Squared Away Blog

Rather than put his money in a bank, my cousin, who’s in his mid-40s, makes loans in $25 increments on a peer-to-peer lending website.  He decides on the amount of risk he’s willing to take on – and the riskier the borrowers he chooses, the more he earns on his “savings.” My cousin’s $25 investments illustrate how much our consumer finance market has evolved over several decades. We all embrace the convenience. Car loans are a more affordable way to buy a vehicle, Internet banking lets homebuyers get several mortgage quotes at once, and paying with cell phones is much easier than paying with cash or even credit cards. But all this innovation has a downside. One example is t…

The natural reaction to losing a job is to get a new one.  But when older people become unemployed, some view it as a dilemma: look for work or just retire? The presence of a financial safety net significantly increases the likelihood that an older, unemployed person will retire.  And that decision often comes quickly after they lose their job, concluded a new study by Matt Rutledge, an economist for the Center for Retirement Research, which supports this blog. “The brevity of [their] jobless spells suggests that older individuals have little tolerance for a job search” and will “make a quick exit” if they have financial resources backing them up, Rutledge wrote in a recent summary of his research. His…

A growing number of Americans can’t pay their rent, and the queues forming outside food banks hint at human need on the scale of the Depression. For Americans who were already living paycheck to paycheck prior to the pandemic, the $1,200 relief checks the government has deposited into their bank accounts are too little and came too late. Few are being spared the financial fallout from the COVID-19 economic contraction. But economists predict the damage being done to working and middle class people will cause another surge in U.S. inequality, just as the previous recession did. The big unknown is whether this downturn, which is unfolding more violently than the previous one, will do even more damage to livelihoods and…

For the sheer simplicity they bring to 401(k) investment decisions, retirement experts have been big fans of target date funds for years. Now, their popularity is soaring with the people who really count: employees. Last year, 401(k) participants poured a record $70 billion into target date funds (TDFs), an investment option that automatically shifts the asset allocation in the portfolio to reduce risk as employees approach a designated retirement date. TDFs have become the first choice for people who, rather than go it alone and pick their own mutual funds, like having their employer’s mutual fund manager do it. According to a new report by Morningstar, the Chicago research firm, the new money flowing in has averaged $66 billion annually…

Over the past 25 years, the difference in wealth held by white and black households in the United States has nearly tripled, to $236,500. In December, Squared Away wrote about the difficulty that black families have in trying to accumulate wealth so they can pass it on to their children. New research out of Brandeis University’s Institute on Assets and Social Policy now finds that the gap between the median net worth for white and black households has widened to a chasm, as blacks have fallen farther behind. The study also quantified the reasons for the widening gap and found that the difficulty of building up housing equity is the largest factor. A house is usually the single largest asset…

Two out of three working Americans grade their retirement readiness at no better than a “C.” So how about using the Social Security Statement that lands in their mailboxes, grabbing their attention, to spur them to action? The statement is already valued by millions of Americans. A survey funded by the U.S. Social Security Administration (SSA) found that people who received statements were “dramatically” more knowledgeable about their basic pension benefits than people who had already retired when SSA started mailing them out in the mid-1990s. Social Security is the nation’s most important source of retirement income, and the information in the statements is essential to most workers’ retirement planning. Mailed out before every fifth birthday – 25, 30, 35,…

It’s smart to invest retirement savings in mutual funds that charge very low fees for one simple reason: the worker keeps more of his money and hands over less to Wall Street. But in a study of people in their 50s and 60s who have retired or otherwise left federal employment, the people with the most education and the best scores on a standardized test were more likely to make what seems to be the wrong decision. Rather than keep their retirement funds in the government’s Thrift Savings Plan (TSP), which has extremely low fees, they transferred the money to much higher-fee IRAs operated by financial companies. The $500 billion TSP – the world’s largest defined contribution retirement plan –…

In the United States and Singapore – places that emphasize self-reliance – many older workers and retirees admit that, if given a do-over, they would have saved more money over the past 20 or 30 years. Regret was more common in the United States – 54 percent of older Americans had it versus 46 percent in Singapore, according to comparable surveys in each place. Perhaps the reason Singapore has less is because the government requires that employees set aside more than a third of their income in three government-run savings accounts for retirement, healthcare, and home purchases and other investments. On the other hand, Singapore doesn’t have Social Security or unemployment insurance, and private pensions are rare. Whatever the differences,…

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…

A recent blog about advertisements for Medicare Advantage policies brought a torrent of criticisms from our readers that…

It is the most important source of retirement income for most workers. Yet too many older Americans lack a basic understanding of certain aspects of Social Security benefits. In fairness, many people got some key questions right in a survey that quizzed them about the program’s rules and incentives. But a significant minority, and sometimes a majority, revealed a poor understanding of several major features of the program. As the researchers note, misunderstanding Social Security benefits could lead to poor financial decisions about retirement. They analyzed responses by more than 2,300 people – all between ages 50 and 70 – to a nationally representative survey administered online in 2008. The survey, which took about half an hour, started with basic…

Different people, different strategies. Myra Hindus and Jewell Jackson Myra Hindus of Boston, semi-retired at 68, had her financial adviser estimate the 401(k) withdrawals necessary to support her $4,500 monthly budget, which the adviser also prescribed. But Hindus isn’t fully at ease about her finances, despite the professional advice, a paid-off mortgage, and a good bit more savings than most people have. “It’s a bunch of guesswork,” said the former diversity administrator and consultant to major universities who hedges her bets by teaching college social work courses. What overwhelms her are the many unknowns that will determine whether her money lasts as long as she does. What if her adviser is wrong? Or what if she lives well into her…