Economics of Retirement

This is a repost from Forbes.

Myth: Biology determines that women live longer than men.

Reality: Longevity depends on economic, social, and biological factors. At age 55, American men in the top 10% of the earnings distribution will live 4.3 years longer than women in the bottom 90% of the earnings distribution.

The false certainty that women live longer than men comes from the enduring finding in human biology research that, on average, women live longer than men do. However, averages hide important differences and extreme variation.

First, let us take a closer look at average female survival superiority. New U.S. government data released in November 2017 predicts that, among babies born in 2015, the average white girl will live 4.8 years longer than the average white boy, and the average black girl will live 6.3 years longer than the average black boy.

However, this longevity gap between the sexes narrows with age. Among 55-year-olds, the average white woman will live 3.3 years longer than the average white man and the average black woman will live 4.2 years longer than the average black man.

Why do women live longer on average? We really do not know. Ironically, despite women having higher survival rates at all ages, women across the world suffer from more health problems throughout their lives than men. But this difference between women’s longevity and morbidity could be a selective factor. For example, in terms of ensuring the reproduction of the species, a woman’s wellness is secondary to her need to survive.

Nevertheless, gender is not destiny. Social and economic factors are crucial. You can see this in the changing gender longevity gaps by country. The gender differential in average life expectancy from birth in the United States is 6.5 years. In the United Kingdom, it’s 5.3 years. In Russia, it’s 12 years. And in India, women live on average only about 6 months longer than men.

Perhaps lab rats can help us determine if longevity is a result of nature or nurture. Male lab rats will live longer than females if they have superior diets and healthier parents and grandparents. However, we need a lot more research on how economic factors determine women’s survival superiority at older ages.

In a surprise finding by economists Kathleen Burke and Barry Bosworth, the gap between expected life spans for women and men at age 55 narrows by class. Specifically, the richest 10% of men will live an average of 34.3 more years compared to 31 years for women in the bottom 90% of the earnings distribution.

What does this mean for women and men who are both in the top 10% of the earnings distribution? Burke and Bosworth’s answer: there is no gap. Both are expected to live an average of 34.3 years after age 55. Additionally, high-income men live longer than 90% of women in the bottom 90% of the earnings distribution.

These results suggest that rich men can protect themselves from threats that affect the longevity of lower-income men and women. Our unequal society may create the same longevity gaps as we see among lab rats.

The gender longevity gap looks different at birth than at older ages, when people have their lives and acquired education, income, and made choices exacerbate the wear and tear of age in certain lives. It all adds up to age 55, when a rich man is expected to live longer than 90% of women his age. Perhaps the well-fed, well-bred man has the same advantage as the well-fed, well-bred male lab rat.

Proven longevity differences by class turns commonplace retirement guidelines and social policy on its head. Now that growing class gaps in health care another form of the American divide, both men and women need to plan for the expenses of living in retirement.

This is a repost from Forbes.

When people ask me what I mean when I warn a retirement crisis is coming, I give them one number: 8.5 million. That’s how many older workers and their spouses will experience downward mobility in retirement if we do not act soon.

Who are the endangered 8.5 million? These are working people nearing retirement age (age 50-60) earning above $31,260 for couples or $23,340 for singles, which is twice the official federal poverty level, a common standard used to measure chronic deprivation.

But because of inadequate pensions and low Social Security benefits, they will be poor and near poor when they retire at age 62 (most people, except the highly educated, retire at about 62 or 63.) 8.5 million people will be downwardly mobile because they will experience a decline in their living standards from middle class to poor or near-poor status.

Downward mobility can have political consequences, fueling anger and desperation, and the rise of elders in poverty is a humanitarian crises.

You probably heard “blame the victim”-type explanations for why people don’t have enough retirement savings, including workers spend too much; they are too short sighted, and retire too early. However, our problem is not that humans are flawed, but that the flawed system is not built for the humans we have.

Historically, many families could count on workplace pension plans. But today, less than half of workers not have access to any kind of savings plans at work, not a 401(k), traditional pension, nothing. Even workers with coverage through an employer-sponsored 401(k) cannot adequately grow their savings due to market volatility and predatory fees and job changes and job changes and other life events. The system doesn’t match up with the real lives of workers, no wonder the median older workers only has $15,000 saved for retirement.

Working longer, alone, won’t allow older workers to bridge the gap. Delaying retirement as a solution depends on older workers being able to physically and mentally continue working and crucially employers willing to hire them. 

Our research found that, instead of technology making the workplace less physically and mentally demanding, technology has made speed-up more possible. Older workers, especially older women and black workers, face physically and mentally challenging on-the-job requirements: intense concentration, keen eyesight, and bending and stooping.

Headline elder unemployment rates at dizzyingly lows, about 3.2%. But hidden elder joblessness is workers much higher; over 3 million older workers trapped in hidden unemployment include those working part time, but want full time work, and those who want a job and who have stopped looking for full-time. The real unemployment rate is over 7 percent. An the labor market isn’t great. In the last quarter of 2017, 15% of older workers with college degrees were paid less than $15 an hour. And despite recent news article heralding the end of wage stagnation, wages for older working women are falling.

Mandatory add on accounts to Social Security, called Guaranteed Retirement Accounts (GRAs), paid for by contributions from employers and employees and targeted refundable tax credits give every worker an individual retirement account. This account is pooled with other workers’ investments, professionally-managed, with guaranteed principal. With a progressive, refundable tax credit for all workers, lower-income workers can save for retirement without pinching pennies.

Working longer, cutting back on little luxuries - these are not going to save middle class workers from falling into poverty in old age. The risk of being poor or near-poor is exactly that: a risk. To protect ourselves and each other from this risk, we need structural reform.

This is a repost from Forbes.

Now you are prepared to negotiate the best price for college—see my previous blog—you need to start negotiating. A Forbes article a while back described good tips. Here are my four: you need Power, Logic, Language and Leverage.

1. POWER Be psychologically ready with a back up plan to exit and choose another school. The road to bargaining power is the well-marked path out the door. Being able to exit is the definition of bargaining power – one who has the least to lose by walking away from the agreement has the most bargaining power. Know your number – walk away from a number that is higher than that number; you have already determined what you can afford.

2. LOGIC Once you get the offer, write a letter that explains your argument to lower the price by increasing the aid. Follow up with a phone call or  person appointment with a financial aid officer. Keep track of everyone you talk to so that you can come back to any prior discussions. You have to make your case, be prepared to explain why what they think you can afford is not what you can. Explain other children’s needs, insecure job situation, debts, expectation of medical expenses. Gather up all the supporting materials you need to negotiate the price you can afford. Your negotiating party needs to have a reason to agree with you. Ask for a deadline extension. Since you are confident and prepared you will be nice, courteous, and hopeful. No one likes mean people, and pressure won’t help here. Trust me I am a New Yorker and I think I know when pressure and impatience works.

3. LEVERAGE Important leverage is negotiating college aid – not loans. Your leverage is any other offers your child has received. Come with research in hand on the total cost of attendance for all the schools your child has been admitted to, back up your claims with copies of offer letters.

4. LANGUAGE Know how college pricing works so you can speak their language and know their levers. Just like on an airplane, everyone pays a different price for a seat. Colleges can price discriminate by lowering or raising the need-based or merit-based aid. You will have to back up arguments for need-based aid with payslips, medical bills, the whole 9 yards.

Parents and students often make the mistake of thinking prestigious colleges are the most expensive. Smart students who come from families that have less than about $120,000 annual income and accepted by a prestigious school will likely face a very small price – Princeton, Stanford, Yale and Harvard pay for low income students they have accepted.

This is a repost from Forbes.

After 25 years of teaching at the University of Notre Dame, the sweet seniors asked for a list of “vital books for new college graduates.” Top choice? Getting to Yes: Negotiating Agreement Without Giving In by: Roger Fisher, William Ury and Bruce Patton. But students should read Getting to Yes BEFORE college, more particularly as college acceptances and financial aid offers start rolling in. Like cars, houses and mattresses, college prices are negotiable. To get the best price you have to know how to prepare for negotiations and how to behave in negotiations. Part 1 is about preparing; tomorrow’s blog is about negotiating.

Four things you need to negotiate a lower cost of college:

1. Parents, know your number, backwards and forwards. That number is what you can afford to pay out of current consumption to pay for college. How much living on cheap noodles is going to pay for college. What you can pay is the amount you can afford without taking money out of your retirement plan or taking out more debt, including taking out a second mortgage. Don’t pay for college by taking out retirement savings -- your child benefits from your financial security. If you need to spend $80,000 a year in retirement, you'll need about $800,000 at age 65. You may need to deploy your detailed budget in negotiations. Prepare it now. Include your retirement savings requirements.

2. Students, know your number! Parents, don’t accept an aid offer stuffed with loans. I cannot emphasize enough how insidious student debt can be, though a modest amount can be helpful. After 37 years of teaching, I can see how it destroys young people’s careers and family life for decades.

--LOAN MATH--

You might get an offer that requires just $10,000 in loans per year! But if your student graduates -which is not guaranteed- in four years (again, many take five or six years), then she is expected to borrow $10,000 per year for four years. The total amount owed by graduation day is $43,190 (because interest accumulated). If your student earns $40,000 a year at graduation and can stretch their payments for ten years, they will spend almost 20% of net pay just on loans. Even a few thousand dollars matter. Help your student anchor on the number. You can also try this handy online calculator from Dinkytown.

3. Prestige doesn’t matter. Don’t assume the prestigious, expensive school is adding value to your student’s education. Research in the 1990s has held up – students accepted by Harvard and other prestigious schools and those who went to nonelite schools, like Colorado State, for instance – did just as well as the students who went to Harvard. In other words, the Ivies were good at selecting which students would do well in college. Gregg Easterbrook’s 2004 gem of an essay, Who Needs Harvard is still worth reading! Successful students create relationships with one or two professors, engage in some research, always attend class and copy their notes after class. That’s pretty much it – the recipe for success. Students add the value and the college provides the platform.  I have been teaching for 37 years and know that no college is a make or break for your student.

4.Colleges want to make a deal – the number of college-age students is shrinking as a percentage of the population and college enrollment rates have fallen by 1.3 percent between 2015 and 2016. Colleges are competing to fill their seats and dorms – and are willing to make concessions on tuition.