Squared Away Blog

Nearly 8 trillion dollars sits in Individual Retirement Accounts, or IRAs. This is nearly half of all the value held in the U.S. retirement system, which also includes employer pension funds and 401(k)s. A big reason IRAs were created in 1974 under the Employer Retirement Income Security Act (ERISA) was to give individuals not covered by retirement plans at work an opportunity to save in their own tax-deferred accounts. So, are IRAs helping these workers? IRAs “have drifted very far from their original intent” of helping those who need them most, researchers for the Center for Retirement Research conclude in a new study. Who is eligible to receive tax benefits for saving in an IRA has morphed over the years…

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 –…

A recent blog article, “Retirement Tougher for Boomer Children,” did not elicit much sympathy for Generation X. Many readers who commented expressed a sentiment something like this: Yes, things are tougher for young adults. So deal with it. Members of Generation X, as well as Millennials, are largely on their own with their 401(k)s, in contrast to their parents and grandparents who may’ve had a guaranteed pension at work. But the evidence indicates young adults are not preparing for retirement: well over half of 30- and 40-somethings are on financial path to a lower standard of living once they retire, according to an analysis cited in the article. They need to find “the discipline to save for retirement through a…

The state of our retirement preparedness is captured in this fact: about half of U.S. private sector workers at any given time are not enrolled in an employer retirement plan. To be clear, they are not currently enrolled. Some of them have participated in a plan in the past or will in the future. But this inconsistency is the problem, largely because so many employers still don’t offer 401(k) savings plans to their employees. The financial toll of not saving consistently is modest retirement account balances. Yet saving has become increasingly urgent as traditional pensions have virtually disappeared from the private sector and Social Security is replacing less of workers’ incomes over time. In 2019 – after several years of…

Medicare Part D, passed in 2003, has significantly reduced seniors’ spending on prescription drugs. But the coverage hasn’t protected Leslie Ross from near calamity. The 72-year-old diabetic needs insulin to stay alive. The prices of these drugs have skyrocketed, forcing her to supplement her long-lasting insulin, Lantus, with more frequent use of a less-expensive insulin. This one remains in her body only four hours, requiring more vigilance to control her blood sugar. To cut her Lantus bills – nearly $1,700 this year – she has sometimes resorted to buying unused supplies from other diabetics on eBay. “You take your chances when you do stuff like that,” she said. “I checked that the vial hasn’t been opened. It still had t…

The impact of retiring on mental health is very hazy. So many considerations factor into whether people retire that it’s difficult to predict how it will go. Some are uplifted by finally getting out from under a bad situation while others gets depressed because they’ve lost their purpose or important social connections. Reactions to being retired depend on, among other things, the person’s health, whether the job is fulfilling or physically very strenuous, and whether they’ve planned for how to fill the days. So it seems important to figure out why some people thrive in retirement while others become depressed. Financial considerations are, of course, central to the timing. But money aside, my own experience watching 60-something friends tells m…

The prospect of retiring opens a Pandora’s box of questions. But one big question dominates all the others: How will I manage my finances when I retire? This is a vexing problem, and baby boomers could use some help thinking it through. To ease the process, a team at UCLA and Cornell University led by David Zimmerman, a UCLA doctoral student, created an online decision tool. In an experiment, they found that the tool might help future retirees understand how to smooth out their income over many years and make their savings last. The results are preliminary, and the researchers are refining their analysis. But for the initial experiment, they recruited 400 people, ages 40 through 63. The participants wer…

The stark difference in Black and White workers’ wealth is old news. But now we have some fresh information about the wealth gap: it grows as people age and move through their retirement years. The most striking deterioration in Blacks’ relative standing can be seen in non-housing wealth. This mainly consists of 401(k)-style plans and savings and investment accounts and does not include the wealth inherent in retirees’ Social Security or employer pensions. In the final years before retirement, the typical White household between ages 50 and 64 has accumulated six times more non-housing wealth than a Black household at that age, according to a new study. During retirement, that imbalance balloons to a tenfold difference – about $173,000 for…

Medicaid pays for care for six out of 10 nursing home residents. To reduce the program’s costs, the Affordable Care Act (ACA) encouraged states to expand the care that people over 65 can receive in their homes or through community organizations. The hope was that they would delay or – even better for them – avoid moving into a nursing home if they had easier access to medical and support services. Many states historically did not use Medicaid funding to pay for home care. The ACA’s Balancing Incentive Payments Program required the 15 states that chose to participate in the reform, including Nevada, Texas, Florida, Illinois, and New York, to increase spending on home and community care to half of…

On-the-job injuries, like layoffs, are life-altering events. A worker can lose tens of thousands of dollars in earnings over many years as a result, according to a new RAND study. The researchers used data from California’s workers’ compensation system to investigate what happened to injured workers’ earnings over a 14-year period. They were interested in the people whose injuries were serious enough to prevent them from working for a significant amount of time. These injured workers, who had either a temporary or permanent disability and received workers’ compensation, were compared with workers with minor injuries who didn’t miss any work or were out for fewer than four days. After their injuries, the workers with significant lost time earned $920 less…

For older workers starting to think about retiring, the economic maelstrom the coronavirus set in motion is a reminder of that sinking feeling they experienced just over a decade ago. In 2008, the stock market plunged nearly 40 percent, accelerating the steep decline that was underway in U.S. house prices. The unfolding 2020 recession is playing out differently. But both downturns have one thing in common: Social Security as a stabilizing influence on older workers’ retirement finances. A 2011 study of the change in baby boomers’ finances during the Great Recession found that total wealth dipped by 2.8 percent, on average, between 2006 and 2010 for households between ages 51 and 56. The 2.8 percent decline in wealth at t…

Many recent U.S. retirees in a new survey receive less than two-thirds of what they earned during their working years, and they’ve made significant adjustments along the way. That finding for baby boomers who’ve retired in the past five years is contained in a larger national survey conducted by T. Rowe Price, the Baltimore mutual fund company. The full survey covered some 2,500 working and retired individuals, age 50 and over. All of them have at least some savings in a 401(k) account. The majority of the recent retirees reported their annual income is between $25,000 and $100,000. Social Security is the largest single source of that income, and smaller but equal shares come from defined benefit pensions and from retirement…