November 26, 2019
The Art of Persuasion and Social Security
Retirees could get substantially more in their Social Security check if they would just wait longer – up to age 70 – to sign up.
But only a tiny fraction of workers make it to 70, and more than a third get the minimum monthly benefits because they start them as soon as the program allows, at 62. A Bocconi University professor and three UCLA professors have set about trying to change minds by testing 13 ways of encouraging older workers to hold off and lock in a larger Social Security check.
The techniques, which they tried on various groups of workers between ages 40 and 61, ranged widely in approach. But two of the most successful tests had one thing in common: participants were asked to engage in a little reflection about the personal impact of choosing when to start receiving their Social Security. This approach departed from the more common strategy of trying to influence people by feeding them financial or other information.
Everyone began the same way: they saw a table showing how much more they would receive from Social Security for each year after 62 that they delayed. One of the most effective tests was an exercise in self-reflection. The participants were asked to list “their own reasons” for how delaying would help them personally. Only after this step did they list the reasons to start their benefits at a younger age.
The order of these requests was intentional and intended to counteract the tendency by most people to focus on their short-term desires. This group reported that they intended to sign up 10 months later than the control group, which wasn’t exposed to the test, according to the study conducted for the Retirement Research Consortium. …Learn More
November 12, 2019
From Disability to Low Retirement Income
By their early 60s, four out of five workers have chronic health problems. One in four has developed some type of physical or cognitive limitation.
If these problems force them to stop working, they can apply to Social Security for disability. But developing a disability late in a career still has long-term financial consequences. These workers not only give up their steady paychecks. Their preparations for retirement are also derailed at a critical time.
A 2018 study in the Journal of Disability and Policy Studies quantifies the financial fallout. Four groups were compared, each ranging in age from 67 to 69. One started receiving disability benefits sometime between 58 and 62. A second group went on disability between 62 and Social Security’s full retirement age, which is 66 for most boomers. The other two groups claimed their regular retirement benefits. One signed up between the earliest age allowed – 62 – and the full retirement age, and one started their benefits after the full retirement age, which yields a larger monthly check.
Where each of the four groups falls in a ranking of retirement incomes is easy to predict: the earlier a worker starts disability benefits, the less income he’ll have. Healthy retirees, on the other hand, enjoy big rewards from continuing to work, saving in a 401(k), accruing pension credits, and delaying Social Security.
Household income for the last group to retire was $76,000 per year at ages 67 to 69, with Social Security providing only about a third of it, according to researchers at Mathematica who conducted the study for the Disability Research Consortium. Households that claimed a retirement benefit between 62 and the full retirement age had $48,000 in income, with 45 percent supplied by Social Security.
The retirees who had been on disability were far worse off in their late 60s. If they started receiving the benefits between 62 and their full retirement age, they had only $36,000 in household income in their late 60s – not even half the income of the late retirees. Social Security retirement benefits were the largest source of income, supplying two-thirds of it. …Learn More
October 31, 2019
Boomers at 80: Housing Issues to Grow
The baby boom generation is continuing to work its way up the age ladder. The number of Americans over 80 will more than double to nearly 18 million over the next two decades.
And that’s partly because baby boomers are healthier and are living longer – they are also enjoying more of their retirement years free of disability than previous generations. But unfortunately, boomers can’t avoid the inevitability of their growing vulnerabilities and the impact this will have on their day-to-day lives. A new report by Harvard’s Joint Center for Housing Studies makes some sobering predictions about the issues the oldest retirees can expect to face in the future, from widening income inequality to more people living alone and in isolation.
The findings, taken together, point to a range of potential trouble spots revolving around housing our aging population.
- As people get old, their spouses die, their bank accounts dwindle, and their rents keep rising. For these and other reasons, housing creates more of a cost burden at 80 than at 65. The Harvard housing center defines someone as cost-burdened if they spend more than 30 percent of their income on housing. Today, nearly 60 percent of households over 80 fit this definition, and their absolute numbers will increase as more baby boomers reach that age. One place the financial strain shows up is food budgets: retirees who spend disproportionate amounts on housing spend half as much on food as people whose housing costs are under control. …
October 22, 2019
Most Data Sets Agree on Retiree Income
What kind of financial shape are retirees in?
A 2017 study refocused attention on this old question, and it has taken on greater urgency as more and more baby boomers retire.
The study looked at the accuracy of the U.S. Census Bureau’s Current Population Survey (CPS) and confirmed earlier research showing that it dramatically under-estimates retirees’ income. The under-reporting in the CPS could raise concerns about the accuracy of other surveys that paint a less-than-rosy picture of retirement life.
To get to the bottom of things, the Center for Retirement Research (CRR) dug into other standard sources of survey data on retired households so they could be compared with CPS data. They found that the income estimates in the CPS were much lower than the others and clearly the outlier – the other four data sets roughly agreed on how much income retirees have.
The CRR researchers then selected one of the reliable sources of income data – the Health and Retirement Study (HRS) – to assess how retirees are faring. They concluded that around half of over-65 households may be experiencing difficulty maintaining the standard of living they enjoyed while they were working. The researchers based this on the rule of thumb that they need about 75 percent of their past employment earnings.
To be sure, every survey has its strengths and shortcomings, because they rely on what people say they are getting from their Social Security, retirement plans, and investments. …Learn More
October 1, 2019
Financial Survival of Low-Income Disabled
A monthly disability check from the federal government is a lifeline for poor and low-income persons with disabilities, but they still face a daily struggle to meet their basic needs and cover their expenses.
In in-depth interviews, 35 low-income people in Worcester, Massachusetts, described how they make ends meet on the disability benefit they get from Social Security, which averages $912 a month and is their largest source of income. Another $300 comes from other forms of public assistance, family support, or minimum-wage jobs, according to a new issue brief by Mathematica’s Center for Studying Disability Policy.
The daily struggles that each individual faces are as unique as they are. Here are a few excerpts from the study:
“My rent is subsidized. Plus I work 20 hours a week which is pretty good. I bring home more than one hundred something dollars a week and I get a few dollars in food stamps. So it’s okay.”
“I’m stringing it, managing it, and just barely staying above water. I’ve been treading that water for a long time.”
“My situation is challenging. I sometimes just don’t have enough coming in to make what’s going out.”
Three out of four people in the study told interviewers that they find it very difficult to pay for their housing, food and other basic expenses. A bright spot is that people on federal disability insurance (DI) are also covered by Medicare and/or Medicaid and spend very little on medical care. “I’m getting everything I need,” one individual said about her healthcare. …Learn More
September 26, 2019
Half of Retirees Afraid to Use Savings
For most retirees, figuring out how much money to withdraw from savings every year is a difficult-to-impossible math problem. But the issue goes much deeper: fears about what the future might bring make this decision overwhelming.
Extreme caution is a popular solution. A 2009 study estimated that by the time middle-income retirees are in their 80s, they still had not touched about three-fourths of their savings, and 2016 research found that retirees with substantial assets are the most reluctant spenders. Vanguard recently reported that retirees with very modest savings turn around and reinvest a third of the money they’re required to withdraw under IRS rules after age 70½.
People saved all of their lives to make sure they will enjoy retirement. So why are they so reluctant to spend the money for the purpose it was intended?
A 2018 study in the Journal of Personal Finance surveyed retirees to get a sense of the psychology behind their caution.
Half of the survey respondents agreed with this statement: “The thought of my retirement portfolio balance going down over time brings me discomfort, even if the decline in value is a result of me spending money on my retirement goals.”
And the people who agreed with this statement said they feel like they are not well prepared financially to retire – and this had nothing to do with how prepared they actually are. …Learn More
September 17, 2019
Readers Debate Retirement Issues
It’s always interesting to see which Squared Away blogs get the strongest reaction from our readers. The June blog, “Husbands Ignore Future Widows’ Needs,” was one of them.
Some readers felt that the results of the study described in the article don’t match up with their experiences. The researchers determined that husbands often are not sensitive to the fact that if they sign up for Social Security in their early 60s, they could be locking in a smaller survivor benefit one day for their widows.
“The elderly couples with whom I do retirement planning are typically very conscious of each other’s needs,” said a critic named Jerry.
But financial planner Kathleen Rehl has the opposite experience when working with couples. “Most couples hadn’t previously known their options and ramifications of those choices,” she said. “Such an important planning concept.”
The blog was based on a study conducted for the Retirement and Disability Research Consortium – consortium studies by researchers around the country are featured regularly on Squared Away.
Here are other 2019 articles about the consortium’s research on various retirement and labor market issues that readers weighed in on: …Learn More