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This week’s money news

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This week’s top story: Smart Money podcast on how to leverage inflation for your benefit. In other news: Justice department sues to block JetBlue, Spirit merger, 3 tax credits not to miss when you file this year, and 3 ways to get your income and other money faster.

Smart Money Podcast: How to Leverage Inflation for Your Benefit
In this week’s episode, we’re sharing NerdWallet’s recent webinar, which was about inflation.

Justice Department Sues to Block JetBlue, Spirit Merger
On Tuesday, the Justice Department sued to block JetBlue Airways from taking over Spirit Airlines in a $3.8 billion deal.

Don’t Miss These 3 Tax Credits When You File This Year
Credits are a more powerful tax-saving tool than deductions, and common programs, such as the earned income tax credit, can save you thousands.

3 Ways to Get Your Income and Other Money Faster
To get money faster, use early direct deposit, Zelle or instant cash-out on Venmo or Cash App. But availability varies.

Friday’s need-to-know money news

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Today’s top story: Don’t let lifestyle creep sneak up on you. Also in the news: 7 steps to buying a house, do you need a tax ID number, and how to make sure you don’t lose your credit card rewards when closing the card.

Don’t Let Lifestyle Creep Sneak Up on You
Living within your means.

What Is a Tax ID Number, and Do I Need One?
Going beyond your Social Security number.

Home Buying Checklist: 7 Steps to Buying a House
Making an important list.

How to Make Sure You Don’t Lose Your Credit Card Rewards When You Close the Card
Reading the fine print.

Q&A: Guaranteed income in retirement

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Dear Liz: Is there such a thing as guaranteed income in retirement? Private pensions are gone and public pensions aren’t far behind. There are calls for pension reform and I’m not sure if anything is guaranteed anymore. As far as annuities are concerned, insurance companies are on shaky ground and the U.S. government had to bail out AIG. My kids, in their 20s, have told me they aren’t expecting Social Security to be there when they retire. The term “guaranteed income” has lost its meaning.

Answer: I wouldn’t rely on your twenty-something offspring to be oracles of financial wisdom. The reality is that Social Security will collect enough in taxes to pay about three-quarters of promised benefits even if Congress never gets its act together to improve the system’s financial situation. As bad as Americans can be at math, most of us can understand that “75%” is not the same as “0%.” Social Security is an immensely popular government program that millions rely on for most or all of their retirement income, so the odds are pretty good that the system will be there when your kids need it.

Pensions are another common source of retirement income. Private pensions are on the wane but millions of people still have them. If a plan can’t pay promised benefits, the Pension Benefit Guaranty Corp. takes over. The PBGC has a maximum limit for payouts, which may trim the pensions of highly paid employees, but the vast majority of workers get what they were promised.

Public pensions, meanwhile, aren’t impossible to cut, but it’s tough to do, and most government agencies prefer to defer the pain by trimming benefits for younger employees rather than older ones.

Finally, it’s not true that insurers are on shaky ground — the vast majority survived the financial crisis without a bailout. You still should check into an insurer’s financial strength before you buy an annuity, of course, and many financial planners recommend buying only from top-rated companies. If an insurer does fail, many annuities are covered by state guaranty associations up to certain limits (typically $250,000).

Are you falling behind?

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siblingsMore than half of Americans—56 percent—say they’re falling behind financially, according to a new national survey by the Pew Research Center.

That’s not surprising, given that a recent Census Bureau study concluded that most Americans are worse off financially than they were before the recession, despite gains in the stock market and home prices.

Which is why Donna Freedman’s latest piece for Get Rich Slowly, “Why I voluntarily slashed my salary,” is a timely read.

Like the rest of us who wrote for MSN Money, Donna faced a big drop in income when the site pulled the plug on original content. Rather than try to recoup what she’d lost, though, Donna made a conscious decision to live on a lot less.

Donna’s situation is Donna’s. Yours is probably quite different. But I’m always inspired reading what she has to say about the benefits of a more frugal, conscious life.

That doesn’t mean I think that status quo is okay. The ever-widening gap between rich and poor is not okay. The huge debts young people take on to get educated is not okay.  The fact that most people’s finances can be seriously and permanently upended–by a layoff, a divorce, a death in the family–is not okay.

It’s also not okay to keep blaming individuals for what are clearly huge economic trends. Overspending on credit cards did not trigger the Great Recession.

But if you’re living with less, Job One is figuring out how to make that work, at least for now. Job Two may be pushing for change.

 

High school graduates are losing ground fast

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hobo with cardboardWe’ve known for awhile that incomes have been dropping for people with only high school educations. But there was a statistic in a recent Pew Research Center study that really set me back on my heels: 22% of people aged 25 to 32 who graduated high school, but not college, live in poverty. That compares to 6% of people with college degrees.

The poverty rate overall and for the college educated has doubled since 1979, when the early wave of the Baby Boom was in the same age bracket. For those with just a high school diploma, though, the rate has more than tripled.

Meanwhile, the earnings gap between college graduates and high school graduates is the widest it’s been in 50 years.

For more on the Pew study, read my latest Reuters column. You can subscribe here to weekly updates of my education column.

 

Why you still feel like you’re in a recession

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Money squeezeI’ve been through several recessions now, and they all had at least one thing in common: people complained that the economists who declared an official end to the downturn were out of touch, because it didn’t feel like the recession was over.

Recoveries take a while to spread through the economy, which means people experience the expansion at different times…and some never feel it at all, because they or their geographic areas are permanently left behind.

In the case of the Great Recession, though, there are pretty good reasons why you may feel like it never ended:

  • For one thing, median household income in the U.S. in real terms (adjusted for inflation) is nearly 9% less than it was in 1999, according to the Census Bureau.
  • The unemployment rate (now 7.4%) has been declining, but is still well above 2007 rate of 4.7%.
  • The unemployment rate doesn’t capture discouraged workers (those who have given up looking for work) and those who are working less than they’d prefer. In fact, the number of full-time workers as a percentage of the population is down sharply from pre-recession levels.

I could go on, but economists who have dug into the numbers make it clear that most of the growth in recent years has accrued to those at the top. Earlier this year, the New York Times featured research by Emmanuel Saez, an economist at the University of California, Berkeley, that tracked incomes between 2009 and 2011:

“…there was a wide gap between the top 1 percent, whose earnings rose by 11.2 percent, and the other 99 percent, whose earnings declined by 0.4 percent.

Mr. Saez, a winner of the John Bates Clark Medal, an economic laurel considered second only to the Nobel, concluded that ‘the Great Recession has only depressed top income shares temporarily and will not undo any of the dramatic increase in top income shares that has taken place since the 1970s.’

The disparity between top earners and everybody else can be attributed, in part, to differences in how the two groups make their money. The wealthy have benefited from a four-year boom in the stock market, while high rates of unemployment have continued to hold down the income of wage earners.”

The takeaway here (besides the fact that it’s nice to be rich) is that it’s not just your imagination: the recovery has not spread very far into the economy.