Posts Tagged "retiree"

Tapping Home Equity – Retirees’ Relief Valve

Woman getting a prescriptionOne telling indication that retirees are in serious financial straits is when they take less of their medications or don’t fill prescriptions.

Nearly one in four low-income retirees has difficulty paying for medications, despite passage of Medicare Part D in 2006, which reduced out-of-pocket drug costs. Between 2011 and 2015, the average Medicare beneficiary spent $620 to $700 a year on prescriptions, and people with diabetes, lung disease, and cardiovascular disease spent more than $1,000 a year.

One way retirees can address such hardships would be to tap some of the equity in their homes. Although a homeowner probably wouldn’t use this strategy just to cover drug copayments, new research finds that older Americans who tap equity significantly increase their adherence to their medications – and this finding has broader significance for improving their retirement security.

Most older homeowners are, on the one hand, reluctant to pull cash out of their homes – often their largest asset – through a home equity loan, mortgage refinancing, or reverse mortgage. Yet many of them don’t have enough income to live comfortably and could put this asset to good use to reduce their debt or pay medical bills if they become seriously ill.

To test how home equity might help retirees, the researchers used a series of surveys between 1998 and 2016 that have data on older people’s finances and ask whether, at any time in the past two years, they took “less medication than prescribed … because of the cost?” The analysis controlled for various influences on financial well-being, including education, marital status, and cognitive health, as well as financial resources.

Extracting home equity improved adherence to medications in the short term, particularly for homeowners over 65 who have little wealth outside of their homes. Separately, the researchers showed that retirees who tapped home equity were significantly more likely to take their medications at a critical time – after experiencing a serious illness.

“Housing wealth can play an important role in reducing economic insecurity,” concluded the study, which was funded by the U.S. Social Security Administration. …Learn More

Colorful arrows

Big Picture Helps with Retirement Finances

The prospect of retiring opens a Pandora’s box of questions. But one big question dominates all the others: How will I manage my finances when I retire?

This is a vexing problem, and baby boomers could use some help thinking it through. To ease the process, a team at UCLA and Cornell University led by David Zimmerman, a UCLA doctoral student, created an online decision tool. In an experiment, they found that the tool might help future retirees understand how to smooth out their income over many years and make their savings last.

The results are preliminary, and the researchers are refining their analysis. But for the initial experiment, they recruited 400 people, ages 40 through 63. The participants were instructed to use the tool to make three big retirement decisions: starting Social Security, choosing a 401(k)-withdrawal strategy, and deciding whether to purchase an annuity. Their decisions would be on behalf of a 60-year-old who is single and plans to retire in two years. He earns $55,000 and has $250,000 in savings to work with.

The participants were split into two comparison groups. One group received immediate feedback on the impact of each separate decision. For example, when the participants picked a Social Security starting age for the hypothetical person, a chart showed a horizontal line tracking the fixed annual benefit locked in by that decision.

When they moved on to another page and selected a plan for 401(k) withdrawals, a chart showed the age when the savings would probably run out. The final decision was whether to buy a deferred annuity with some portion, or all, of the 401(k) assets. The chart on this page displayed the fixed income the annuity would generate every year for as long as the person lives.

The participants were encouraged to change their decisions as much as they liked to see how a change affected that particular source of income. But the researchers suspected that seeing each decision in isolation doesn’t help to clarify how various decisions work together to determine total retirement income over time.

So, the second group got to see the big picture. The chart in this case displayed the impact of any single decision on the annual income from all sources.Learn More

Retirement Research Presented Virtually

A video call

Like much in life under a pandemic, the research presentations for the Retirement and Disability Research Consortium’s annual meeting are going virtual.

This year’s online meeting will also be scaled down from the traditional two days to one: Thursday, Aug. 6.

The purpose of the meeting, which is usually held in Washington, D.C., is for academics from universities and think tanks to describe their latest research to colleagues, policy experts, financial professionals, and the press. Topics this year will include taxes in retirement, federal disability insurance, housing, health, and labor markets. The U.S. Social Security Administration has funded the research and is sponsoring the meeting.

The agenda and information about registration are available online, and participants can register anytime. Questions for the researchers can be submitted during the presentations via a moderator.

One fresh idea being explored this year is taxes in retirement. Taxes are central to whether retirees have enough money to cover their essential expenses, but households that are approaching retirement age may not factor the need to pay federal and state taxes into their planning. Despite the importance of this issue, only a handful of existing studies have tried to estimate the tax burden. This paper fills the gap.

One session will feature a pair of papers looking at whether cognitive decline has a detrimental effect on older Americans’ finances. One will explore whether dementia leads to financial problems overall, and the other will focus exclusively on debt.

Researchers will also try to resolve a conundrum in the disability field: why are applications for federal benefits declining at the same time that Americans’ health is deteriorating? One hypothesis is that jobs are becoming less physically demanding. A second disability study will produce a publicly available database for researchers who want to examine the local factors affecting applications.

The agenda lists all of the papers that will be presented. Learn More

Art of a thumbs up and heart

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

Most Older Americans Age in their HomesLearn More

Seniors climbing coin stacks

Most Data Sets Agree on Retiree Income

What kind of financial shape are retirees in?

A 2017 study refocused attention on this old question, and it has taken on greater urgency as more and more baby boomers retire.

The study looked at the accuracy of the U.S. Census Bureau’s Current Population Survey (CPS) and confirmed earlier research showing that it dramatically under-estimates retirees’ income. The under-reporting in the CPS could raise concerns about the accuracy of other surveys that paint a less-than-rosy picture of retirement life.

To get to the bottom of things, the Center for Retirement Research (CRR) dug into other standard sources of survey data on retired households so they could be compared with CPS data. They found that the income estimates in the CPS were much lower than the others and clearly the outlier – the other four data sets roughly agreed on how much income retirees have.

The CRR researchers then selected one of the reliable sources of income data – the Health and Retirement Study (HRS) – to assess how retirees are faring. They concluded that around half of over-65 households may be experiencing difficulty maintaining the standard of living they enjoyed while they were working. The researchers based this on the rule of thumb that they need about 75 percent of their past employment earnings.

To be sure, every survey has its strengths and shortcomings, because they rely on what people say they are getting from their Social Security, retirement plans, and investments. …Learn More