, New Jersey; Savannah, Georgia; and St. Petersburg, Florida. Driving the program was the recognition that unpaid water bills are an indication of deep financial distress. So the cities, which are loathe to turn off this essential service, embraced a broader vision: providing financial counseling to empower families with delinquent water bills to better manage their situations.
While every city’s pilot program was slightly different, Ohio State researcher Stephanie Moulton said they had two things in common: an agreement to restructure residents’ unpaid water bills to make them affordable, and at least one private session with a financial counselor or coach already working for the city or a local non-profit. Some cities added other services, such as screening for public benefits if a job loss had caused a resident to fall behind on the water bill.
Houston, for example, trained and certified six customer service representatives in its Department of Public Works to act as financial coaches, said Bonnie Ashcroft, a departmental section chief. The counselors who coached clients on their household finances also advised them on how to reduce their water bills.
It’s not possible to do a rigorous analysis of the pilot’s overall effectiveness, because each city’s water department is unique. But individual analyses of each city found three that showed marked improvements in their water payments, Moulton said. These successes were presented in a recent webinar. …
In Houston, customers’ unpaid account balances declined, on average, from $544 to $374. Unpaid account balances in Newark went from $969 to $605. The frequency of payments in these cities also increased, Moulton said. Learn More
February 7, 2017
Wrong People Seek Financial Info, Help
Most of the 1,000 people who took the financial well-being quiz posted here last year felt content with their situations. Their well-being score averaged 16.4 out of 20 points possible on the quiz.
This happy response completely conflicts with a statistically more reliable survey showing that three out of four Americans report feeling “financially stressed.” Our quiz makes no claim of representing the adult U.S. population and was taken by a hodgepodge of regular readers, Twitter followers and Facebook friends.
So why are Squared Away loyalists so content with their finances?
The blog is “attracting people who are in the action phase. I’m guessing they’re motivated and ready to move,” said Brad Klontz, a financial psychologist in Hawaii – he is both a certified financial planner and trained psychologist.
But the flip side of this is that those who do not seek out financial information and advice – and don’t take blog quizzes – are often “in total denial, and you’re probably not going to catch them,” he said.
Indeed, Klontz’s research has identified avoiding dealing with difficult money issues as among the unconscious behaviors that ensnare people who are in poor financial health, measured by being overloaded with debt or not saving for retirement.
For the avoiders, the psychology is that they know their behavior hurts them but feel it’s due to a character defect – “lazy, crazy, or stupid” – he said. “Shame keeps you stuck. If I’m such a terrible person, why should I try? I’m not going to ask anyone for help.”
When people with money problems recognize the psychological underpinnings, he said, it can lead to changes that can end the pain.
The question for personal finance bloggers and financial advisers remains: how do we reach the people who can’t be reached? …Learn More
January 19, 2017
People Lack Emergency Funds, Tap 401ks
When between 45 percent and 60 percent of Americans don’t have enough money for retirement, encouraging saving is a national priority.
A related issue is preserving the funds once they’re set aside.
A survey released last month by Transamerica indicates that workers frequently resort to hardship withdrawals and loans from their 401(k)s, because they lack the cash required in emergencies. The survey bolsters the argument made by some retirement experts and employers that until workers’ cash-flow problems are addressed, many will continue to view retirement funds as their best option in an emergency.
More than one in four U.S. workers in the survey said they have taken premature withdrawals from their 401(k) or IRA retirement funds. Catherine Collinson, president of the Transamerica Center for Retirement Studies, connected this “alarmingly high share” to a shortage of cash: 21 percent of workers reported having less than $1,000 saved for emergencies and another 14 percent have saved just $1,000 to $5,000. …Learn More