Mothers often work less because, well, they’re also moms.
Still, they generally work consistently enough to qualify for Social Security pensions based on their own earnings records – rather than on their husbands’, as was common when more women were full-time housewives or worked just a few hours a week while the kids were at school.
Yet today’s working mothers do take a hit to their earnings when they temporarily reduce their hours or take a hiatus from work for childcare. The upshot of lower earnings is less Social Security income later for mothers, according to a new study by researchers for the Center for Retirement Research (CRR supports this blog).
The researchers, Matt Rutledge, Alice Zulkarnain, and Sara Ellen King, used data on all older women – married or single, mother or not. First, they confirmed past studies showing that the typical mom earns about $2,760 per month – or 28 percent less than a childless woman earns. Having two children translates to nearly 32 percent less income, and three children, to 35 percent less. (The analysis adjusts for some things – education is one – but not all the factors that distinguish mothers from non-mothers.)
Mothers’ lower Social Security benefits reflect this earnings penalty, though by a smaller percentage. Mothers’ benefit checks are 16 percent less than women who had no children to care for. Benefits are also lower if they had more children – by 18 percent for two children and nearly 21 percent for three. …Learn More
This New Yorker cartoon by Trevor Spaulding is cute, but – spoiler alert – it’s not quite right.
A company offering a 401(k) retirement savings plan to its workers is a good thing, but it’s no “favor,” noted my long-time editor Steve Sass, an economist with a hawk eye for inaccurate retirement information. Setting up and funding a 401(k) is a big expense for employers. But many think it is worthwhile, because 401(k)s – and, more so, employers’ matching contributions – help them attract and retain the sharpest, most productive, or most-skilled workers.
Another employer calculation is that the income tax deduction employees get for saving, which costs the employer nothing, is especially valuable for those on the payroll who earn the most money and, by definition, pay more taxes. It’s a neat outcome that the tax deduction most helps those presumably doing the most for the bottom line, though the government does limit how much highly compensated employees can contribute based on how much the rank-and-file workers are contributing.
But, it’s no fun to criticize a cartoon!Learn More
This Donald Duck cartoon, funded by the U.S. government in 1943, urged Americans to pay their income taxes to support the war effort. Paying taxes was a patriotic act, to build up the inventory of war planes and battleships to defeat the Nazis – “sink the Axis!” the narrator bellows.
Nobody liked paying taxes then, and they still don’t. Yet there was a growing awareness as the war played out in the 1940s that taxes – like saving your scrap metal – were necessary to advance the greater good.
Things are different today. There doesn’t seem to be as much room in the public conversation for the benefits that federal taxes bestow, such as Social Security, Medicare, Medicaid (nursing home funding) and the Part D prescription drug benefit for retirees, or for government investments in education, roads, and research – or about who would suffer more if deprived of these benefits.
“Most people who do in fact receive significant forms of economic security from the federal government don’t know it,” argued Molly Michelmore, an economic historian at Washington and Lee University, in a recent interview on New York public radio. …Learn More
Reflecting a lofty ambition to educate Delaware residents about financial management, state government officials put together some terrific videos.
This is not high-level finance – the speakers tell stories about real people facing up to the dimensional challenges of money and retirement. Viewers outside Delaware might find one of the 10 online Tedx talks valuable to them. Here are three:
Javier Torrijos, assistant director of construction, Delaware Department of Transportation: His take on the immigrant experience in a nutshell: “The parents’ sacrifice equals the children’s future,” said Torrijos, who has two sons and whose own father left Columbia for a tough neighborhood in Brooklyn, New York, in 1964 so his children would have a shot at escaping poverty. Today’s immigrants are no different. But the pervasive ethos of family above all else, he argues, is responsible for some of the Latino immigrant community’s financial instability.
When required to make the impossible choice between going to college or straight to work to support family, family usually wins. “That mentality still exists” but needs to change if Latinos are to improve their lot, he said. …Learn More
As more baby boomers retire, Social Security’s impending financial shortfall will become more pressing.
To restore solvency, Congress can either cut Social Security’s pension benefits or increase the payroll taxes deducted from workers’ pay.
Both policies would impact how much is available for households to spend. Researchers at the Center for Retirement Research find that the benefit reductions would have an appreciably larger annual impact on retirees than would the higher taxes on workers. But the taxes would be spread over a longer time period.
The new study looks at four specific policies, two that cut retirement benefits and two that raise taxes. Each policy analyzed would equally benefit Social Security’s finances.
Gauging their separate effects required using a model to predict workers’ behavior. This was necessary because some workers might feel they should retire earlier if more taxes are being taken out of their paychecks. On the other hand, if their future pension benefits will be trimmed, they might decide to work a few more years to increase the size of their monthly checks.
One option for reducing Social Security payouts would be to delay the full retirement age (FRA) at which retirees are eligible to collect their “full” benefits. A second option is trimming Social Security’s annual cost-of-living (COLA) increases.
A two-year increase in the FRA, to 69, would reduce annual consumption in retirement by 5.6 percent for low-income, 4 percent for middle-income, and 2.2 percent for high-income retirees. …Learn More
In the 1960s, half of all wives were housewives, and their husbands often earned enough money to support a family. Today, these traditional families are a rarity and two incomes have become essential to surviving economically.
A new joint report by the American Enterprise Institute and the Brookings Institution argues that poor and working-class families’ increasingly fragile family structure – despite the rise of dual-income spouses – often leaves them “doubly disadvantaged.” And lower marriage rates among poor and low-income couples help to explain why “America is increasingly divided by class,” write the authors, W. Bradford Wilcox, a professor and director of the National Marriage Project at the University of Virginia, and Wendy Wang, research director for the Institute for Family Studies.
They explain that higher rates of divorce and of couples cohabiting affected the poor’s marriage rate first and most harshly in the 1960s; working-class couples were next, though to a lesser extent in the 1980s. Marriage is far more common among the middle and upper classes.
The authors cite several economic and social forces behind these trends. The losses that less-educated, lower-income men “have experienced since the 1970s in job stability and real income have rendered them less ‘marriageable.’ ” Stagnant or declining wages for middle- and working class couples impede their ability to afford a home, which is the most valuable financial asset most households own. Couples lacking property may “have fewer reasons to avoid divorce.” … Learn More