Posts Tagged "savings"

Economists Show Inequities’ Roots in Slavery

Conversations about the vast White-Black disparity in U.S. wealth may acknowledge its roots in slavery. But four economists have now made the case quantitatively by charting changes in the wealth gap since the Civil War.

The political and societal influences on wealth accumulation between 1860 and today are multifaceted but the basic trajectory is this:

The wealth gap shrank by roughly half during the Civil War era from 1860 to 1870 and dropped in half again between 1870 and 1920, the researchers said in their recent paper. The decades of improvements in Blacks’ per capita wealth, compared with Whites’, occurred despite a quick end to Reconstruction after the Civil War and the rise of Jim Crow laws around 1890 that curtailed recently freedmen’s rights in the South. (I’ll explain more about this counterintuitive finding below.)

Progress continued but was more modest after the 1920s and started stalling out around the 1950s. The situation deteriorated after the go-go-1980s on Wall Street as Black Americans’ wealth levels fell behind largely because they own much less stock and haven’t equally enjoyed the bull market gains of recent decades.

The wealth gap is so entrenched today, the study concluded, that reaching equality is “an extremely distant or even unattainable scenario.” …Learn More

The power of words being typed

Viewing Retirement Saving as a Fresh Start

Employers have learned over the years that understanding employee psychology is critical to getting them to save for retirement. Researchers have landed on a novel idea along those lines: explain to employees that they have an opportunity to save in a 401(k) or increase their 401(k) saving on a future date that represents a fresh start, such as a birthday or the first day of spring.

In a 2021 study in the journal Organizational Behavior and Human Decision Processes, this “fresh start framing” during an experiment increased the percentage of workers who agreed to contribute to their employer retirement plans and increased the share of pay contributed to the plans. In both cases, the increases were well in excess of 25 percent in a comparison with employees who were presented with less salient future dates.

Add this technique to a well-established one that growing numbers of employers already use with some success: automatically enrolling workers in the 401(k), and sometimes automatically increasing their contributions, which research has shown can work better than waiting for them to do it themselves. Most of the retirement plans in the study did not have any automatic features, and the fresh start dates proved another way to elicit better saving habits – voluntarily.

The option to delay a commitment to save is based on an assumption that people are more willing to make a change that involves sacrifice if it can be postponed – smokers often try to quit this way. One theory for using a fresh start date is that it imbues a feeling of optimism, giving employees permission to set aside past failures. …Learn More

Wandering into Retirement Worked for Him

Howard Gantman didn’t exactly have a plan for retirement. Rather, he wandered into it during the early months of COVID chaos.

Nevertheless, retirement is going better than he’d expected. Gantman, who read comic books and science fiction voraciously as a child, has rediscovered his passion. He joined a writing group on Zoom and is working on a science fiction novel of his own. (And no, he’s not disclosing the plot yet.)

“I’m happier doing this than I would’ve been if I’d continued to work. I really was ready for a change,” the Washington, D.C., resident said in a recent interview. “Aside from a gruesome virus that keeps on whacking us on the head, I feel more in control of my life.”

Howard Gantman

Howard Gantman

Retirement experts often warn baby boomers that planning for lifestyle changes before retiring is just as important as making certain one’s finances are in order. That’s the ideal. But not everyone who’s making the transition has a well-developed plan or takes a straight route to where they wind up.

Gantman, a former journalist and government and communications professional, had anticipated working until he was about 72. In March 2019, at age 67, he left his job at the Motion Picture Association during a staffing transition and started focusing on consulting and volunteer work while searching for a new job. In December, he had to go into the hospital for surgery to repair an aortic aneurysm and replace an aortic valve.

After the surgery, while he was recovering and doing some light consulting, COVID hit and his employment opportunities dried up.

He decided to get back into creative writing, something he had only dabbled in as a young, workaholic journalist and then government official. At first, he blogged about aging and thought about writing a memoir centered on his late-life transition. But that topic no longer seemed to strike the right tone with so many lives suddenly in turmoil around COVID.

That’s when his love of science fiction and fantasy pulled him back in. “I decided that’s it. That’s what I want to do,” he said about writing a novel. …Learn More

Readers’ Favorite Retirement Blogs in 2021

For the baby boomers who are looking down the road to retirement, generalities will no longer suffice. They are diving into the nitty gritty.

Their keen interest in retirement issues, based on reader traffic last year, range from why the adjustments to Social Security’s monthly benefits are outdated to how it’s still possible for boomers, even at this late hour, to rescue their retirement.

First, and most important, there is hope for the unprepared. In “No-benefit Jobs Better than Retiring Early,” readers who want to retire but can’t afford it learned that they can dramatically improve their finances by finding a new job – ideally a less stressful or physically demanding one. Even if the job doesn’t have employee benefits, working longer will increase their Social Security benefits and allow them to save a little more.

The most popular article tackled a complex issue: “Social Security: Time for an Update?” The article explained the program’s actuarial adjustments, which are based on the age someone signs up for their benefits and factors into how much they’ll get. The adjustments, set decades ago, are no longer accurate, due to both increasing life spans that affect how much retirees receive from the program over their lifetimes and persistently low interest rates.

If these factors were taken into account, the researchers estimate that the average person who starts Social Security at age 62 would get more in their monthly checks, and the average person who holds out until 70 would get less.

However, not everyone is average. High-income workers tend to live longer and retire – and claim Social Security – later, while low-income workers have shorter lifespans and disproportionately start Social Security at 62.  The researchers conclude that the inequities “are not a problem that can be solved by tinkering with the actuarial adjustment.” A true fix would “would require a reassessment of the benefit structure.”

A major issue facing boomers in their late 50s and early 60s is that households with 401(k)s typically have saved only about $144,000 for retirement in their 401(k)s and IRAs. The reasons for insufficient savings – explained in “Here’s Why People Don’t Save Enough” – boil down to things that are largely beyond their control, including disruptions in their employment, a lack of access to employer retirement plans, lower earnings than they’d hoped for, bad investments, unanticipated premature retirements, and health problems.

However, workers can do something to gauge how they’re doing: make sure they know how much they’ll get from Social Security. …Learn More

seniors in a retirement home

Medicaid to Help Fill Gap in Seniors’ Care

Two previous studies on long-term care reported in this blog estimated how many of today’s 65-year-olds today will require care for minimal, moderate, or severe levels of need as they age and how many have the financial resources to cover each level of care that might be required.

In the third and final study in this series, the Center for Retirement Research matched the specific levels of need each retiree is projected to have in the future with their resources to determine how many of them will fall short.

Among all retirees, 22 percent are expected to have minimal needs for care and 9 percent will lack the family and financial resources to cover it – in other words, just under half of the people in this group will fall short. The shortfall among people with moderate needs will be larger: the comparable figures are 38 percent of all retirees will be at this level and 21 percent of retirees will fall short. Finally, 24 percent of retirees are expected to have severe care needs – for at least five years – and 16 percent will fall short.

But there is another critical source of support: Medicaid. The researchers find that the joint federal-state program dramatically reduces the share of retirees with insufficient resources to cover their care.

Not everyone qualifies for Medicaid, however. Older Americans can get the funding if they meet two conditions. First, they must have a serious health issue, such as dementia or a physical or medical condition that limits their activity. Second, the program covers nursing homes only for retirees with little in the way of financial resources, either because they had lower-paying jobs and didn’t save or because they exhausted most of the retirement savings they had scraped together.

Medicaid and LTSS graphWhen Medicaid is added to the picture, the program makes a significant dent. Among the 65-year-olds who will need moderate care, the share of all retirees who lack the resources to cover it drops from 21 percent to 14 percent when Medicaid funding is included. Medicaid also reduces the burden on boomers who will need high levels of care: the share lacking adequate resources drops from 16 percent to 11 percent.

The researchers didn’t include Medicaid in the resources available to the 9 percent of retirees who will need only minimal help with chores like cleaning or grocery shopping. The program typically doesn’t pay for these services, though there has been movement in a handful of states and at the federal level to loosen the restrictions around housekeeping. …Learn More

Money puzzle

Is Americans’ Savings Buffer Wearing Thin?

COVID has worn Americans down emotionally. But it might be eating away at their financial reserves too – at least for some people.

As the pandemic has dragged on, many people said in newly released surveys that they are more anxious about their finances and feel that their savings are wearing thin.

We won’t get a true picture of the pandemic’s impact until it is far away in the rear-view mirror. For one thing, Congress’ intent when it doled out historic amounts of cash assistance to workers was to carry them through the COVID lockdowns and resulting unemployment. And it worked.

After federal relief checks were deposited into bank accounts, the saving rate shot up to about 34 percent in April 2020 and to almost 27 percent in March 2021 – the highest levels this country has seen in decades. The rate has floated down to single digits as people have spent the extra money but remains relatively high.

Recent job gains and wage increases should also bolster balance sheets. Businesses added 626,000 more jobs in June through September than the U.S. Department of Labor had originally estimated, and October was a blockbuster month, with 531,000 new jobs created. In the November jobs report, unemployment hit a pre-pandemic low of 4.2 percent.

But these signs of progress are mixed in with feelings of unease. One thing is clear from surveys of workers by T. Rowe Price, said Joshua Dietch, vice president: The challenges that existed before COVID “didn’t get any lighter as a result of the pandemic.”

NPR also fielded a financial survey in August and September of this year. More than a third of U.S. households said they are having “serious financial problems.” And the workers who have suffered the most during the economic downturn last year – people of color – are in the worst shape: more than half of Black, Hispanic, and Native American households said their financial problems were serious.

A deterioration in savings could be behind that feeling of financial insecurity. Nearly 40 percent of households in NPR’s survey with the Robert Wood Johnson Foundation and the Harvard T.H. Chan School of Public Health said they have no “savings to fall back on” – that is double the share who reported having no savings prior to COVID. The share of Blacks, Hispanics, and Native Americans who lack savings also doubled, though to much higher levels of 63 percent, 56 percent, and 55 percent, respectively. …Learn More

Be prepared

Onus of Retirement Planning is on Us

Many workers are poorly prepared for retirement. Inadequate savings is a primary culprit.

But the question of why workers don’t save enough was debated by our readers in comments posted to a recent article. The article pertained to a new study showing that life gets in the way of saving, which is derailed by major disruptions such as unemployment or a large, unexpected medical bill.

“This confirms my thinking that the major reason for not saving is spotty employment and a lack of money,” Chuck Miller wrote in his comment posted to “Here’s Why People Don’t Save.” Debi Street agreed: “It is also the quotidian reality of too many people in low-wage, precarious jobs with no surplus to save.”

The research study also tested an alternative explanation for insufficient savings: procrastination. The procrastination theory was not supported by the analysis.

Readers, however, would not let people off the hook so easily. “What’s that old saying? ‘Failing to plan is planning to fail,’ ” said Brian Jarvis. “That planning is certainly impacted by procrastination, which then leads to being … unprepared for life’s disruptions.”

A reader who calls herself Retirement Coffee Shop knows “more than a few people who just disregard the notion of saving for the future. They have lived their lives like there is no tomorrow and spend money on any and everything they want.”

On another matter central to retirement planning – Social Security – readers didn’t criticize. They just offered practical advice.

The article, “Workers Overestimate their Social Security,” described research showing that workers of all ages have a poor grasp of how much they’ll receive in their monthly Social Security checks when they retire.

Specifically, the workers’ estimates were higher than the more precise benefit projections made by the researchers, based on each individual’s earnings history. Not surprisingly, young adults, who have more pressing matters on their minds than retirement, were farthest off the mark.

Several readers made the same suggestion: get the facts. “Go online and look at your SSA statement,” said Lynn. “It lists your FRA [monthly benefit] amount” – at the full retirement age – “as well as estimated amounts at 62 and 70.” …Learn More