Squared Away Blog

Cuts in public pensions taking place around the country could reduce the ability of state and local governments to recruit and retain top-quality workers, according to new findings by the Center for Retirement Research, which sponsors this blog. Economists have long argued that pensions and worker quality are related.  Pensions, like paychecks, are a form of compensation, one that particularly appeals to workers with the foresight to value financial security in a retirement still decades away.  And these are often better, more productive workers. To examine the effect of pension generosity on worker quality, the Center’s researchers first had to find good measures of each.  For worker quality, they used U.S. Census Bureau survey data on workers who have moved…

A major government program helps poor and low-income retirees and adults with disabilities defray what can be substantial healthcare expenses that aren’t covered by Medicare. But enrollment is unusually low in some states because of more stringent eligibility standards. The Medicare Savings Programs, which are administered by the states and funded by the federal government, subsidize Medicare’s Part A and Part B premiums and cost-sharing obligations for more than 10 million Medicare beneficiaries. But participation varies widely from state to state, according to a new report by the Kaiser Family Foundation, due to a combination of differences in need and varying eligibility standards. No more than 10 percent of the retirees in Nebraska, New Hampshire, North Dakota, Utah, and Wyoming…

Like the United States, many European countries are concerned about shoring up their pension systems for their aging populations.  In 2000, Austria took action by introducing a series of small increases in the earliest age at which workers can begin receiving their federal pensions. This reform is gradually phasing out early eligibility entirely. Raising the earliest claiming ages, from 60 to 65 for men and from 55 to 60 for women, will cause them to converge, next year, with the pension program’s standard – or “normal” – retirement ages. Prior to the reform, workers who had signed up for benefits before their normal retirement age received only mild reductions in their monthly benefits.  The reform, in addition to gradually raising t…

Roughly half of U.S. employers with a 401(k) plan enroll their workers automatically, deducting money from their paychecks for retirement unless they explicitly opt out of this arrangement. This strategy is widely viewed as a good way to get people to save. But auto-enrollment might not be as effective as it seems, if individuals are compensating for a smaller paycheck by borrowing more. A new study of civilian employees of the U.S. Army used credit and payroll data to gauge whether debt increased for employees who were automatically enrolled in the federal government’s retirement savings plan. The researchers compared changes in debt levels for people hired after the government’s 2010 adoption of auto-enrollment with hires prior to 2010. The good…

Sudden changes in older workers’ financial expectations for retirement can cause depression, according to a 2011 study. The study, which came out of the Netherlands, suggests that cuts in Dutch pensions, announced on very short notice, produced feelings of differential treatment and a loss of control that increased the incidence of depression among the workers who were adversely affected. Workers were tested for depression two years after a 2006 pension reform reduced the share of their salaries replaced by the government-mandated defined benefit pension plans provided by employers. Workers born in 1950 and after suddenly learned their “replacement rate” – the percent of pay the pension replaces – would drop to 64 percent, from the 70 percent initially promised.  Everyon…

The Ontario Teachers’ Pension Plan has produced a terrific video that spells out how pension systems got into the trouble they’re in and proposes the outlines of what’s required to repair them. The strength of this video is its broad sweep and perspective. It is worth watching for anyone interested in their children’s and grandchildren’s future financial security – as well as their own. “Pension Plan Evolution” explains that U.S., Canadian, and other western retirement systems were built on the faulty assumptions that the future would keep producing enough younger workers to support retirees, 8 percent annual returns on investments, and economic growth that matched what the baby boom generation enjoyed in its prime. Watch the entire video below. But…

Half of the workers who have an employer retirement plan haven’t saved enough to ensure they can retire comfortably. This 17-minute video might be just the ticket for them. Kevin Bracker, a finance professor at Pittsburg State University in Kansas, presents a solid retirement strategy to workers with limited resources who need to get smart about saving and investing. While not exactly a lively speaker, Bracker explains the most important concepts clearly – why starting to save early is important, why index funds are often better than actively managed investments, the difference between Roth and traditional IRAs, etc. Some of his figures are somewhat different than the data generated by the Center for Retirement Research, which sponsors this blog. But…

A small group of researchers at the Center for Retirement Research, which sponsors this blog, produces a large volume of analysis of the nation’s state and local government pension funds. Their work isn’t typical of the personal finance information that appears in this blog. But it turns a bright light on the financial condition of the pension funds that millions of state and local government workers and retirees rely on. The bottom line, according to these studies, is that while some funds are in poor condition, many more are managing. The following are short descriptions of the Center’s recent reports, with links to the full reports: The big picture is updated in the new brief, “The Funding of State and…

When a low-wage worker has a dental emergency or the car breaks down, it can set off a chain reaction of financial problems. Losing a job due to that car problem is a catastrophe.  It’s not an exaggeration to say that having just a little money in a bank account is a lifesaver. But low-income Americans are discouraged from saving due to the asset limits in joint federal-state assistance programs such as food stamps, Medicaid, and Temporary Assistance to Needy Families. These asset limits create a Catch-22: if the recipient builds up the savings crucial to their financial well-being, they lose their assistance, which is also critical to their well-being. This illustrates just how difficult it is to design programs…

Low-income retired couples with less than $3,000 in assets can get Medicaid to supplement their Medicare insurance or pay for a nursing home. This asset cap, set by state governments, mainly applies to financial accounts and excludes the value of a home and vehicle. But Medicaid coverage in old age could conflict with auto-IRA initiatives in a growing number of states – 16 so far – that are designed to help workers without an employer 401(k) save for retirement. The substantial savings workers will build up in these auto-IRAs could make some ineligible for the extra health insurance coverage once they retire, even if their income meets the program’s income cap, according to a new study by the Center for…

Wouldn’t it be nice to find some money sitting in a long-forgotten retirement account somewhere? It’s not hard for workers to lose track of an old account as they move from employer to employer, often across state lines. Each state government keeps a repository of unclaimed property – most have been doing this since the 1980s – and residents and former residents can check online through a simple name search in the state’s unclaimed-accounts database. But not everyone takes the trouble to search for the money or is even aware it exists. So billions of dollars have accumulated nationwide in various types of unclaimed accounts, including retirement plans, insurance policies, trusts, and brokerage and bank accounts – so much so…

The growing list of effective medications available for managing a variety of chronic conditions seem to be changing the way we work and retire. For example, older workers at one company who suffer from arthritis and high blood pressure – two relatively easy conditions to treat – are able to keep working just like their healthier co-workers, according to a new study from a research consortium funded by the U.S. Social Security Administration. In fact, the two specific groups in this study – employees with hypertension or a combination of arthritis and hypertension – actually worked an average of four to 10 months longer, respectively, than the healthy workers. This counterintuitive finding might owe to the fact that people wit…