Things are looking up for Shirley Floyd of Chicago.
Her daughter just earned a college scholarship, and Floyd has landed a better job. The new job requires the 37-year-old to stand on a concrete floor, sometimes 10 to 12 hours a day, inserting automobile gaskets into cardboard sleeves for shipping. But her earnings, including overtime, are much larger than her $216 biweekly paychecks in 2014, when she was a part-time home health aide.
When Floyd was unable to keep her head above water last year, she received a financial lifeline from a program run by the Center for Economic Progress in Chicago. Under the pilot program, which was supported and funded by the Chicago mayor’s office and housing authority, 343 low-income recipients of the federal Earned Income Tax Credit (EITC) signed up for quarterly advances on their current year’s EITC payments, which they otherwise would have had to wait to receive the following year at tax time.
“It was an awesome program,” Floyd said about the advances, which always seemed to arrive at just the right time. “That pressure is relieved – for a little while. You’re able to do what you need to do.” She also believes quarterly payments are better than a large, one-time tax refund in February, because “the entire thing is gone” by March.
Under the Periodic Payment Pilot Program, low-wage workers with at least one child could get up to 50 percent of their estimated future EITC refunds as quarterly advances, up to a maximum of $2,000 per year. Floyd used her advances of nearly $400 per quarter to pay utility bills, rent, or her daughter’s tuition at a Catholic high school. …Learn More
Young people in the noon yoga classes here at Boston College bend, twist, or flatten themselves more easily than their much older classmates.
But older people are better savers – 50-year-olds save at more than double the rate of 40-year-olds – and perhaps yoga can explain how this happens.
In yoga, one doesn’t immediately balance into Warrior III without toppling over or find the upper-body strength for the Crow pose shown above. It takes practice to build the balance, strength, focus, or flexibility that each pose requires. Only with time do these pretzel-like configurations become less painful and more convincing. Poorly executed poses, practiced and repeatedly improved, are the only path to perfection.
As a 20-something working in downtown Chicago in the 1980s, I spent every dime of my disposable income – and then some – on beer and Thai food, vacations, clothes, and parking tickets.
Fast forward 30 years, and my niece and nephew in Chicagoland are now graduating college. It’s liberating to leave school for a full-time job and a substantial increase in one’s income after years of penury. It’s also so tempting to squander this money.
But young adults no longer have that luxury.
The financial demands Millennials will face over their lifetimes are shaping up as far more complex than they were for their baby boomer parents, whose primary worry was buying a house. …Learn More
Several new books are pertinent to topics frequently covered by this blog. Three worth noting are about low-income savers, older workers, and small employers with retirement plans that are overdue for an upgrade.
Here are brief descriptions:
“A Fragile Balance: Emergency Savings and Liquid Resources for Low-Income Consumers:”:
For low-wage workers in fast food, retail, and similar jobs, just finding enough money for living expenses is like squeezing blood from a turnip. Research shows that many want to save, and the absence of this backstop only increases their financial fragility. The default is often to resort to high-cost debt, which further confounds their ability to pay the bills, much less weather the next emergency such as a car repair.
Finding effective savings interventions to help low-wage workers may be the toughest personal finance challenge there is. It’s also the mission of the Center for Financial Security at the University of Wisconsin in Madison and its director, Michael Collins. In this volume, edited by Collins, leading researchers review various interventions and policies – from mortgage reserve accounts and impulse saving to programs that encourage low-income workers to save their tax refunds. [Watch for future blogs about specific findings in this volume.] …
Here’s a sobering thought: by the time most workers get into their 50s, their earnings are declining.
Although older workers don’t necessarily see smaller paychecks, their earnings are effectively shrinking, because they no longer keep up with inflation, according to a study charting the inflation-adjusted, or “real,” earnings of some 5 million U.S. workers over their lifetimes.
The first decade in the labor force, between ages 25 to 35, is crucial – that’s where the wage gains are concentrated, the researchers find. Real earnings plateau sometime between 35 and 45, and this plateau occurs earlier than previous research had indicated. By the time most people move into the oldest age group in the sample – 45 to 55 – their earnings are falling.
The chart below shows the percentage changes during three discrete decades in the labor force for people whose earnings are in the middle of all U.S. workers’ earnings. For the 45-55 age group, other data in the study pinpoint the earnings decline as actually beginning around 50.
Economists have been refining their analyses of lifetime earnings patterns for decades. The researchers’ methodology improves on past techniques and then applies it to an extremely robust data set: the Social Security Administration’s earnings records for U.S. workers from the 1970s through 2011.
When they looked at all workers, they found that earnings, adjusted for inflation, rise by 38 percent over a typical person’s lifetime. But these lifetime patterns vary dramatically by a worker’s income bracket. …Learn More
President Obama signed a January memo officially launching his MyRA program to encourage saving by low-income and other Americans who lack a retirement plan through their employers.
The United Kingdom is also addressing pension shortfalls for uncovered workers in a much more ambitious way. The U.K. program, put in place in 2012, has two key provisions that MyRA lacks: it automatically enrolls workers so more will save in the first place, and it provides them with matching contributions.
The U.K. program has enrolled 1.8 million of the 4 million workers targeted, primarily at small employers. A 2014 study by the Center for Retirement Research, which supports this blog, described the program and compared it with MyRA.
The United Kingdom’s retirement income problems largely stem from the contraction of the government’s retirement system. A first stab at improving retirement income security came in 2001, when the government mandated that employers with five or more workers offer a low-cost retirement savings plan that workers could volunteer to join. That program gained little traction among workers or financial firms.
The 2012 reform was much bolder. In addition to mandating a 3 percent employer match (starting in 2017), the government matches 1 percent, with both matches contingent on the employee saving 4 percent of his earnings. To manage the program and offer a low-cost savings plan to employers, the National Employment Savings Trust, or NEST, was established. …Learn More
It’s fairly easy to withdraw money prematurely from 401(k)s and IRAs – a practice that depletes roughly one-fourth of account balances over a worker’s lifetime.
U.S. workers on average withdraw 1.5 percent annually from their retirement account assets. When they do, they forgo years of investment gains they could have earned had they left their money alone.
Early withdrawals can pose a problem for many Americans at a time financial security in retirement increasingly hinges on these defined contribution plans. The potential for leakages has also grown in recent years, in part due to the shift away from traditional employer pensions to 401(k)s that place control in employees’ hands. Further, the assets being held in IRAs, which have more liberal withdrawal policies, are increasing as workers changing jobs and retiring baby boomers roll their employer-sponsored 401(k)s into IRAs.
This chart shows the sources and relative amounts – as a percent of total plan assets – of different types of these premature and permanent withdrawals from defined contribution plans. These estimates, by the Center for Retirement Research, which supports this blog, are based on data from the mutual fund company, Vanguard. They total slightly less than 1.5 percent, because plan participants in Vanguard’s client base earn more than the general population and may have somewhat lower withdrawal rates.
To help preserve workers’ savings, the study proposed ways these premature withdrawals could be restricted: …Learn More