Squared Away Blog

The more the Great Recession recedes in the rearview mirror, the clearer is the damage sustained by the workers born in the final years of the baby boom. These so-called late boomers were between 42- and 47-years-old when the recession hit. Their careers were just hitting their stride when they were slammed by the downturn. The 50 percent stock market plunge and spike in unemployment did particular damage to their 401(k)s and their retirement prospects generally. A study totaling up the damage was the subject of one blog of particular interest to our readers last year.   By the time they reached their early 50s, late boomers had accumulated only about $280,000 in retirement wealth in the form of 401(k)…

When nursing home care uses up a widow’s savings, the federal Medicaid program will kick in and cover her bills for care. But it’s more complicated for couples. If one spouse moves into a nursing home and the bills start piling up, the person who is still living in their home can face serious financial hardship and even poverty. This is a significant risk facing the one in three married people in their early 70s whose spouse will eventually wind up in a nursing home, researchers at RAND found in a study on the financial impact on couples rather than individuals. It’s not unusual to pay roughly $90,000 for a year for a semi-private in a nursing home, though many people have relatively short stays…

U.S. stock market performance has implications for our entire retirement system – not just your 401(k). Three studies addressing the big-picture relationships between the market and retirees’ financial security were produced in 2017 by the Center for Retirement Research, which sponsors this blog. Here are summaries of each one: State and Local Pension Plan Funding Sputters in FY2016 – Public pension plan returns were very weak in fiscal year 2016. But even though stock market performance improved in 2017, it will be difficult to compensate for the plans’ funding shortfalls over the long-term: “To achieve more meaningful progress,” the researchers concluded, state and local governments “need to establish contribution levels that will actually reduce unfunded liabilities.” How Will More Retirees Affect…

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…

The best reason to set up a power of attorney for yourself or an elderly family member is to avoid a far more contentious and expensive alternative later: guardianship. A power of attorney becomes urgent if an elderly family member is showing early signs of dementia. “You want to run, not walk, to get that done because capacity tends not to get better,” said Jonathan Williams, an attorney with the Clarity Legal Group in the Raleigh-Durham, N.C., area. “Having good legal documents in place, if the person has the ability to execute them, can be helpful later on,” he said. In a power of attorney, the person signing the document agrees to name an agent, usually a trusted family member…

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…

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…

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…

As more baby boomers retire, Social Security’s impending financial shortfall will become more pressing. To restore solvency, Congress can either cut Social Security’s pension benefits or increase the payroll taxes deducted from workers’ pay. Both policies would impact how much is available for households to spend. Researchers at the Center for Retirement Research find that the benefit reductions would have an appreciably larger annual impact on retirees than would the higher taxes on workers. But the taxes would be spread over a longer time period. The new study looks at four specific policies, two that cut retirement benefits and two that raise taxes.  Each policy analyzed would equally benefit Social Security’s finances. Gauging their separate effects required using a model to…

Americans build wealth as they age, and this pattern of accumulation has been similar over three decades of U.S. Survey of Consumer Finances data collected by the Federal Reserve. In the chart below, net wealth is expressed in terms of annual incomes for ages 20 through 64; for example, someone with $150,000 in wealth and $50,000 in income has a wealth-to-income ratio of 3. Net wealth equals financial assets such as 401(k)s and housing, minus debt and mortgages; income includes employment earnings and investment gains.  This measure does not include Social Security or defined benefit (DB) pensions. The stability of this wealth-to-income ratio over 30 years may, at first glance, be comforting.  But it shouldn’t be – wealth should hav…

For most of the 20th century, life expectancy was on the rise. Yet older Americans were retiring at younger and younger ages. That changed in the 1990s. Life expectancy continued to rise, but retirement ages started increasing too. Many significant developments are behind the dramatic shift in retirement habits, including the decline of private-sector pensions, changing attitudes about working women, and bigger financial incentives from Social Security for people who remain in the labor force in order to get a larger monthly check when they finally retire. Given all of these changes, Urban Institute researchers wondered whether the dramatic longevity gains experienced by the people who make it to their 50s and 60s could be counted as another reason for…

The older people who either consider a reverse mortgage or actually get one don’t have much else to fall back on.  Their primary assets – outside of their homes – are a car worth no more than $7,000 and about $2,000 in a checking account. This was one salient fact unearthed about reverse mortgage users – or people who’ve looked into them – in a 2014-2015 survey led by Stephanie Moulton at Ohio State University. This supports a later study by Moulton that found that people who take out the loans tend to be in worse shape financially than other homeowners. The survey provides a more complete picture of who is turning to reverse mortgages – and why other people find…