Most valuable remodeling projects...Will you quit if you don't get a raise?...How to save like a 1 percenter...Retirement pay gap...And more
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Thinking about starting a remodeling project? Take time to check out the Cost vs. Value survey from Remodeling Magazine. It compares the average cost of 36 popular remodeling projects with the value those projects retain at resale in 102 U.S. markets. This is a great way to see if your project is worth it. For 2015, the survey's overall cost-value ratio slipped to 62.2%, ending two years of gains. Only five projects saw their ratios rise in the 2015 report, with midrange roof replacement leading the way.
SECOND THOUGHTS: Before you remodel, think it through. Some homeowners get so excited, they only focus on the result. Here are the 11 biggest remodeling mistakes to avoid.
Private pension plan funding took a dive last year, hitting levels not seen since right after the financial crisis, according to professional services firm Towers Watson. The average private pension plan was only about 80% funded at the end of 2014, down from 89% in 2013. And the pension deficit jumped to $343 billion by the end of last year, almost double what it was in 2013. Funding fell for a couple of reasons: Interest rates dropped, so pension plans have fewer dollars for the future. And many plans adjusted for improved lifespans, so benefits will be paid out longer. Those two things canceled out any benefits from a raging stock market in 2014, Alan Glickstein, a senior retirement consultant at Towers Watson, told The Washington Post.
SECOND THOUGHTS: Where will pensions land in 2015? It's anyone's guess. The Fed is expected to raise short-term interest rates this year — a potential boon for pensions. Yet bond markets could get hit unexpectedly — a negative for pensions. Don't have a pension? Then, like many of us, you'll have to rely on your company 401(k) or other savings for retirement. Here's what kind of return we can expect from our 401(k).
Looking for a raise? You're not alone. Of nearly 900 workers surveyed by Glassdoor.com, 35% said they'd be on the hunt for a new job if they didn't get a salary bump in 2015. Those under age 35 and those making less than $50,000 per year were most likely to quit. But 36% of those between ages 35 and 44 said they'd take a walk if they didn't get a raise, and 31% making more than $100,000 would do the same. About half of employed adults said they expect a 3% to 5% hike. Confidence about finding a new job is also up. Close to half said they were confident they'd be able to pick up a job matching their experience and salary within six months, the highest level since early 2009, notes CNN Money.
SECOND THOUGHTS: If you're planning to ask for a raise, here's a tip: Do it after your company has had a great quarter and when your boss is doing well at work, Rusty Rueff, a former Fortune 500 HR executive and board member at Glassdoor.com, tells CNN Money. That's when your boss will have the most leverage with the higher-ups. Start the convo by asking the boss about your performance, and convey how much you want to succeed at the company, Rueff suggests.
Want to save like the rich? Don't bank on your house being your main wealth builder. A recent report from Edward Wolff, an economist at New York University, offers insight into the portfolios of the top 1% (a net worth more than $7.8 million), the upper middle class (more than $400,000 but less than $7.8 million) and the broad middle class. The wealthiest 1% of Americans have only about 9% of their net worth tied up in their home, compared with 28% for the upper middle class and 63% for the broad middle class. So where do the top 1% invest? Nearly half (47%) of their gross assets are in unincorporated business equity and other real estate. Financial securities account for 27%. Those in the middle class hold over three-fifths of their wealth in their primary residence, just 9% in business equity and other real estate, and 16% in financial securities.
SECOND THOUGHTS: This helps explain why the housing bust and recession were tougher for the middle class, notes The Wall Street Journal. Housing has been slow to recover, while corporate profitability and the stock market have soared. But let's not discount homeownership for the middle class. It's still an investment and a stepping-stone to financial security. Just make sure to avoid these 10 big mortgage mistakes.
While the highest-paid employees still get executive pensions and other benefits, many underlings get only a 401(k). According to data from Bloomberg, CEO compensation at large U.S. companies was 204 times higher than the pay of workers on average in 2013. That's a 20% jump since 2009. The retirement compensation of Gregg Steinhafel, who recently stepped down as Target's CEO, highlights the disparity. He received retirement plans worth more than $47 million. That's 1,044 times the average balance — just $45,000 — that Target workers have saved in the company's 401(k) plan. Steinhafel got $27.7 million from a combined pension and deferred compensation plan, $9.8 million from an earlier deferred compensation plan and $9.9 million in interest. And that's on top of the more than $20 million in cash salary and bonus he earned in the five previous years.
SECOND THOUGHTS: "Target throws workers a cracker, and top executives take the cake," Ron Pierce, a former worker at the retailer's distribution center in Stuarts Draft, Virginia, tells Bloomberg. "Who can even spend $47 million? I'd like to see a chunk of that go for pensions for all employees." Good point, Ron. Something has got to give. But fewer and fewer companies are offering traditional pension plans. If the only retirement plan your employer offers is a 401(k) account, you've got to sign up and make the most of it. Here are 7 rules for a successful 401(k) retirement account.
On average, couples spend around $30,000 on their wedding day, according to media company XO Group. Yet the more you spend on your wedding, the shorter your marriage will be, according to a study by Emory University economics professors Andrew Francis and Hugo Mialon. Here's the breakdown: Fellas, put between $2,000 and $4,000 toward an engagement ring, and you'll be 1.3 times more likely to get divorced compared with those spending between $500 and $2,000. For men and women, shell out more than $20,000 on the big day, and you'll up your odds of divorce by 3.5 times compared with couples keeping it between $5,000 and $10,000. But the best odds come when you spend $1,000 or less on the festivities. One possible explanation for this phenomenon is that post-wedding debt stokes marital tension, Francis and Mialon tell Ozy.com. Another potential problem: The wedding has become the highlight rather than relationship and commitment. Whatever the reason, spending on weddings is completely out of control. It's now a $55-billion-a-year industry, according to research firm IBIS World.
SECOND THOUGHTS: Don't skimp on the guest list. According to the report, a hefty guest list has the opposite effect than heavy spending. Simply spend less per person, notes Ozy.com. Make your own playlist instead of having a DJ. Grab a couple of Polaroid cameras instead of having a photo booth. Pick a cheaper venue. You'll thank yourself later when you get your bank statement and have plenty saved to stash in your 401(k) account or IRA.
With the tax code getting more complicated and the IRS budget shrinking, this tax season could get pretty messy, notes CNN Money. In fact, it could be the worst since 1985, when computer failure, lost returns and delayed refunds plagued the IRS, Nina Olson, the national taxpayer advocate, said at a recent conference. The IRS top-line budget is about 10% less than in 2010, the number of IRS personnel has fallen by at least 8% and the IRS' training money has dropped by more than 85%. Meanwhile, the number of taxpayers has jumped 7 million. That means less taxpayer service and possibly delayed refunds. The major worry of the IRS is that deterioration in taxpayer service and enforcement will create long-term risk for a tax system that's based on voluntary compliance. "If the compliance rate goes down by 1%, it costs the government $30 billion a year. That's almost three times the entire budget of the IRS," IRS Commissioner John Koskinen said at the same conference where Olson spoke.
SECOND THOUGHTS: What should we expect? For starters, a lot of waiting. Only 53% of calls to the IRS will be answered (meaning 47% won't be), and callers will wait an average of 34 minutes to talk to another human, Olson said. Tax preparers will wait around 52 minutes. There's also a small chance — very small — that our refunds will be delayed. Unfortunately, all we can do as taxpayers is be patient.
According to a new poll from Gallup, 26% of Americans began saving for retirement before age 25, with 7% of that group starting before they turned 20. About half of today's investors started saving sometime before they turned 30, 28% said they started at some point in their 30s, 14% waited until their 40s and 8% waited until they were 50 or older. On average, retired and nonretired investors combined started saving at age 30. But most of us, although we should be, aren't saving as much as possible. Most investors (69%) believe that they could save more — a median of $250 more each month, according to the poll.
SECOND THOUGHTS: Compound interest is a powerful tool, but it needs time to really do its magic. That's why it's crucial to save as much as possible while you're young and keep adding to the pile. If you can swing stashing away a little extra cash each month, don't hesitate to add to your 401(k) or IRA. Keep in mind that Washington is letting us make slightly larger 401(k) contributions in 2015. And maxing out your 401(k) each year is a stepping-stone to financial security in retirement.
Pull out your wallet, and get ready to pay a fine if you didn't carry health insurance last year. Under the Affordable Care Act, you'll now face a fine if you were uninsured. That's unless you qualify for one of about 30 exemptions, notes the Associated Press. How much will you pay? For 2014, it's the greater of $95 per person or 1 percent of household income above the threshold for filing taxes. That's jumping up significantly in 2015, when not carrying health insurance will cost you the greater of 2 percent of income or $325. And by 2016, the average fine could be around $1,100. Of course, many will be exempt. According to H&R Block, the tax prep giant, around 4 million uninsured will pay penalties while 26 million will qualify for exemptions. Turbo Tax has a free tool called "Exemption Check" that allows you to see where you stand.
SECOND THOUGHTS: Being uninsured comes with some large financial risks. Medical bills can stack up into the tens of thousands of dollars if you have an accident. Plus, you'll now get fined. The Tax Policy Center offers a tax penalty calculator that helps you weigh your potential fine against average premiums. For a single individual with no dependents making an adjusted gross income of $50,000 per year, the penalty for not having health insurance would be $399 for 2014 and $794 for 2015, according to the calculator. Depending on the health insurance plan you choose, those penalties amount to three or four premium payments.
Tipping at restaurants might soon be a thing of the past, at least in major metropolitan areas. According to CNN Money, more restaurants, especially in big cities, are adopting no-tipping policies and using alternative menu pricing to compensate employees. For instance, patrons of Bar Agricole and its sister Trou Normand in San Francisco will not be expected to leave a tip starting Jan. 1. Instead, owner Thad Vogler will increase his menu prices by 20% to compensate the staff. Naturally, customers will no longer need to worry about breaking out the old smartphone calculator at the end of the night to calculate tip amount. Plus, staff will get steadier pay. "It's time for the restaurant business to be more like every other industry and charge what's appropriate rather than relying on other people to compensate its workers," Vogler tells CNN Money.
SECOND THOUGHTS: Volger has a great point. So let's kick tipping to the curb. It's an obsolete concept. With gratuity already included in the bill, eating at a restaurant becomes a more streamlined experience for both the restaurant and the customer. And as long as restaurant owners compensate their staff appropriately, service shouldn't suffer. No doubt, getting rid of tipping won't be easy. It's a cultural norm. But if you walk into a restaurant with a no-tipping policy, resist the urge to leave a few bucks extra. Your tip is built into the bill.
Last year was the best year for job growth since 1999. More than 2.95 million jobs were created, according to the Department of Labor. The big concern throughout the recovery has been that jobs were being added too slowly, frustrating workers. But that wasn't the case last year. Indeed, the U.S. economy added more than 200,000 jobs every month in 2014 except two — January and August. November was the by far the best month for job gains, with 353,000 jobs added. And the unemployment rate is also down. It dropped in December 2014 to 5.6% from 6.7% in December 2013. This year could be just as good or better. By the end of 2015, the unemployment rate is expected to drop to 5.2%, according to a survey of economists by CNN Money.
SECOND THOUGHTS: It could be a great year to find a new job. "American businesses are on a hiring binge," Sal Guatieri, senior economist at BMO Capital Markets, told CNN Money. "It clearly suggests the economy is on a much stronger growth track than the first four years of the recovery." Of course, while job growth is taking off, wages aren't. Wages rose by just 1.7% over the past year, barely ahead of inflation. That stagnation in wages is tough on workers. And it makes it even more important to diligently save. Here are 7 rules for a successful 401(k) retirement account.
Bay Area drivers in California might soon spot a Google vehicle with no human behind the wheel. That's right. Google is planning to test its first "fully functional" self-driving prototype on the roads. It still needs approval from the government, but the two-seater is a sign that driverless cars could soon become a staple in Silicon Valley neighborhoods, notes the San Jose Mercury News. Google is just one of seven companies that have won approval from the state Department of Motor Vehicles to test driverless cars on public roads. Google's new prototype has an electric battery and a speed cap of 25 mph, ensuring it can't get in too much trouble.
SECOND THOUGHTS: No doubt about it — this is the future of transportation. Google is aiming to have the car tooling around Northern California next year, according to Mashable. And Audi, Mercedes-Benz, Delphi Automotive, Tesla, Bosch and Nissan are all also testing driverless cars.
According to the latest data from the IRS, you would have had to make at least $435,000 in adjusted gross income in 2012 to make the top 1% of households list. That's a $46,000 increase from 2011, when it took $389,000 to join the club. Only about 1.4 million households could say they were a part of that club in 2012. The top 1% paid about 38% of total federal income taxes collected and made up around 22% of all income reported. Yet, on average, the one-percenters paid just 23% of their income in federal taxes. Of course, there have been several tax increases on high-income households since the fiscal cliff deal and the Affordable Care Act, notes CNN Money.
SECOND THOUGHTS: Remember, the game is about building wealth and how much you save, not necessarily how much you make. Sure, it's easier to save more if you make a lot of money. But your annual salary doesn't matter if you spend it all on assets that decline in value. See if you're prepared to retire with the 4% rule.
Here's some good news for borrowers: The Federal Housing Administration (FHA) is lowering the premium it charges on its loans, which will save FHA borrowers hundreds per year. Annual premiums for FHA-backed loans have jumped up five times since 2010, increasing from 0.55% of the loan's value to 1.35% today. But toward the end of January, those fees will drop to 0.85% of the loan's value, saving borrowers an average of $900 annually and enticing 250,000 buyers to take out FHA-backed loans in the next three years, according to White House projections. Before 2010, FHA borrowers paid around $91.66 per month in premiums on a $200,000 loan. Currently, they pay around $225 a month. Once the new policy kicks in, borrowers will see about $83 per month in savings. “This is really meaningful for home buyers,” Brian Chappelle, a banking consultant and former FHA official, told The Washington Post. “This is the best news for first-time home buyers in years," he said.
SECOND THOUGHTS: Have bad credit, very little saved for a down payment or too much debt to qualify for a conventional mortgage? An FHA loan might be for you. The FHA doesn't actually make home loans. It insures lenders will be repaid if you default. So there are serious limits on how much you can borrow with an FHA loan — up to $271,050 for single-family homes in most parts of the country, or as much as $625,550 in high-cost cities such as New York and San Francisco. If the loan amount you need falls within those guidelines, here's how to get an FHA loan.
White middle-class kids in America shouldn't pay more to go to a private college, according to The Washington Post. It's not worth the extra money. In a survey published this year by Gallup, 11% of grads of both public and private universities said they were thriving across five metrics, including financially, physically and socially. About the same percent — 12% — in U.S. News & World Report's top 100 schools were thriving. Plus, 14% of those who said they were thriving were doing so without debt, compared with 2% of those with $40,000 of debt or more. What about income? Grads of selective schools do typically make more after graduation. But two economists, Stacy Dale and Alan Krueger, found that students with more potential to begin with make more as adults, and students with less potential made less, regardless of the school they attended, The Post reports. In other words, for white middle-class kids, how much you make depends on you as a person, not where you go to school.
SECOND THOUGHTS: So what about for the rest of the population? It's a little more complicated. Blacks, Hispanics and those whose parents are comparatively less educated do typically make more money after attending more selective schools, according to the study by the two economists. Selective schools seem to provide them with a new social circle that offers more economic opportunities down the line. Of course, borrowing money for school can be risky, especially when attending a pricey private school. But there's plenty of financial aid for qualified low-income students that make elite schools affordable. "Their net price for that school might be a lot lower than they think. The reputation for a school being expensive prevents students from doing that research," Lydia Frank of PayScale told The Post.
Around 61% of workers with at least $10,000 in investments say that an employee-sponsored savings plan is their most important benefit after health care, according to a recent poll by Wells Fargo and Gallup. The poll also found that seven in 10 workers have access to a 401(k) plan and an encouraging 96% of those contribute regularly. About 86% of workers receive the benefit of an employer match and 81% say that the match is very important in helping them save for retirement. About 77% favored automatic enrollment and 66% favored automatic escalation of contributions. All of that is despite the drawbacks of 401(k)s, with perhaps the biggest flaw being that they don't provide a guaranteed lifetime income stream, notes Time Money. Interestingly, more than half of workers value the 401(k) plan over the traditional pension plan — a little odd considering traditional pensions do offer a guaranteed lifetime income. That could be because guaranteed income doesn't seem as important while you're still working, because of the booming stock market or because a 401(k) plan is all young workers know, notes Time Money.
SECOND THOUGHTS: It's tough to replace the traditional pension plan. Employers have been eliminating them since the 1980s. They guarantee income for life, something that policymakers haven't been able to do with the 401(k) yet. But if your employer offers a 401(k) account, you've got to sign up and make the most of it. Here are 7 rules for a successful 401(k) retirement account.
If you think you need to warm up your car before you drive it in the winter, you're certainly not alone. But that idea is just dead wrong, notes The Washington Post. Yep, it's a myth. In fact, it can actually do more harm than good. Not only are you wasting gas (and money) by idling, you're also emitting greenhouse gases and other pollutants. Cars do get worse fuel economy (about a 12% drop) when it's cold outside, according to the Environmental Protection Agency and Energy Department. Older cars — vehicles made with carburetors — did need a warm-up to perform well. But newer cars use electronic fuel injection, which makes warming up the car before driving irrelevant — unless you're idling to warm up the interior of the car or defrost windows.
SECOND THOUGHTS: How much gas does idling actually waste? It's probably more than you think. According to an experiment by Natural Resources Canada, a five-minute warm-up increased fuel consumption by 7% to 14%. A 10-minute warm-up increased fuel consumption by 12% to 19%. It also contributes to about 1.6% of all U.S. greenhouse gas emissions, according to a 2009 study in Energy Policy. Certainly, there are times when idling is unavoidable — in traffic, for instance. But vehicle start-stop technology will eventually get rid of that. So if you want to save some cash and the environment, stop idling your car.
If you're a college student, or a parent of a student, who plans to seek financial aid in fall 2015, it's time to fill out the Free Application for Federal Student Aid, known as FAFSA, notes The New York Times. It became available online on the government site for FAFSA (fafsa.ed.gov) as of Jan. 1. The form is a jumping-off point for students and families seeking federal aid for school. And it's used by most states and colleges. The FAFSA must be completed each year by anyone seeking financial aid in order to determine eligibility for loans and other need-based aid. Print versions of the FAFSA are accepted, but you can also submit online.
SECOND THOUGHTS: Don't wait to file. On average, students who file between January and March receive twice the amount of grant money as those who file later, Mark Kantrowitz, publisher of the financial aid website Edvisors.com, tells The Times. The early bird really does catch the worm in this case. If you don't have your tax info ready in January for the FAFSA, no problem. You can use estimated information from your last 2014 pay stub, or even your 2013 tax return, and then file updates to FAFSA once your 2014 tax info is available, according to The Times.
There's no doubt about it – 2014 was a great year to be in the stock market. Not only did the popular S&P 500 jump up by 11.4% from 2013, the Dow finished up by 7.5% and the Nasdaq increased by a whopping 13.4%. It's the third straight year that the S&P 500 has hit double-digit gains, something we haven't seen since the late 1990s. This is a Raging Bull market, notes CNN Money. The utilities sector performed the best in the S&P, with health care and technology closely following. But the ride isn't over. Experts predict that 2015 will be another great year for stocks, with a CNN Money survey of investment strategists predicting a 5.5% rise for the S&P in 2015 from its current level.
SECOND THOUGHTS: If you're already in the market, stay in it. If you're not, it's time to start building your nest egg. Open an IRA or take advantage of your employer's 401(k) plan. Saving for retirement is never easy – that's a given. Yet there are some tools that can help you along the way, like target date funds. Target date funds eliminate some of the guesswork in choosing your 401(k) plan investments. In fact, they're probably the best investment choice for the majority of savers. Here are 5 things you should know about target date funds to help you get started.
Fewer Americans believe that they could be born poor, work hard and get rich, according to a recent poll by The New York Times. In fact, the number of people who believe they could achieve the American dream has hit a two-decade low. Just 64% said that the scenario was possible. Over the past decade, the number of people who believe in the American dream has steadily fallen from 80% in March 2005 to 75% in October 2011 to 71% in July 2012. There's only been one other time the percentage has been this low since The Times starting asking the question. In 1983, just 57% said being born poor and becoming rich by working hard was possible.
SECOND THOUGHTS: What's to blame for the decline in belief of the American dream? "The question is whether the slowness of the current recovery is what's to blame for the extended pessimism about hard work achieving results or whether we, as a country, have simply entered a different stage in our relationship with the idea of the American dream," writes Chris Cillizza of The Washington Post. Cillizza suggests it might be the latter. But despite our pessimism, we all have to keep our financial health in tip-top shape. It's the only way to ensure a stable retirement. Here's how to measure financial success and figure out if you're on the right track.
Want a hefty return on investment? Invest in the U.S. stock market. The S&P 500 has generated total returns, including dividends, of around 16% since 2009. That's very strong based on historical standards and the fact that most other stock markets produced modest annual returns in the single digits, notes CNN Money. The only economy that got close to the U.S. market was Japan's, with a 13.2% gain. Of course, it's logical that stocks would bounce back after the recession. But former Federal Reserve Chair Ben Bernanke played a major role in the recovery as well. "I would give Bernanke and the Fed the lion's share of the credit for repairing the economy," Phil Orlando, chief equity strategist at Federated Investors, told CNN Money. Fed policies gave a shot in the arm to stocks and helped stabilize the economy.
SECOND THOUGHTS: The ride isn't over yet. Not by a long shot. According to estimates from Federated Investors, the S&P 500 could gain more than 13% by the end of 2015 and more than 10% by the end of 2016. "We believe the U.S. economy will continue to outperform many parts of the world in the half decade ahead and generate the necessary profit growth to sustain the current equity rally," Joseph Quinlan, chief market strategist at U.S. Trust, told CNN Money.
If you'll be looking for a job next year, there's some good news. Around 60% of employers expect to increase hiring in 2015, according to a survey published by Dice Holdings, a career website provider. But here's the catch: You'll need the right skill set. More than 4 in 10 companies said they still struggle to find qualified job candidates. "If you've got skills and if you're employed right now, it's going to be a pretty good labor market," Joseph Fuller, a professor at Harvard Business School, tells CNN Money. "If you don't have skills and/or you don't have a job now, it's still going to be very heavy going," he added.
SECOND THOUGHTS: Are we hollowing out the middle class? The middle class might be at the biggest risk of losing jobs. Companies are having trouble finding factory workers, truck drivers and sales managers who are qualified. And some are trying to replace those jobs with machines. "The jobs where you don't need the physical person," Peter Rupert, an economist at the University of California, tells CNN Money, "that's where a lot of the reports have come out saying, 'We're losing middle-level jobs where people were in the middle class. We're increasing inequality.' "
The New York Times recently provided an interesting look at income volatility, the big spikes and dips in income that many Americans are experiencing. That financial volatility is making it tough to budget and save, and it's a growing problem. In a recent national survey by the Federal Reserve, based on 2013 data, more than 30% of Americans reported income volatility, with 42% citing an irregular work schedule and 27% blaming a span of joblessness or seasonal work. And according to a new report from the U.S. Financial Diaries, nearly all of the 235 low- and moderate-income families it studied reported a drop in monthly income of 25% in a single year. That's a big drop and a lot of instability to deal with. "Such insecurity sabotages the most diligent efforts to budget and save for the future," notes The Times.
SECOND THOUGHTS: Financial volatility is a reality for millions of American workers whose paychecks fluctuate. But it's not a new phenomenon. The Times notes that studies suggest income variability started to rise in the 1970s, leveled off in the early 2000s and jumped back up again when the Great Recession hit. Still, income volatility seems to be increasing. And without the ability to budget and save, we're looking at millions of people who won't be able to build a nest egg or sustain a standard of living in retirement. That's a big, big problem.
The U.S. economy is on the rise. Gross domestic product rose by 5% year-over-year in the third quarter of 2014, according to the government. That's just amazing. It's the strongest quarter we've seen since 2003, notes CNN Money. It's also up from the second quarter of this year, when we saw a strong 4.6% growth. Overall, this year has been a good one for the U.S. economy, except for the first quarter, when GDP was -2.1%. "Other than the first quarter's weather-induced contraction, there's no doubt the economy has been great this year," said Dan Greenhaus, chief global strategist at equities trading firm BTIG. Growth in the third quarter was up across the board, a good sign for U.S. economic strength.
SECOND THOUGHTS: What does the Fed need to see before raising interest rates? Steady growth, especially around 5%, should clear the way for the Federal Reserve to make a move and finally increase short-term interest rates in 2015. "It make sense to raise rates in 2015, perhaps in mid-2015," Federal Reserve governor Jerome Powell recently told Bloomberg Businessweek. We can only hope he's right. After years of meager rates on CDs and money market accounts, savers deserve a decent return.
The golden age of retirement is over, and Americans have to adapt, concludes a new book by Alicia Munnell, director of Boston College's Center for Retirement Research. In Falling Short: The Coming Retirement Crisis and What to Do About It, Munnell and her co-authors argue that Americans in the 21st century will have to work longer, save more and pass fewer assets to their heirs in order to have a secure retirement. "There are only three options," Munnell writes in the book. "The first is to simply accept that we are going to be poor in retirement. The second is to save more while working, which means spending less today. The third is to work longer, which means fewer years in retirement. Those are our only options."
SECOND THOUGHTS: You're responsible for your nest egg. The days of the cushy company pension are gone. And Social Security is merely a supplement — it's not meant to fully support you in retirement. Here are 10 secrets to successfully save for retirement.
There's a new, free undergraduate student loan calculator available from the Hamilton Project that allows you to look up the earnings data and debt burdens of about 80 college majors. Graduates can see how difficult it will be to pay off their loan over a 10-year period after graduation according to the average income they'll generate with their major. Today, around 70% of grads with bachelor's degrees leave school with debt. And their median balance is $26,500, notes the Hamilton Project. For the grad with typical debt and earnings, payments under the standard 10-year repayment plan eat up 14.1% of earnings the first year after graduation and then fall to 6.5% of earnings in the 10th year. Hamilton used major-specific earnings data from the U.S. Census Bureau's American Community Survey to develop the calculator.
SECOND THOUGHTS: It's not necessarily the amount of debt students have to repay that's the problem, it's when they have to repay it, which is typically in the first 10 years after graduation, notes The New York Times. It's difficult to repay loans when you're just out of college and have little earnings. In an analysis, the Hamilton Project advocates for income-based loan repayment policies, which could allow grads to repay loans over a 25-year period rather than 10.
NPR recently put together a graph showing the industries that saw their wages grow from October 2013 through October 2014. What it shows is a "hollowing out" of the middle class, a trend that's been going on for a long time. While jobs with high and low wages saw gains in pay, jobs in the middle saw stagnant wage growth. The information industry — computer-related work — saw the biggest gain among high-paying jobs (nearly 2%). And the leisure and hospitality industry saw the biggest gains among low-paying jobs (just under 2%). But wage growth in middle-class industries like manufacturing, education and health care was stagnant or fell.
SECOND THOUGHTS: It's not easy to build wealth with stagnant wage growth. But those of us with middle-class jobs will have to make the most of it. If your employer offers a 401(k) account, you've got to sign up and start contributing. Here are 7 rules for a successful 401(k) retirement account.
Close to 1 in 5 Americans (18%) who are already in debt expect to take it to the grave, according to a new survey by CreditCards.com. That's double the percentage that said debt would be a lifelong partner when the website asked the same question back in May 2013. The average age people expect to achieve freedom from debt is 53, but 11% expect they'll be in debt until their 70s. Among all Americans — those who owe money and those who are debt-free — 13% said they will never pay off their loans, and 8% don't see their loans getting paid off until age 71. To add insult to injury, 38% of consumers have already put their gift purchases on plastic this holiday season.
SECOND THOUGHTS: These are some pretty disturbing numbers. "I am most concerned about the 13% who expect that they'll never be debt-free, given all the negative consequences that come with such a bleak outlook," Christopher Viale, president of Cambridge Credit Counseling of Massachusetts, told CreditCards.com. Debt can be a major hindrance to building a successful nest egg. If you need help paying off your credit card debt, our credit card payoff calculator can help you figure out how much you need to pay each month to meet your goal.
The national mortgage delinquency rate, which is the percentage of mortgages that are 60 days or more behind on payment, is 3.12%, or down by nearly 4% from its peak in the first quarter of 2010, according to new data from the credit-reporting agency TransUnion. But there's still a long way to go. Historical norms for mortgage delinquencies are around 1.5% to 2%, Steve Chaouki, head of financial services for TransUnion, tells MarketWatch. TransUnion predicts the rate will hit 2.51% by the end of next year. But it'll be a couple of years more until we see the rate return to normal levels.
SECOND THOUGHTS: Higher delinquency rates create a sweet spot for prospective buyers. The deals you're likely to find aren't quite as compelling as they once were, but if you can find the right foreclosed home, you can still get a bigger, better house than you otherwise could afford. Here are 8 smart moves for buying a foreclosure.
It will be a while longer before savers see a reasonable return on CDs, savings and money market accounts. In the latest Fed rate-setting committee meeting on Wednesday, the nation's central bank said the economy remains weak enough to keep short-term interest rates at lows for a "considerable time." But the nation's central bankers also added new language to the Fed's policy statement: "Based on its current assessment, the Committee judges that it can be patient" in deciding when to raise interest rates. That, the statement noted, is "consistent" with its position on waiting a "considerable time." Of course, interest rates have been low for over a half decade, and with the economy picking up steam, the Fed was widely expected to announce that it would finally let rates rise in June of next year. Sadly, that's not the case. Despite evidence of strong economic growth, the Fed will need to see even more economic strength before it changes direction, according to Bankaholic.com.
SECOND THOUGHTS: When will we see rates rise? Rates are likely to stay where they are until at least late 2015, notes Bankaholic.com. But one thing is for certain. "The decision [to raise rates], when it comes, will be historic," Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, told reporters earlier this month. Yes, it will. We Americans have earned 1% or less on our CDs and savings accounts for six years. When the decision finally comes to raise rates, we'll feel it in our pockets. That day can't come soon enough.
Child Care Aware of America's latest annual report on child care costs lists the least and most affordable states for center-based child care for a 4-year-old. Parents in Massachusetts are spending more on child care than in any other state — $12,320 per year on average to send a 4-year-old to a center. New York takes second at $12,280, followed by Minnesota at $10,812, Rhode Island at $10,400 and Vermont at $10,068. Tennessee is the most affordable state for child care at $4,515 per year, followed by Mississippi at $4,800, Louisiana at $4,882, Arkansas at $4,944 and South Dakota at $5,319.
SECOND THOUGHTS: Child care isn't cheap — sometimes costing more than college, notes the report. This can be a big drain on young family budgets and really eat into cash that could go toward beefing up a nest egg. This report is a good way to measure how your child care costs compare with your state's average. Find your state's average by downloading the full report at the Child Care Aware of America> site: www.usa.childcareaware.org.
Fannie Mae and Freddie Mac have announced they'll start backing mortgages with down payments as little as 3%. That opens up lending to more low-income and first-time buyers. But borrowers will have to meet strict criteria. These new loans are only for fixed-rate mortgages on single-family homes that will be the borrower's primary residence. Borrowers must have private mortgage insurance and a credit score of at least 620. They'll also need full documentation of income, assets and job status. Plus, first-time buyers will be required to receive home ownership counseling. Fannie and Freddie currently back mortgages with 5% down. But Fannie will start backing 3% loans on Dec. 13, 2014, and Freddie will start offering the new loans on March 23, 2015. “Our goal is to help additional qualified borrowers gain access to mortgages,” Andrew Bon Salle, executive vice president for single-family underwriting, pricing and capital markets at Fannie Mae, told the Los Angeles Times.
SECOND THOUGHTS: Is putting just 3% down on a home a good financial plan? Not if you can swing more. In order to keep from paying private mortgage insurance, you'll need to put down at least 20%. And remember, the more you can put into a down payment, the more house you’re going to be able to buy or the lower your monthly payments will be. Here's how to figure out how much house you can afford.
The economy as a whole is doing better and growing, but workers are getting a smaller share of that growth. MarketWatch put together a chart based on quarterly productivity data from the Bureau of Labor Statistics. It shows that the share of output paid to workers from the nonfarm business sector is at the lowest level on record. In other words, employees are getting a smaller share of their employer's profits. Workers received about 63 cents for every dollar their company made from the 1960s to the 1980s, but it's now at around 57 cents per dollar.
SECOND THOUGHTS: That 6-cent difference doesn't seem like a lot, but it means that workers are getting about $800 billion less now than they were over 30 years ago. We've slipped backwards. The typical full-time worker making $40,000 per year would be making $44,000, if they were making 63 cents on every dollar, notes MarketWatch.
In 2013, national spending on health care rose by just 3.6%, the smallest annual increase since 1960, reports CNN Money. That's according to statistics from the Centers for Medicare and Medicaid Services. Premiums for private health insurance, which covers 60% of Americans, grew by just 2.8% in 2013 compared with 4% in 2012. Out-of-pocket spending was down last year, growing by just 3.2% compared with 3.6% in 2011 and 2012. Even spending on physician and clinical services was down, growing by only 3.8% versus 4.5% in 2012. Drug costs were the only expense that increased, growing by 2.5% last year compared with 0.5% in 2012. Overall spending on health care rose to $9,225 per person in 2013, or $2.9 trillion.
SECOND THOUGHTS: Is the American health care system changing in ways that could make it more affordable? That's up for debate. For the last five years, health care spending has been growing at historically low rates, in step with the Great Recession. Optimists say the system is becoming more efficient and safe. But federal officials stress that this slowdown could be the result of a weak post-recession economy, which means next year's report could look very different, notes The New York Times. To hold down your own medical bills, check out these 10 smart moves to save on health care.