Posts Tagged "retirement"

Aerial photo of a row of houses

Many Demands on Middle Class Paychecks

Ask middle-class Americans how they’re doing, and you’ll often get the same answer: there are still too many demands on my paycheck.

Several recent surveys reach this conclusion, even though wages have been rising consistently at a time of low inflation.

Student loans trump 401(k)s. Two top financial priorities are in conflict: student loan payments, which people described as a “burden,” and saving for retirement, which they viewed as “important” in a TIAA-MIT AgeLab survey.

The debt seems to be winning: three out of four adults paying off student loans say they would like to increase how much they save for retirement but can’t do it until their loans are paid off – and that can take years. One woman described her loans as “draining” her finances.

A promising sign on the horizon is that some employers are finding creative ways to help employees pay down college debt, giving them more leeway to save money in their 401(k)s. But these efforts impact a small number of workers, and the amount of debt continues to rise year after year for every age group, from new graduates to baby boomers who helped send their children and grandchildren to college, a Prudential study found.  

Buying a house isn’t an option. The good news is that about half of Millennials already own a home. Most of the others want to buy a house but can’t afford it, 20- and 30-somethings told LendEdu in a survey. Their top reasons were student loan and credit card payments and a lack of savings, which is the flip side of having too much debt.

Millennials are also putting off other goals until they get a house – marriage, children, even pets. “It’s quite obvious that this uphill battle” and debt “is having secondary effects,” said LendEdu’s Michael Brown.

Medical debt looms large. Americans borrowed $88 billion last year to pay their hospital, doctor, and lab bills. That debt fell hardest on the 3 million people who owe more than $10,000, according to an estimate by the Gallup polling company and a group of healthcare non-profits. …Learn More

Social Security poster

Readers Debate Retirement Issues

It’s always interesting to see which Squared Away blogs get the strongest reaction from our readers. The June blog, “Husbands Ignore Future Widows’ Needs,” was one of them.

Some readers felt that the results of the study described in the article don’t match up with their experiences. The researchers determined that husbands often are not sensitive to the fact that if they sign up for Social Security in their early 60s, they could be locking in a smaller survivor benefit one day for their widows.

“The elderly couples with whom I do retirement planning are typically very conscious of each other’s needs,” said a critic named Jerry.

But financial planner Kathleen Rehl has the opposite experience when working with couples. “Most couples hadn’t previously known their options and ramifications of those choices,” she said. “Such an important planning concept.”

The blog was based on a study conducted for the Retirement and Disability Research Consortium – consortium studies by researchers around the country are featured regularly on Squared Away.

Here are other 2019 articles about the consortium’s research on various retirement and labor market issues that readers weighed in on: …Learn More

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Social Security: the ‘Break-even’ Debate

Our recent blog post about the merits of delaying Social Security to improve one’s retirement outlook sparked a raft of comments, pro and con.

In the example in the article, a 65-year-old who is slated to receive $12,000 a year from Social Security could, by waiting until 66 to sign up for benefits, get $12,860 a year instead. By comparison, it would cost quite a bit more – about $13,500 – to buy an equivalent, inflation-adjusted annuity in the private insurance market that pays that additional $860 a year.

The strategy of delaying Social Security “is the best deal in town,” said a retirement expert quoted in the article.

Aaron Smith, a reader, doesn’t agree. “It will take 14 years to make that ($12,000) up. Sorry but I’ll take the $12k when I’m in my early 60s and can actually enjoy it,” he said in a comment on the blog.

Smith is making what is known as the “break-even” argument, which is behind a lot of people’s decisions about when to start collecting their Social Security.

But other readers point out that the decision isn’t a simple win-loss calculation. The benefit of getting a few extra dollars in each Social Security check – between 7 and 8 percent for each year they delay – is that it would help retirees pay their bills month after month.

This is a critical consideration for people who won’t have enough income from Social Security and savings to maintain their current standard of living after they stop working – and 44 percent of workers between 50 and 59 are at risk of falling short of that goal.

One big advantage of Social Security is that it’s effectively an annuity, because it provides insurance against the risk of living a long time. So the larger check that comes with delaying also “lasts the rest of your life,” said Chuck Miller, another reader. …Learn More

Paper airplanes in a row

Second Careers Late in Life Extend Work

Moving into a new job late in life involves some big tradeoffs.

What do older people look for when considering a change? Work that they enjoy, fewer hours, more flexibility, and less stress. What could they be giving up? Pensions, employer health insurance, some pay, and even prestige.

Faced with such consequential tradeoffs, many older people who move into second careers are making “strategic decisions to trade earnings for flexibility,” concluded a review of past studies examining the prevalence and nature of late-life career changes.

The authors, who conducted the study for the University of Michigan’s Retirement and Disability Research Center, define a second career as a substantial change in an older worker’s full-time occupation or industry. They also stress that second careers involve retraining and a substantial time commitment – a minimum of five years.

The advantage of second careers is that they provide a way for people in their late 40s, 50s, or early 60s who might be facing burnout or who have physically taxing jobs to extend their careers by finding more satisfying or enjoyable work.

Here’s what the authors learned from the patchwork of research examining late-life job changes:

People who are highly motivated are more likely to voluntarily leave one job to pursue more education or a position in a completely different field, one study found. But older workers who are under pressure to leave an employer tend to make less dramatic changes.

One seminal study, by the Urban Institute, that followed people over time estimated that 27 percent of full-time workers in their early 50s at some point moved into a new occupation – say from a lawyer to a university lecturer. However, the research review concluded that second careers are more common than that, because the Urban Institute did not consider another way people transition to a new career: making a big change within an occupation – say from a critical care to neonatal nurse. “Unretiring” is also an avenue for moving into a second career.

What is clear from the existing studies is that older workers’ job changes may involve financial sacrifices, mainly in the form of lower pay or a significant loss of employer health insurance. But they generally get something in return: more flexibility. …Learn More

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The ACA and Retirement: Is there a Link?

When older workers are able to get health insurance from a source outside of their jobs – Medicare, a spouse’s job, or an employer’s retiree health coverage – they become much more likely to decide it is time to retire.

So it’s reasonable to ask whether the Affordable Care Act, which provided millions of people with health insurance for the first time, has also helped to nudge more older workers into early retirement.

The answer, surprisingly, is no, according to a recent study for the University of Michigan Retirement and Disability Research Center.  This finding is important, because baby boomers who are poorly prepared financially to retire should be working longer – not retiring sooner – to improve their retirement outlook.

The researchers, who are at the University of Michigan and Vanderbilt University, estimated that the uninsured rate of 50- to 64-year-olds dropped substantially after the ACA went into effect in 2014 – from 16 percent in 2013 to 12 percent in 2016.  But when they tracked these older workers for several years, they found no evidence that they started retiring at a faster pace after the ACA established the state insurance exchanges and gave tax subsidies to people who purchased coverage on the exchanges.

The study also looked at whether retirement activity increased in response to a separate provision of the ACA: the expansion of the Medicaid health insurance program for low-income Americans.  The expansion, which was voluntary for each state, was achieved by increasing the income ceiling for eligibility. The federal government gave a financial incentive to states that broadened eligibility for Medicaid coverage, and about two-thirds of the states have expanded to date.

In comparing states that expanded their Medicaid programs to states that had not, the researchers again found virtually no change in low-income workers’ retirement trends.

There is widespread agreement that turning 65 and becoming eligible for Medicare motivates people to retire. So why is the ACA different?

One possible explanation is that the “political uncertainty” surrounding the ACA and Medicaid expansion “discourage[s] older workers from counting on them when making career decisions,” the researchers said. …Learn More

Thift Savings Plan logo

Modifying a Retirement Plan is Tricky

Employers beware: changing your retirement plan’s design can have unfortunate, unintended consequences for your employees.

That’s what happened to the Thrift Savings Plan (TSP) for federal workers, says a new study by a team of researchers for the NBER Retirement and Disability Research Center.

Like many private-sector savings plans, the $500 billion TSP – one of the nation’s largest retirement plans – has automatic enrollment. Federal employees can make their own decision about how much they want to save and, in a separate decision, how to invest their money. But if they don’t do anything, their employer will automatically do it for them.

In 2015, the TSP changed its automatic, or default, investment from a government securities fund to a lifecycle fund invested in a mix of stocks and bonds with the potential for higher returns than the government fund. However, the employer did not change the plan’s default savings rate for workers – 3 percent of their gross pay. (The government matches this contribution with a 3 percent contribution to employees’ accounts.)

After the TSP switched to the lifecycle fund, the new employees at one federal agency – the Office of Personnel Management – started saving less, the researchers said.

This probably occurred because, in passively accepting the TSP’s new lifecycle fund – a more appealing option than the old government securities fund – they were also passively accepting the relatively low default 3 percent contribution.

Employees seem to “make asset and contribution decisions jointly, rather than separately,” the researchers concluded. …Learn More

Walk? Yes! But Not 10,000 Steps a Day

A few of my friends who’ve recently retired decided to start walking more, sometimes for an hour or more a day.

Seniors Walking Together at the Park

Becoming sedentary seems to be a danger in retirement, when life can slow down, and medical research has documented the myriad health benefits of physical activity. To enjoy the benefits from walking – weight loss, heart health, more independence in old age, and even a longer life – medical experts and fitness gurus often recommend that people shoot for 10,000 steps per day.

But what’s the point of a goal if it’s unrealistic? A Centers for Disease Control study that gave middle-aged people a pedometer to record their activity found that “the 10,000-step recommendation for daily exercise was considered too difficult to achieve.”

Here’s new information that should take some of the pressure off: walking about half as many steps still has substantial health benefits.

I. Min Lee at Brigham and Women’s Hospital in Boston tracked 17,000 older women – average age 72 – to determine whether walking regularly would increase their life spans. It turns out that the women’s death rate declined by 40 percent when they walked just 4,400 steps a day.

Walking more than 4,400 steps is even better – but only up to a point. For every 1,000 additional steps beyond 4,400, the mortality rate declined, but the benefits stopped at around 7,500 steps per day, said the study, published in the May issue of the Journal of the American Medical Association.

More good news in the study for retirees is that it’s not necessary to walk vigorously to enjoy the health benefits. …Learn More