Concerns about the health of Social Security have been voiced since the program’s first days of existence. Policy debates center on how much revenue the payroll taxes generate and whether or not this revenue can match the expected outflows of the program. Other debates involve which inflation measure is the best one to use for indexing benefits. This debate usually includes a trick to slow the spending by using an inflation index that is lower than the Consumer Price Index. Lost in most discussions of Social Security is the large impact this program has on the US economy. Many senior citizens rely solely on Social Security to fund their retirement. The US economy actually relies on Social Security as a major component of consumer spending. Most economists estimate that consumer spending ...

Recently, the Demand Institute division of the U.S. Conference Board released a study called “The Shifting Nature of U.S. Housing Demand: The U.S. housing market is growing again – but not as we knew it.”  Among the broad conclusions are that rentals will be more popular, homes will be smaller, and most Americans still view home ownership as a good investment in their future. The study’s findings not a total surprise Increased demand for rentals is not a surprising result. Many homeowners who lost their houses to foreclosure will be forced to rent as they rebuild their credit. In addition, young adults have traditionally rented while saving for a down payment. In the real estate boom, some bought without down payments, sure; but new lending standards are requiring almost every...

Judging from the headlines, California is on the cusp of collapse. The state of California certainly has a sizable budget gap, just like they do every year. There are also a number of people leaving the state to escape the taxes and companies that are fleeing regulation. The news coverage leaves little doubt that California faces a grim future. Yet, the state somehow continues to function and keep millions of its residents. The budget problem is the latest crisis. However, budget shortfalls are a problem that other states face every year and hundreds of cities and countries across the nation also face. The current problems are most likely worsened by the impact of the deep recession. Unemployment in the state has decreased the amount of income taxes collected at the same time the governmen...

A newly retired couple will need an estimated $240,000 to meet their health care expenses over the course of their lives. Fidelity Investments releases their estimate every year and the mutual fund giant reports that health care costs are increasing again, after dipping slightly last year. This year’s total is up about 4 percent from a year ago. Annual increases have averaged about 6 percent since Fidelity published its first estimate in 2002. How the Fidelity report was conducted The study is based on projections for a 65-year-old couple retiring this year with Medicare coverage. The estimate includes Medicare’s premiums, co-payments and deductibles, and out-of-pocket prescription costs. The study assumes the couple does not have any other insurance, and then incorporates a life expec...

We are not taking sides in the political debates that surround the California state budget, but we do believe that everyone can learn something about spending, and budgeting, from watching the action in Sacramento. The obvious lesson to draw from California and almost every other government is that chronic overspending leads to big problems. Gimmicks help many of them, including California, technically balance their budget or at least show a lower deficit than private sector companies with similar spending patterns would. What went wrong for California’s budget? Governments have largely reached this point where they suffer from chronic budget deficits because they failed to set priorities in many cases. In California, some are appalled that the state spends more on prisons every year...

European governments face debt problems that seem to threaten the survival of the euro. The future is uncertain, as it always is when major economic events are concerned. On this side of the lake, however, our main concern with this debt crisis is what the potential impacts could be on our own retirements and on the retirement income of those who have already retired. Some tactics in the fight again a collapse in the Euro One of the government responses to the crisis has been a series of austerity budgets. Government spending is being cut back so that deficits can be reduced and even balanced at some time in the future. The impact of these budget cuts will have serious impacts on the citizens of the countries involved. Some countries are even considering cutting back on retirement benefits...

A recently issued report highlighted the growing problem of poverty among senior citizens. The Employee Benefit Research Institute (EBRI) provided a detailed look at poverty rates among people who are at least 50 years old. The changes in those rates from 2001 to 2009 are surprising. Among those aged 50 to 64, poverty increased from 9.1 percent in 2001 to 12.3 percent in 2009. This is the time when many are getting serious about retirement planning and if one in eight people of this age are facing poverty, they will be unable to prepare for a secure retirement. The impact of Social Security benefits seems to help those who do retire to meet minimal financial concerns. The poverty rate among those who are between the ages of 65 to 74 also rose over that time frame, from 8.4 percent to 9.4 p...

Commerce Department data shows new homes are selling at an annual pace that would see 328,000 homes sold. This beat the expectations of analysts who had been looking for the pace of sales to be about 319,000 according to a Bloomberg News survey. At the peak of the real estate bubble, about 2 million new homes a year were being sold. The supply of new homes is dropping along with sales and there is now about a 5.3 months supply of new homes. This is below the long-term average of a 6 month supply and is a sign that the market is starting to recover. The widely followed S&P/Case-Shiller Index of property values added another data point to consider. Home prices in 20 large US cities fell 3.5 percent in February 2012 from the level they were at a year ago. This is the slowest rate of decli...

Many retirees are forced to pay taxes on the money they take from retirement accounts each year. Withdrawals completed from traditional IRAs are taxable as current income and taxed at the regular income tax rate. These tax bills are reducing the value of IRA withdrawals in many cases. With a reverse mortgage, you may be able to avoid those tax bills next year. A reverse mortgage allows you to tap the equity in your home and the proceeds from a reverse mortgage are usually available tax-free. Reverse mortgage proceeds are NOT taxed If you are over the age of 62 and have equity in your house along with an individual retirement account that will be taxed on withdrawals, you have options. By using the equity in your home to access cash for retirement expenses, you could leave the money in your...

Builders pared back on starting new projects in March and the number of new homes started fell by 5.8 percent according to the latest data from the Census Bureau. The number of new homes should increase by about 654,000 this year if builders maintain the current pace of construction. To put that number in perspective, more than two million homes a year were being built in 2006 and 2007 as prices soared. Excessive building a catalyst for real estate collapse Excessive building was a sign of a market top. The builders were responding to demand and buyers were bidding prices higher and higher until they suddenly stopped buying. Financing dried up as reality set into the market and builders again responded to demand by building less. That led to layoffs in the good-paying construction industr...