July 3, 2018
Readers Like a Travel Twist on Finances
Two of our readers’ favorite articles so far this year connected difficult bread and butter issues – personal finance and retirement – with a far more pleasant topic: travel.
The most popular blog profiled a Houston couple scouting locations for a dream retirement home in South America, which has a lower cost of living. Another well-read blog was about Liz Patterson, a young carpenter in Colorado who built a $7,000 tiny house on a flat-bed trailer to radically reduce her expenses – so she could travel more.
The downsizing efforts of 27-year-old Patterson inspired several older readers to post comments to the blog about their own downsizing. “From children’s cribs and toys in the attic, to collectible things from my parents’ 70-year marriage!” Elaine wrote. “Purging has been heart wrenching and frustrating and long overdue!”
The following articles attracted the most interest from our readers in the first six months of 2018. Topics ranged from 401(k)s, income taxes, and Americans’ uneven participation in the stock market to geriatric care managers. Each headline includes a link to the blog. …Learn More
June 28, 2018
Kids Figure into Retirement Plans
The grocery shopping for five is over, the family cell phone plan has been canceled, and the college tuition has been paid one last time.
So what’s next?
Newly minted empty nesters, having poured a couple hundred thousand dollars into raising each child, respond to their financial liberation in one of two ways. Some start saving more for their golden years. The others keep spending at that elevated level – but this time on themselves.
This personal decision, made at the critical juncture in the pre-retirement years, will have consequences for retirement – save more and things could turn out pretty well, or keep spending and jeopardize financial security in old age.
In the aggregate, at least some older households are taking the second approach. An analysis by the Center for Retirement Research at Boston College, finds that having children translates to “a moderate increase” in the risk that their standard of living will fall after they retire.
The researchers looked at the financial implications of kids from two angles. First, they used household data to estimate the sacrifices parents make – in the form of lower income – while they are raising children. Then they looked ahead to their retirement finances.
Compared with childless couples, parents in their 30s and 40s have about 3 percent less income for each additional child – some of this loss occurs when mothers work part-time temporarily or take time out for childbearing and childrearing. The income gap between parents and childless couples closes when parents reach their 50s and the kids start leaving the roost.
Less income over a lifetime translates to less wealth: parenthood reduces wealth by about 4 percent per child for workers ages 30-59.
The effects of children persist even after the transition from work to retirement. …Learn More
June 26, 2018
1 in 4 Can’t Afford a Summer Vacation
What a drag. One in four Americans said they can’t afford to take a vacation this summer.
The 3.8 percent unemployment rate is at its lowest since 2000, when the high-technology industry was going gangbusters. Despite the economy’s current strength, the cost of a vacation puts it out of reach for millions of people.
The average family of four spends about $4,000 on vacation, Bankrate said. Air fares don’t seem to be the issue – they are lower now than they were five years ago. But families living on a limited budget are more likely to drive, and the price of gasoline has shot up 25 percent over the past year, to around $2.90 per gallon.
Many people are shortchanging themselves on vacations, because they are “living paycheck to paycheck,” analyst Greg McBride said in a recent Bankrate blog.
Indeed, workers paid on an hourly basis can’t seem to get ahead. Their wage increases, adjusted for inflation, have been flat over the past year. Further, one in four U.S. households couldn’t come up with $2,000 even in an emergency, according to one widely cited study a few years ago. A summer vacation is probably out of the question for them.
Everyone needs a little time off to decompress and relax. Yes, it would be great to go on a deluxe fishing trip to Canada or cycle around Tuscany for two weeks, but there are more affordable ways to enjoy a few days off. A “staycation” is better than nothing. And the cost of a trip can be kept under $500 – one in four people do it, Bankrate said.
But cost isn’t the only reason people skip their vacation – family and work obligations also get in the way. A majority of workers, according to Bankrate, aren’t even using all of their paid vacation days.Learn More
May 22, 2018
Squared Away at Year 7
Seven years ago this month, this personal finance and retirement blog debuted. How things have changed.
For one thing, back in 2011, a lot more people were reading blogs and newspapers on their clunky desktop computers. In recognition of the now-ubiquitous smart phone – more accurately, a computer that happens to have a phone – we just redesigned how Squared Away looks on phones to enlarge the type and make the articles easier to read. Our older readers will appreciate this update.
Year 7 is also an opportunity to restate the blog’s mission, which, frankly, was not fully refined in the early years. In some ways, our mission has not changed: we continue to emphasize retirement security and personal finance, with a bent toward the evidence-based research that provides a clearer understanding of the financial, economic, and behavioral issues that are critical to a high quality of life.
We regularly report on research by scholars around the country, including studies produced by members of the U.S. Social Security Administration’s Retirement Research Consortium: the NBER Retirement Research Center in Cambridge, Mass., the University of Michigan Retirement Research Center, and the Center for Retirement Research at Boston College, which also is the blog’s home.
But it’s natural for a new publication to find its sweet spot over time, and Squared Away is no different. One theme that has emerged very clearly is that the threads of retirement saving are shot through the fabric of our financial lives.
The predicament of Millennials is an obvious example. Immediately after beginning their careers, 20- and 30-somethings – so much more than their parents and grandparents – are under the gun to save for retirements that no longer are likely to include a pension. …Learn More
May 15, 2018
Why Retirement Inequality is Rising
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. …
May 3, 2018
‘Do I Have a Pension?’ Sleuths Can Find it
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
April 19, 2018
Credit Unions a Popular Antidote to Fraud
The 1980s featured bankrupt Texas savings and loans. Then, in the mid-2000s, Countrywide failed to clearly disclose to customers the spike in their subprime mortgage payments in year 3. In 2016, 5 million customers learned about their fabricated Wells Fargo accounts. And last year, Equifax breached 140 million customers’ privacy.
No wonder people are flocking to the friendly credit union in their church, labor union or workplace.
The widespread fraud reports making headlines with regularity have fed a perception that “fraud happens in the banking world and a lot of it goes unpunished,” said Mike Schenk, senior economist for the Credit Union National Association (CUNA).
“It’s not just Countrywide as an abstract concept. It’s that Countrywide put people into these toxic mortgages to make a buck.” The 2008 stock market and housing crashes, fueled partly by the collapse of several subprime lenders, hammered this point home.
CUNA has a bold marketing message: credit unions care more about their customers than impersonal banking behemoths. Schenk said he has the evidence to prove credit unions are benefiting from Wall Street’s financial shenanigans: membership increased an “astonishing” 4 percent in 2017, as the U.S. population grew less than 1 percent.
Of course, most banks aren’t bad guys, and they provide services that small credit unions can’t. Banks frequently upgrade their technology – Bank of America’s ATMs are cutting edge. Large banks also have much larger networks of ATMs and branches, and they can service the large corporate accounts credit unions aren’t equipped to do.
So, what do credit unions do better? Here are their three big advantages: …Learn More