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There’s an informal rule in journalism: put too many numbers in an article, and readers will drop like flies. A similar phenomenon might also be at work when someone looks at a Social Security statement filled with numbers.

The statement, which is intended to help workers plan for retirement, shows the size of the monthly benefit check increasing incrementally as the claiming age increases. Yet many people still choose to claim their benefits soon after becoming eligible at 62, which means smaller Social Security checks, possibly for decades.

In a recent experiment, a friendlier approach proved effective in helping people process this information: tell a story.  Researchers at the Center for Economic and Social Research at the University of Southern California created a fictional 3-minute video of a 62-year-old man talking with a financial adviser about retirement. The researchers showed it to workers between 50 and 60 years old.

Here’s one exchange in the video:

Adviser: [Social Security has] a tradeoff: you can decide to claim earlier. In that case, you would have a lower monthly benefit, but you’d get to enjoy these benefits for a longer period.

Worker: So if I claim sooner, I get less money per month?

Adviser: That’s right.

Later in the conversation, this concept starts sinking in. Instead of asking a question, the worker states a fact: [T]he monthly payments will be lower.

This non-numerical approach clearly had an impact. After seeing the video or reading the vignette on paper, the subjects accurately answered more than 90 percent of the true-false questions about Social Security’s mechanics, compared with just 78 percent accuracy by the people who didn’t see a vignette.

The results of this experiment, the study concluded, could help inform the Social Security Administration on how to “communicate these complex concepts to the public.”

To read the entire study, authored by Anya Samek, Arie Kapteyn, and Andrew Gray, see “Using Consequence Messaging to Improve Understanding of Social Security.”

The research reported herein was performed pursuant to a grant from the U.S. Social Security Administration (SSA) funded as part of the Retirement Research Consortium. The opinions and conclusions expressed are solely those of the author(s) and do not represent the opinions or policy of SSA or any agency of the federal government. Neither the United States Government nor any agency thereof, nor any of their employees, makes any warranty, express or implied, or assumes any legal liability or responsibility for the accuracy, completeness, or usefulness of the contents of this report. Reference herein to any specific commercial product, process or service by trade name, trademark, manufacturer, or otherwise does not necessarily constitute or imply endorsement, recommendation or favoring by the United States Government or any agency thereof.

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Employee lawsuits against their 401(k) retirement plans are grinding through the legal system, with mixed success. Many employers are beating them back, but there have also been some big-money settlements.

This year, health insurer Anthem settled a complaint filed by its employees for $24 million, Franklin Templeton Investments settled for $14 million, and Brown University for $3.5 million.

More 401(k) lawsuits were filed in 2016 and 2017 than during the 2008 financial crisis, and the steady drumbeat of litigation could be affecting how workers save and invest. For one thing, the suits have coincided with a dramatic increase in equity index funds, according to a report by the Center for Retirement Research. Last year, nearly one out of three U.S. stock funds were index funds, double the share 10 years ago.

Some see this change as positive.  Many retirement experts believe that the best investment option for an inexperienced 401(k) investor is an index fund, which automatically tracks a specific stock market index, such as the S&P500. Federal law requires employers to invest 401(k)s for the “sole benefit” of their workers, and index funds usually charge lower fees and carry less risk of underperforming the market than actively managed funds – two issues at the heart of the lawsuits.

To avoid litigation – and to comply with recent regulatory changes – employers are also becoming more transparent about the fees their workers pay to the 401(k) plan record keeper and to the investment manager. This transparency may have had a beneficial effect: lower mutual fund fees, which translate to more money in workers’ accounts when they retire. The average fund fee is about one-half of 1 percent, down from three-fourths of 1 percent in 2009, according to Morningstar.

In short, these lawsuits appear to be changing how people invest and how much they pay in fees for their 401(k)s.

Squared Away writer Kim Blanton invites you to follow us on Twitter @SquaredAwayBC. To stay current on our blog, please join our free email list. You’ll receive just one email each week – with links to the two new posts for that week – when you sign up here. This blog is supported by the Center for Retirement Research at Boston College.

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Nursing homes are usually at the bottom of people’s list of places for their parents. A workable and little-known alternative is available in many states: adult foster care.

This PBS video about Oregon’s program features a suburban Portland woman, Carmel Durano, who provides 24-hour care in her home for five elderly people, including her mother. Durano has been a good solution for Steve Larrence’s 99-year-old mother. He feels comfortable with Durano and lives in the same neighborhood, so he can walk over anytime to talk to his mother.

In Oregon, adult foster care offers support for the elderly - YouTube

“You don’t feel like you’re in an institution. You feel like you’re living with a family,” Larrence said in the video.

Durano is part of a network of more than 1,500 adult foster care programs in Oregon. Many of them care for more than one senior. Durano, a Filipina immigrant, got involved 30 years ago, because she had three young boys at the time and wanted to stay home for them.

Foster care is much cheaper than nursing homes. And, like nursing homes, state Medicaid programs often pay for the at-home caregivers. But though adult foster care is not immune to cases of abuse, Paula Carder, an expert on aging and dementia at Portland State University, said the Oregon program generally delivers “a high level of care.”

State regulations require caregivers to be certified annually, pass background screenings, and submit to surprise home safety checks and interviews with the adults in their care.

This may be at least a partial solution to the growing problem of an aging population.

Squared Away writer Kim Blanton invites you to follow us on Twitter @SquaredAwayBC. To stay current on our blog, please join our free email list. You’ll receive just one email each week – with links to the two new posts for that week – when you sign up here. This blog is supported by the Center for Retirement Research at Boston College.

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Self-employed and gig workers who fail to report all of their earnings to the federal government will pay a price: a smaller monthly Social Security check when they retire.

Gauging the magnitude of this problem is tricky since the IRS doesn’t know how much is not being reported by a group of workers not easily identified in the available data. As a first step, new research derived estimates of the unpaid self-employment taxes that result from the under-reporting, using a combination of U.S. Census data on the workers’ incomes and past studies on the prevalence of the problem.

Specifically, the researchers found that more than 3 million self-employed people – construction contractors, small business owners, and other independent contractors – did not disclose some or all of their earnings to the IRS in 2014. This under-reporting translated to unpaid self-employment taxes of $3.9 billion to Social Security and another $900 million to Medicare.

An additional 2.3 million Americans sell goods and services on platforms like Airbnb, Lyft, and Etsy every month. A large share of these gig workers are not reporting all of their income either. Their under-reporting resulted in an estimated non-payment of $2 billion to Social Security and $500 million to Medicare in 2014.

In fact, the estimates are conservative, and the true level of the missing payroll taxes is probably larger, said the study’s authors, a tax expert at American University and a private policy consultant.

Independent contractors are most likely to be baby boomers over 55, while Generation Xers are more common on the online platforms. Self-employed people fail to disclose earnings for a couple of reasons: they are confused about the tax law or they want to increase their disposable income. But responsibility also falls on the platform companies that process payments for their workers and sellers, the researchers said, because the companies are not required to file 1099 earnings forms with the IRS for a majority of their workers.

Whatever the reasons for the underreporting, self-employed workers will one day get less from Social Security. This study raises an obvious question for future research: how much less?

To read the entire study, authored by Caroline Bruckner and Thomas Hungerford, see “Failure to Contribute: An Estimate of the Consequences of Non- and Underpayment of Self-Employment Taxes by Independent Contractors and On-Demand Workers on Social Security?”

The research reported herein was performed pursuant to a grant from the U.S. Social Security Administration (SSA) funded as part of the Retirement Research Consortium. The opinions and conclusions expressed are solely those of the author(s) and do not represent the opinions or policy of SSA or any agency of the federal government. Neither the United States Government nor any agency thereof, nor any of their employees, makes any warranty, express or implied, or assumes any legal liability or responsibility for the accuracy, completeness, or usefulness of the contents of this report. Reference herein to any specific commercial product, process or service by trade name, trademark, manufacturer, or otherwise does not necessarily constitute or imply endorsement, recommendation or favoring by the United States Government or any agency thereof.

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The first and arguably most important decision a new graduate will make is how much to pay for rent.

If it’s too high, the rent – on top of those annoying student loans – will push out other priorities necessary to prevent financial trouble down the road.

Rick Epple, a certified financial planner in Minnesota’s Twin Cities area, counsels his daughter’s friends and clients’ children entering the labor force to keep their rent at around 20 percent of their income.

“Nobody ever talks about what they should spend,” he said. He worries about young adults who pay a third of their income – the standard recommendation – for an apartment. If the rent blows a hole in the budget, paying student loans every month and on time becomes a much bigger challenge.

A paycheck, Epple said, “just goes quick.”

A manageable rental payment also leaves room to prepare for the inevitable unexpected expense – and, yes, retirement.

Epple counsels young adults to set money aside in an emergency fund in case life throws a curve ball. “It’s good to have that cushion” when a car breaks down or a better job offer requires relocating, he said. Retirement is years away but shouldn’t be sacrificed for rent either. Most major, and many smaller, employers will put money into a 401(k) on a worker’s behalf if he contributes a small, designated amount, say 6 percent of his gross pay, to the 401(k). Epple recommends doing what’s required to get the employer’s match, because it’s essentially free money.

Emergency fund or 401(k)? Since there isn’t a lot of money to go around, he recommends doing a little of both.

A low rent payment will make this possible.

Squared Away writer Kim Blanton invites you to follow us on Twitter @SquaredAwayBC. To stay current on our blog, please join our free email list. You’ll receive just one email each week – with links to the two new posts for that week – when you sign up here. This blog is supported by the Center for Retirement Research at Boston College.

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The amount of money a widow receives from Social Security can mean the difference between comfort and hardship.

Husbands have a lot of control over how this will turn out. Each additional year they postpone collecting their own Social Security adds another 7.3 percent to the amount a future widow will receive every month from the program’s survivor benefit.

But husbands can be a stubborn lot.

Previous research has shown that a large minority fail to take their wives into account when deciding to start their Social Security. A new study confirms this in an online experiment designed to raise husbands’ awareness of the financial impact their claiming age could have on a spouse. The men’s ages ranged from 45 to 62.

In the experiment, the researchers displayed Social Security’s benefit information to the men three different ways. In the first format, a control group saw the basic information: the husband’s full retirement benefit, and then a link to a second page displaying his benefits for various claiming ages. A second format also displayed his full benefit, but the link went to a page with estimates of his widow’s survivor benefits, based on the husband’s various claiming ages – the later he files, the more she would receive. The third format had the same information as the second format, but it was presented on a single web page.

Regardless of the way the survivor benefits were displayed, the men weren’t persuaded to postpone their own benefits to one day help their widows. Potential explanations include their feelings about work, existing health issues, and whether they will get a defined benefit pension from an employer.

Whatever their motivation, simply educating husbands on the financial impact of choosing a claiming age “is unlikely to improve widows’ economic outcomes,” concluded the study by the Center for Retirement Research at Boston College.

The impact of widowhood is often significant. An average widow’s total income drops 35 percent when a husband passes away, the researchers estimated from financial data for married men who had retired. The earlier the husband had started his benefits, the larger the drop in the widow’s income after the couple’s second Social Security check stops coming in.

To read the entire study, authored by Anek Belbase and Laura Quinby, see “Would Greater Awareness of Social Security Survivor Benefits Affect Claiming Decisions?”

The research reported herein was performed pursuant to a grant from the U.S. Social Security Administration (SSA) funded as part of the Retirement Research Consortium. The opinions and conclusions expressed are solely those of the author(s) and do not represent the opinions or policy of SSA or any agency of the federal government. Neither the United States Government nor any agency thereof, nor any of their employees, makes any warranty, express or implied, or assumes any legal liability or responsibility for the accuracy, completeness, or usefulness of the contents of this report. Reference herein to any specific commercial product, process or service by trade name, trademark, manufacturer, or otherwise does not necessarily constitute or imply endorsement, recommendation or favoring by the United States Government or any agency thereof.

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The evidence continues to pile up: workers are having a very hard time affording their high-deductible health plans, which have gone from rare to covering nearly a third of U.S. workers.

Between 2008 and 2018, the deductibles in employer health plans more than tripled – growing much faster than earnings. Workers’ full insurance coverage doesn’t kick in until they pay the deductibles, which now exceed $3,000 for individuals and $5,000 for families in the highest-deductible plans. Add to that a 50 percent hike in premiums during that time.

Some 156 million people get health insurance through work, and they’re largely grateful to have it. They blame rising medical costs on insurers and pharmaceutical companies – and not their employers and healthcare providers – a new Kaiser Family Foundation survey said.

One in four said medical bills or copayments for drugs and doctor visits are severely straining their budgets, and the Commonwealth Fund, another healthcare researcher, estimates that the typical worker spent about 12 percent of his income on deductibles and premiums in 2017, compared with 8 percent in 2008 – the figure is closer to 15 percent in Louisiana and Mississippi.

The solution is often to forgo or postpone care. And the higher an employee’s deductible – no surprise – “the more likely they are to experience problems affording care or putting off care due to cost,” Kaiser said. Inadequate medical care is especially dangerous for people with chronic conditions.

One argument in favor of high-deductible plans is that they force patients to be smarter consumers. But Kaiser finds that they aren’t much more likely to shop around for lower-cost tests or physicians than patients with smaller deductibles.

Many people in the high-deductible plans said they wouldn’t have enough money in their bank account to pay the full deductible.  Here’s a sample of what people say they are giving up to pay for medical care:

  • “Me not eating so my kids can.”
  • “Allowing my health to deteriorate because [care] is too expensive.”
  • “Take money out of my 401k and personal savings account.”
  • “Cancelled 25th wedding anniversary plans.”

Something has to give.

Squared Away writer Kim Blanton invites you to follow us on Twitter @SquaredAwayBC. To stay current on our blog, please join our free email list. You’ll receive just one email each week – with links to the two new posts for that week – when you sign up here.  This blog is supported by the Center for Retirement Research at Boston College.

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Florida

Retired Germans spend more days outdoors than retirees in this country. But when older Americans leave the house, they stay out longer.

What makes the difference? The car. Americans love their automobiles and overwhelmingly rely on them, according to a new study by MIT’s AgeLab. If they’re going grocery shopping, they might as well run their other errands.

Only about half of Germans, on the other hand, say driving is their favorite way to get around. And they venture out more frequently, because they can walk – or bike – to the market, which tends to be closer to home.

As people age and recognize the inevitability of their limitations, they begin to think more carefully about whether they will be able to remain in their homes. To gain insight into this issue, the AgeLab surveyed older Germans and Americans to compare their retirement experiences and satisfaction with their lifestyles – the AgeLab calls it “residential mastery.”

This goal is achievable for seniors everywhere, if they can find a way to continue to live healthily in a particular cultural and social environment. “Americans may reach residential mastery by having access to a car, ride-sharing or taxi services, while Germans may reach residential mastery by having shops and amenities in walking distance,” concluded an article in the Journal of Environmental Psychology.

In the survey, retirees in each country were asked what they need and what their neighborhoods provide. Both Germans and Americans put the most value on living close to healthcare facilities and their family and friends, who can provide the day-to-day support they need. They agreed on 12 of 17 aspects of their lifestyles – affordability, places to sit and rest, cultural institutions, green spaces, etc. – as being critical to them.

Germany

Retirees everywhere want to feel like they belong. But when people quit working, they also leave behind a community of coworkers. Older Germans might have a head start here, because they tend to stay put longer and are more rooted – the “snowbird” is an American concept. Another thing Germans consider very important is sidewalk quality – and they gave their sidewalks high ratings. U.S. retirees feel personal safety is more important – and they say they feel safer than Germans.

The study also distinguishes between the ways people in the rural United States and in Germany stay active. German retirees outside the cities have better access than Americans to senior centers and exercise facilities.  But older Americans’ health is very similar to Germans’. One explanation may be that Americans, like Germans, walk around their neighborhoods – they just do it for exercise rather than out of necessity.

Our needs and the environment’s ability to supply them “become increasingly important for an aging population that wishes to stay in their communities and age in place,” the study said.

Squared Away writer Kim Blanton invites you to follow us on Twitter @SquaredAwayBC. To stay current on our blog, please join our free email list. You’ll receive just one email each week – with links to the two new posts for that week – when you sign up here.  This blog is supported by the Center for Retirement Research at Boston College.

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Abbott employee Harvir Humpal

Student loans or the 401(k)?

Young adults have a tough time finding the money for both. Unless they work for Abbott Laboratories.

Employees who put at least 2 percent of their income toward student loan payments will qualify for Abbott’s
5 percent contribution to their 401(k) account – without the worker having to put his own money into the 401(k).

From the company’s point of view, it’s an innovative recruitment tool – and it worked for Harvir Humpal, a 2018 biomedical engineering graduate of the California Polytechnic State University in San Luis Obispo. He joined Abbott’s northern California office in February.

Humpal said his student loans weighed on him after graduation. “It’s very empowering that Abbott is willing to tackle an issue that’s near to my heart,” said the 24-year-old, who works on medical devices used in heart transplants.

He estimates he will pay off his $60,000 student loans about four years early and save $7,000 in interest – without completely sacrificing his retirement savings.

As the cost of college continues to rise and U.S. student loan balances hit $1.5 trillion, an increase in the number of private and even government employers offering student loan assistance is a response to the growing financial burden. An Abbott survey found that 87 percent of college students and 2019 graduates want to find an employer offering student loan relief.

The magnitude of the problem “forces us to focus on our employees’ greatest needs and how we, as an employer, can help them,” said Mary Moreland, an Abbott vice president of compensation and benefits.

The company began the program after receiving a special IRS ruling that permits Abbott to give a 401(k) contribution to an employee who makes payments toward student loans, preserving the retirement plan’s tax-exempt status.

Nearly 1,000 people are participating, Moreland said. After a burst of sign-ups following the August rollout, enrollment has increased steadily. All workers who are paying off their own student loans are eligible, including brand new hires. Older workers paying for a child’s education cannot participate.

Humpal said the program is freeing up money for other priorities. He just bought a sporty 2009 Toyota Camry. “In five or so years,” he said, “I might want to buy a house.”

Squared Away writer Kim Blanton invites you to follow us on Twitter @SquaredAwayBC. To stay current on our blog, please join our free email list. You’ll receive just one email each week – with links to the two new posts for that week – when you sign up here.  This blog is supported by the Center for Retirement Research at Boston College.

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Today, half of U.S. workers say they want to work past age 65 – in the 1990s, only 16 percent did.

Apparently, people are getting the message that, if they want to be comfortable in retirement, they will need to work as long as possible.  However, good intentions don’t pan out for more a third of workers closing in on retirement age. And the older the age they had planned to retire, the more they fall short of the goal.

Researchers at the Center for Retirement Research, which sponsors this blog, wanted to uncover why people do not follow through. Their study was based on a survey that asked people in their late 50s when they planned to retire and then watched them over the next several years to see what they did and why.

Two factors – the researchers call them shocks – play important roles in pushing people to retire early. The big factor is health. One health-related reason is intuitive: when older people develop a new condition, they become more likely to retire earlier than they’d planned. A second reason is that, when setting a date, they over-estimate how long they’ll be able to work if they have already developed health conditions like arthritis, heart disease, or emphysema.

In this study, a shock is important if it clearly pushes older people to retire, and it affects a lot of them. Several shocks failed one of the two criteria. For example, even though the death of a spouse can prompt retirement, relatively few people experienced this, mitigating its impact.

Early retirement can also happen by default, which occurs when someone loses a job and is unable to find a new one. But another type of employment change has the opposite effect: older people are more likely to keep working if they lose one job but find another.

This study provides only a partial explanation for why so many people decide to retire prematurely. A compelling motivation the researchers didn’t consider is the desire for more leisure time.

The research reported herein was performed pursuant to a grant from the U.S. Social Security Administration (SSA) funded as part of the Retirement Research Consortium. The opinions and conclusions expressed are solely those of the author(s) and do not represent the opinions or policy of SSA or any agency of the federal government. Neither the United States Government nor any agency thereof, nor any of their employees, makes any warranty, express or implied, or assumes any legal liability or responsibility for the accuracy, completeness, or usefulness of the contents of this report. Reference herein to any specific commercial product, process or service by trade name, trademark, manufacturer, or otherwise does not necessarily constitute or imply endorsement, recommendation or favoring by the United States Government or any agency thereof.

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