Squared Away Blog

A dramatic decline in widow’s poverty over a quarter century has been a positive outcome of more women going to college and moving into the labor force. Yet 15 percent of widows are still poor – three times the poverty rate for married women. A new study by the Center for Retirement Research takes a fresh look at Social Security’s widow benefits and finds that increasing them “could be a well-targeted way” to further reduce poverty. Widows are vulnerable to being poor for several reasons. The main reason is that the income coming into a household declines when the husband dies.  The number of Social Security checks drops from two to one, and any employer pension the husband received is…

About half of the nation’s private-sector employees do not have a retirement savings plan at work, and that hasn’t changed in at least 40 years. Some states are trying to fix this coverage gap in the absence of substantial progress by the federal government in solving the problem.  And the state reforms are gaining momentum. In the past year alone, Maine, Virginia, and Colorado have passed bills requiring private employers without a retirement plan to automatically enroll their workers in IRAs, with workers allowed to opt out. New York City, which is more populous than most states, approved its program in May. And other states are either starting to implement programs or looking at their options. Auto-IRAs are already u…

As the lower-paid sex, women have no shortage of insecurities about their retirement finances. Only one in five working women feels “very confident” of being able to retire comfortably, the Transamerica Center for Retirement Studies reports in its annual retirement survey. More than half say they don’t earn enough or have too much debt to leave a lot of room for saving. Four in 10 expect to retire after 70 or not at all. These insecurities probably reflect, to some extent, the poor retirement preparedness of Americans as a whole, not just women. In fact, women have made significant strides over the past half-century. A new study documenting their personal and economic progress since the 1970s finds that their financial standing, compared with men, has…

One telling indication that retirees are in serious financial straits is when they take less of their medications or don’t fill prescriptions. Nearly one in four low-income retirees has difficulty paying for medications, despite passage of Medicare Part D in 2006, which reduced out-of-pocket drug costs. Between 2011 and 2015, the average Medicare beneficiary spent $620 to $700 a year on prescriptions, and people with diabetes, lung disease, and cardiovascular disease spent more than $1,000 a year. One way retirees can address such hardships would be to tap some of the equity in their homes. Although a homeowner probably wouldn’t use this strategy just to cover drug copayments, new research finds that older Americans who tap equity significantly increase their…

The tax landscape shifts suddenly when most Americans leave the labor force to retire.  The single most important thing to remember is that income taxes can fall dramatically, because retirement incomes are typically lower and because all or a portion of your Social Security benefits will be tax-exempt. This was among the tax insights supplied by Vorris J. Blankenship, a retirement tax planner near Sacramento, California, who has just finished the 2015 edition of his 5-inch thick “Tax Planning for Retirees.”   The following is an edited version of tax information he supplied to Squared Away: Lower taxes in retirement. Brian and Janet are a hypothetical couple renting an apartment in Nevada, a state with no income tax. In 2013, Brian…

In today’s world, workers need to save if they want to be comfortable in retirement. But there are also limits to what many people can afford. A new study finds that when U.K. workers were automatically enrolled and started contributing to a retirement savings plan, their household debt – credit cards, bank overdrafts, and other unsecured loans – increased. For every 32 to 38 pounds (or $40-48) in combined monthly contributions by the employer and employee, their debt rose by just over 7 pounds (about $9). Stepping back to look at the big picture, this research also confirms the benefit of auto-enrollment: it encourages workers who might not otherwise have saved to get started. And the increase in unsecured debt,…

The oldest minority retirees are struggling with debt, a new Urban Institute study finds. The researchers’ starting point is that people generally reduce their debt as they age. To prepare for retiring, older workers try to pay down their mortgage balances and pay off credit cards. Once retired, their debt continues to shrink. But on closer inspection, retirees in their 70s and 80s in the nation’s predominantly minority neighborhoods have shed less of their debt than their counterparts in mostly white neighborhoods, who tend to be better off financially. In a sign of financial distress among the oldest lower-income and minority retirees, 20 percent of their loans go to collections for non-payment – double the rate for higher-income and whit…

Americans are known for being reluctant to spend their life savings after they retire. The burning question has always been why. New research comparing tight-fisted Americans with more free-spending Swedes found that U.S. retirees tend to hold on to their savings, because they face more risk of having to pay high out-of-pocket costs in the future for their medical and long-term care. U.S. households, by the time they’re in their late 80s, have tapped only about one-third of the net worth they held in their late 60s, according to the study. Swedish households in their late 80s have spent more than three-fourths. In preliminary findings presented at an August meeting of the Retirement Research Consortium in Washington, researcher Irina Telyukova…

The fact that the richest Americans are grabbing such a big slice of the pie isn’t exactly breaking news. What is news is that Wall Street is getting nervous about it. Moody’s Investors Service, a private watchdog for the federal government’s fiscal soundness, has concluded that inequality has reached the point that it threatens a system already being strained by increases in the federal debt. But Moody’s also noted that inequality is contributing to slower economic growth, which further aggravates inequality. The high level of U.S. inequality today “sets us apart” from Canada, Australia, and several European countries, Moody’s said in an October report, “Widening Income Inequality Will Weigh on U.S. Credit Profile.” Moody’s central concern is how inequality w…

The economy expanded smartly in the years before the Great Recession, just as it did before the COVID downturn. But the two recessions were markedly different, with opposite effects on when older workers signed up for Social Security, a new study finds. In 2008, the stock market slid nearly 40 percent. Older Americans with retirement accounts, wanting to recoup their losses, were more likely to keep working or looking for a new job during the protracted downturn. But skyrocketing unemployment pushed many older workers in the other direction. Social Security became an obvious fallback in the Great Recession for jobless workers who were at least 62 years old as the unemployment rate stagnated at around 10 percent for 1½ years. Not surprisingly,…

Employers beware: changing your retirement plan’s design can have unfortunate, unintended consequences for your employees. That’s what happened to the Thrift Savings Plan (TSP) for federal workers, says a new study by a team of researchers for the NBER Retirement and Disability Research Center. Like many private-sector savings plans, the $500 billion TSP – one of the nation’s largest retirement plans – has automatic enrollment. Federal employees can make their own decision about how much they want to save and, in a separate decision, how to invest their money. But if they don’t do anything, their employer will automatically do it for them. In 2015, the TSP changed its automatic, or default, investment from a government securities fund to a…

Married couples don’t necessarily know what the other spouse is thinking about retirement. This insight came out of a new Fidelity Investments survey that asked some 1,600 people if they knew when their significant other planned to retire. Only 43 percent answered the question correctly. This disconnect reveals just how few couples are talking about retirement, said Fidelity spokesman Ted Mitchell, who worked on the survey. Fidelity’s survey went out to adults of all ages, so the younger ones no doubt felt they’re too young to be thinking – much less talking – about what their lives will be like decades from now. But things change as couples age. When retirement comes into sharper focus, it’s natural to start talking…