Squared Away Blog

Americans who are 62 or older had an estimated $3.6 trillion in total equity locked up in their homes in the first quarter of 2014, according to the National Reverse Mortgage Lenders Association. A new primer suggests they should start thinking seriously about using it to generate some extra retirement income. The primer, published by the Center for Retirement Research at Boston College, which sponsors this blog, discusses two ways retirees can use home equity to generate income: by downsizing into a less expensive house or condominium or by taking out a reverse mortgage. Click here to read the booklet online and learn how these strategies work and how much money each can provide.  Their pros and cons are detailed…

Plastic or paper?  Americans have spoken. In 2013, they made $4.1 trillion in purchases on their credit and debit cards, according to the Nilson Report – and that figure keeps marching upward. Some researchers view this as a dangerous trend.  Plastic cards, they contend, put distance between a man and his bank account. Without the tactile sensation of handing over one’s hard-earned cash, it’s easy – too easy – to spend money and harder to save. New research out of The Netherlands has an entirely different take on the cash versus plastic debate. The study, based on a detailed Internet survey of nearly 1,500 Dutch people about their financial habits, shows that they view the debit card “as the better…

For a growing share of older Americans, housing expenses have become an increasingly large financial burden. One in three Americans over age 50 were carrying a severe or moderate housing cost burden in 2012, up from one in four in 2000, according to a new study by Harvard’s Joint Center for Housing Studies and AARP. The Center defined a severe burden as housing costs that consume more than half of household income; a moderate housing burden takes between 30 percent and 50 percent of income. The Center’s report, “Housing America’s Older Adults – Meeting the Needs of An Aging Population,” warns that the nation is unprepared for both the financial and non-financial housing challenges that will accompany the coming explosion in…

Is retirement good for one’s mental health? The evidence is all over the place. One study concludes that retiring sooner means a higher incidence of dementia.  Other studies show it benefits physical health, which can affect one’s state of mind.  Research from different countries reach different conclusions about their own retirees’ sense of well-being: the English and Finnish find that retiring improves it, while Korean and U.S. researchers don’t. Seeking some universal truths about retirement in the Western world, a new study of the United States and 11 European countries finds that it improves subjective well-being, measured both in terms of satisfaction with one’s life and the incidence of depression.  The study is based on two comparable sets of surveys…

This blog has a single writer posting just two articles a week. So it’s impossible to keep up with all the news that crosses the transom. But perhaps because the work world is gearing back up this fall, there have been a lot of interesting stories lately about financial behavior.  Here are three worth noting: Fatherhood adds to paychecks – motherhood, not so much. A new study estimates that women actually face about a 7 percent “wage penalty” for each child. So, having two children reduces a woman’s hourly wages by 14 percent, according to a new study out of the University of Massachusetts at Amherst. In contrast, annual earnings for fathers are about 8 percent higher than similarly situated…

Policymakers often worry that increasing government pension benefits won’t necessarily help retirees, if the reforms cause workers to change their behavior in ways that counteract them.  For example, some workers might save less if they know pension benefits are rising, offsetting the income boost they’ll get from a larger pension. However, researchers examining Canada’s pension reform over five decades confirm that they have materially improved the financial well-being of retirees there. To reach this conclusion, Kevin Milligan of the Vancouver School of Economics and David Wise of Harvard University tracked the financial status of older Canadians from 1960 through 2010.  They analyzed some 100,000 families between 55 and 80 years old using Canada’s Survey of Consumer Finances, the Survey of…

A September 2012 article on page one of The New York Times reported “disturbingly sharp drops” in life expectancy between 1990 and 2008 for Americans who do not complete high school – five years less for white women and three years less for white men. This flatly contradicted past studies documenting rising longevity throughout the developed world. Much was also at stake in this dramatic new finding for U.S. retirement experts concerned about the growing financial pressures on retirees from what they’d assumed were virtually uninterrupted gains in longevity Everyone wants to live longer, but it’s expensive. So who’s right? In reaction to the 2012 study, a new group of researchers, funded by the U.S. Social Security Administration, took another…

How much must 30-somethings save in their 401(k)s to prevent a decline in their living standard after they retire? No two people are alike, but the Center for Retirement Research estimates the typical 35 year old who hopes to retire at 65 should sock away 15 percent of his earnings, starting now.  Prefer to retire at 62?  Hike that to 24 percent.  To get the percent deducted from one’s paycheck down into the single digits, young adults should start saving in their mid-20s and think about retiring at 67. These retirement savings rates are taken from the table below showing the Center’s recent estimates of how much workers of various ages should save to achieve a comfortable retirement; they represent…

In the 1970s, Americans saved about 12 percent of their after-tax income.  Today, that’s plummeted to less than 6 percent. Yet saving is in everyone’s interest. A new video produced by The Atlantic magazine, “Why Americans Are So Bad at Saving Money,” blames our savings apathy on three factors: math (the lower one’s income, the less people save); psychology (spending money is more fun); and envy (keeping up with the Joneses). The video doesn’t fully explain why this is an American problem.  But it’s accessible and thought-provoking. For example, the narrator notes that much of the national conversation is about wealth – taxing it, measuring its disparities, winning it in the stock market. We don’t expend a lot of energy…

Failing to meet one of Medicare’s many enrollment deadlines can be costly to new or imminent 65 year olds. The Journal of Financial Planning helps aging baby boomers start out on the right foot with a clear run-down of at least five different enrollment windows for various parts of Medicare. Getting these dates right is “very tricky,” and people often make mistakes that lead to higher out-of-pocket medical costs and gaps in their coverage, said Katy Votava, president of the consulting firm, Goodcare.com, and author of “Making the Most of Medicare: A Guide for Baby Boomers.” “They often receive well-meaning but mistaken advice, and then they’re really in a pickle,” she said. “They aren’t eligible to apply when they want to…

The Squared Away Blog’s focus is on how informed financial decisions can improve one’s personal finances or retirement prospects.  But much that impacts our standard of living is not in our control. One example is the cost of consumer goods, healthcare, and renting or buying a home, which vary widely from one city or region to another.  To highlight this variation, the Tax Foundation in Washington, D.C., used recent data from the U.S. Bureau of Economic Analysis to create the cool interactive map below, which shows locations with the highest cost of living (bright orange) and the lowest (bright turquoise). Running a cursor over the map displays metropolitan and rural areas and their comparative living costs, measured in terms of…

First, the facts from the Alzheimer’s Association. At age 65, one in nine individuals has Alzheimer’s disease.  At 85, the risk exceeds one in three.  Its victims are more often women. In the Ted video above, the global health consultant and writer Alanna Shaikh disclosed that her professor-father had Alzheimer’s. Since it can be hereditary, she’s preparing to possibly share his fate, by keeping her mind active and by learning to do things with her hands, such as knitting. Shaikh doesn’t discuss financial preparations. But experts have some suggestions, chief among them getting one’s will, health care directive, and perhaps a power of attorney in order.  Paramount in this process is finding trustworthy people to handle your affairs. You can…