Just as the wealth and income gap between the well-to-do and working people is growing, so, too is retirement inequality.
Researchers increasingly want to know what’s behind this phenomenon. They’ve uncovered reasons ranging from low-income workers’ greater difficulty saving to the well-to-do’s longer life spans – which means they’ll get more out of their Social Security benefits.
Having a low income doesn’t necessarily mean a retiree can’t live comfortably. What matters is how much of their earnings they will be able to replace with Social Security and any savings.
Even by this standard, lower-income workers come up short: 56 percent are at risk of having a lower standard of living when they retire. The decline is slightly less for middle-income workers – 54 percent – but the risks fall sharply, to 41 percent, for the people at the top.
The roots of this inequality span Americans’ lives from cradle to grave:
In our 401(k) system, financial security in retirement increasingly hinges on how much people can save in their 401(k)s as they work. But it’s harder for low-income workers to save, mainly because their employers are less likely to offer a savings plan, according to a 2017 study by The New School for Social Research. The study also found that basic living expenses gobble up more of their paychecks, and they experience more financial disruptions from layoffs and divorce, leaving less for savings.
Some research assesses inequality trends for specific groups of people. Incomes tend to rise over time, even after being adjusted for inflation, but they rise more slowly for people near the bottom of the earnings scale. Lower earnings translate later to lower retirement incomes. For example, the future retirement income of well-heeled members of Generation X, relative to today’s retirees in the high-income bracket, is estimated to be two times more than it will be for low-income Gen-X retirees, according to an Urban Institute study. …
Kay Dobson is 68, and it’s time to retire from her job as the jack of all trades at the Augusta Circle Elementary School in Greenville, South Carolina.
But she isn’t quite as ready for her June retirement as she could’ve been. She recently learned that an admitted unfamiliarity with Social Security’s arcane rules cost her about $31,000 for two years of foregone spousal benefits based on her husband’s earnings.
“I had not the vaguest idea that I would be eligible for that,” she said.
Dobson is hardly the first person to make a painful mistake like this. People have all kinds of misconceptions about Social Security, or they lack a basic understanding of how it works – that the government calculates benefits using their 35 highest years of earnings, that the size of the monthly checks depends on the age the benefits start, and that working women, like Dobson, are often entitled to a spousal benefit based on their husband’s work record and earnings.
Two years ago, Dobson could have applied for this benefit, because she’d reached her full retirement age – 66. But since she didn’t know this at the time, Social Security recently sent her a check for $7,800 for only six months retroactively – typically the maximum period for retroactive spousal benefits.
Her $1,300 monthly checks are starting to come in now too. When she turns 70, she’ll start collecting a larger benefit based on her own earnings from a long-time career in the school system.
This particular strategy – file for spousal benefits and delay your own – is now available only to people who turned 62 prior to Jan 2, 2016. The unintended loophole was eliminated, because it subverted the original intent of the spousal benefit, which was designed with an eye to retired households with a low-earning or non-working spouse. (The spousal benefit, in and of itself, remains intact and can be a big help to older households in which a working wife earned less than her husband. If that’s the case, her Social Security benefit would be increased until it is equal to half of his full retirement benefit if she claims at or above her own full retirement age.)
The central point here is that ignorance of program rules can mean substantial losses for retirees. For low- or middle-income retirees, the consequences can be especially dire since they’re already scraping by. … Learn More
Betty Taylor is 74 and retired from a job she held for more than a decade filling Spiegel catalog orders and packing them up for shipping – she left in 1984. Diane Taylor, 70, was a packer and then a keypunch operator there between 1982 and 1995.
But the sisters, who live together in their late mother’s house on Chicago’s Southwest Side, couldn’t track down anyone who could confirm that their low-paying jobs entitled them to Spiegel pensions.
This is more common than one might think.
When a single employer or union has continued to maintain its pension plan over several decades, retiring workers know where to go to sign up for their benefits. But the sisters’ pensions got lost amid the confusion and paperwork shuffle around a series of mergers, bankruptcies, and name changes at Spiegel.
The confusion dates back to 1988, when the catalog company, which was founded by Joseph Spiegel after the Civil War, purchased Eddie Bauer. By 2003, Spiegel, loaded down with debt, was filing for bankruptcy protection and was subsequently acquired by the investors in Spiegel’s sole remaining asset, Eddie Bauer. The investors later transferred Spiegel’s pensions to Eddie Bauer’s corporate entity. In 2009, Eddie Bauer also went into bankruptcy, sending the pension funds to their final resting place: the federal Pension Benefit Guaranty Corporation (PBGC), which insures the pensions of failing companies.
Diane felt that a pension, if it existed, could really help out with her precarious finances. And she was pretty certain she remembered a pension from her years at Spiegel. So she started calling around.
“I got the runaround for four years,” she said. “I was persistent, and I was going to keep on until I had one foot in the grave,” Diane said. …Learn More
Caregiver in a nursing home can be grueling work, but my aunt loved it. In one of life’s cruel ironies, she died soon after retiring to take care of her husband, who is developing dementia.
The great responsibility for his care fell suddenly on his children and grandchildren, and they’re struggling with it.
I texted this video to a couple of my uncle’s daughters because it provides invaluable information and insight into the myriad causes of Alzheimer’s and the unique way its symptoms manifest in each individual. It also explains why diagnosis by a physician is critical – turns out, some people appear to have dementia, but the cause of their cognitive decline isn’t Alzheimer’s and may be reversible.
The speaker, Tammy Pozerycki, owns Pleasantries, which operates adult day care centers in the greater Boston area. In 1906, Dr. Alois Alzheimer, a brain researcher, first identified and described the disease. “It’s 2018, and we have no cure,” said Pozyercki. This places the burden on caregivers to manage the disease.
Full disclosure: her presentation was sponsored by Boston College’s human resources department for the benefit of employees. This blog is based at the Center for Retirement Research at Boston College.Learn More
When once-simple financial tasks become difficult or confusing, it can be the canary in the coal mine signaling that an elderly person is developing dementia.
Financial problems will soon follow once people with cognitive impairment start miscalculating and missing payments, forgetting and misplacing accounts, or falling victim to fraud.
But some good news has come out of a new study of Medicare recipients: the vast majority of the 5.5 million people over 65 with established dementia – usually, though not, always Alzheimer’s disease – are receiving help from family and other caregivers with balancing their checkbooks, depositing and withdrawing money, and conducting transactions.
Even better, they are actually benefitting from it. The seniors who receive assistance are more likely to be able to pay for their essential expenses like rent, food, prescriptions and utilities, according to researchers at the Center for Retirement Research, which also sponsors this blog.
There was bad news in the report too: a nontrivial share of the older Americans with established dementia – that is, dementia for at least three years – aren’t getting any help. This problem is expected to grow in future generations. One major reason is longer and longer life spans, which exponentially increase the risk of dementia. Nearly one in three people over 85 are in some stage of dementia. Compounding this is the fact that today’s older workers have fewer children and have divorced more, which shrank the pool of who would be willing to pitch in and help them.
Having a caregiver helping with money management wouldn’t necessarily make an elderly person better off financially. Suppose a daughter is unfamiliar with her mother’s finances or a husband isn’t good at managing his own money. In extreme cases, caregivers sometimes steal from the trusting seniors in their care. Even so, it turns out that it’s better to receive help than not. …Learn More
Myra Hindus of Boston, semi-retired at 68, had her financial adviser estimate the 401(k) withdrawals necessary to support her $4,500 monthly budget, which the adviser also prescribed. But Hindus isn’t fully at ease about her finances, despite the professional advice, a paid-off mortgage, and a good bit more savings than most people have.
“It’s a bunch of guesswork,” said the former diversity administrator and consultant to major universities who hedges her bets by teaching college social work courses.
What overwhelms her are the many unknowns that will determine whether her money lasts as long as she does. What if her adviser is wrong? Or what if she lives well into her 90s – like her mother did? She’s also uncertain of the impact of her younger partner’s coming retirement, which isn’t sorted out yet.
“No one knows when you’re going to die so you can’t base it on that. We’re all in the stock market, and we don’t know what will happen to that,” she said.
Brian Jarvis and Connie O’Brien of Beavercreek, Ohio, also have advantages most baby boomers don’t: small pensions from their former employer, Northrop Grumman, and a mortgage paid off with their private-sector salaries. But they got lucky too. The odds that their withdrawal strategy would succeed improved a few months after they retired, in 2010, when President Obama signed the Affordable Care Act. The couple, who are too young for Medicare, no longer had to buy expensive private health insurance – access to the government health exchange drastically reduced the expense. …Learn More
It’s a simple concept. Deposit retirees’ Social Security checks right before their big-ticket bills come, especially rent.
The U.S. Social Security Administration’s current schedule for depositing pension checks in bank accounts is based on each retiree’s birth date– it can be the second, third, or fourth Wednesday of each month.
The problem is that cash-strapped, low-income seniors receiving the earlier checks, on the second or third Wednesdays, can fall into a common behavioral trap: they spend the money soon after it comes in and then can’t cover the rent, mortgages or credit cards due at the beginning of the following month.
According to a clever new study, people who get these early monthly checks are at greater risk of resorting to desperate measures like payday loans than are seniors receiving them on the fourth Wednesday.
Such measures of financial distress are occurring “even though the pay schedule is known in advance,” write researchers Brian Baugh and Jialan Wang.
The advantage of Social Security deposits made on the fourth Wednesday is that retirees can get the big expenses out of the way first, forcing them to make do for the rest of the month with the money they have left. Indeed, people with fourth-Wednesday deposits had fewer bounced checks, account overdrafts, and payday loans, the researchers found. …Learn More