White House ‘very seriously considering’ another stimulus bill — here’s how the CARES Act has impacted poverty rates

The Trump administration is “very seriously considering” another stimulus bill as the coronavirus pandemic continues, Treasury Secretary Steven Mnuchin said Tuesday.

Speaking to Bloomberg three months after lawmakers passed the $2.2 trillion Coronavirus Aid, Relief and Economic Security (CARES) Act, Mnuchin revealed few details on what a new round of fiscal relief would look like, though he did say it will be “much more targeted to the businesses that are impacted.”

As for the funds that are already being disbursed under the CARES act, Mnuchin said, “There’s no question that money is having a major impact on the economy.”

In a separate interview Tuesday with Time Magazine, Mnuchin said a bill could take shape next month.

While Republican and Democratic lawmakers figure out the provisions for another bill, researchers say the CARES Act is helping families now — as long as they can access the money.

Stimulus checks and expanded unemployment payments could help keep America’s poverty rate around where it was before the coronavirus outbreak, according to new research from Columbia University.

One measure of poverty would have climbed from an estimated 12.5% rate to 16.3% without any sort of federal intervention, the researchers said. (Great Recession-era levels peaked at approximately 16%, according to U.S. Census Bureau data.)

But because of the money from stimulus checks and expanded unemployment, that poverty rate stayed at an estimated 12.7%, the Columbia researchers projected.

A four-person family with two kids under age 18 is considered to live under the poverty threshold if their income is under $25,926 a year, according to the Census Bureau’s 2019 threshold, its most recent figure.

The Columbia researchers’ calculations assume “medium access” to the money, which means 70% of eligible people received stimulus checks and 60% of recently unemployed people received their expanded unemployment.

The stimulus checks paid $1,200 to every eligible adult making under $75,000 or $2,400 for a married couple earning under $150,000. The government also cut $500 checks for every eligible child. The Internal Revenue Service had issued 159 million stimulus payments as of early June, the agency said.

The stimulus bill also paid unemployed workers $600 a week on top of state unemployment benefits. That extra federal money will end at the end of July. As the pandemic shut businesses, unemployment soared from decades-low rates to double-digit territory, standing at 13.3% in May.

As lawmakers debate another relief bill, the Columbia study serves as another illustration of how important the stimulus money has been for the millions of Americans who have received benefits and stimulus checks.

The findings also underscore the potential harm for people who are missing out on the money.

For example, approximately 7% of people said they unsuccessfully applied for unemployment benefits or gave up because the process was too tough, according an approximate 25,000-person survey in April from the left-leaning Economic Policy Institute.

The stimulus bill has been a “critically important anti-poverty measure,” according to the researchers, Zachary Parolin, Megan Curran and Christopher Wimer. But bureaucratic barriers to get unemployment benefits and certain deadlines to reap stimulus check money “threaten to weaken the poverty reduction potential of the CARES Act,” they added.

The study also raises the question of what will happen later this summer after the stimulus checks are paid out and the enhanced unemployment payments stop at the end of July.

‘If high unemployment rates persist, additional income support will likely be needed to mitigate hardship in the short-term and prevent subsequent rises in poverty and economic insecurity moving forward.’

— Authors in ‘The CARES act and poverty in the COVID-19 crisis’

“If high unemployment rates persist, additional income support will likely be needed to mitigate hardship in the short-term and prevent subsequent rises in poverty and economic insecurity moving forward,” they wrote.

See also:What to do if someone else is fraudulently claiming your unemployment benefits

The U.S. Census Bureau has two ways to gauge poverty levels. There’s the official measure, which focuses on gross pre-tax cash income and the “supplemental poverty measure,” which focuses of after-tax money and a broader base of potential benefits. The study focused on the second measure.

The researchers emphasized that they used monthly census income data from April to aid their simulation. Though they were looking at yearly projected poverty rates, they acknowledged the yearly rate wouldn’t capture the “immediate hardship” of many families as they waited for money — or their problems if income dries up after the stimulus money runs out.

‘A significant number of families are explicitly left out’

Approximately 30 million people are unable to access stimulus money because of eligibility rules surrounding stimulus checks and unemployment benefits, the researchers said. This includes approximately 15 million people who are 17 and above, who are still being claimed as dependents by their families for tax purposes.

See also: ‘My mother claimed me as a dependent in 2019, but I was not aware of this.’ What can I do to claim my $1,200 stimulus check?

Approximately 15 million people in immigrant families are also left out of the stimulus money, they study said. The rules on stimulus check eligibility and immigration status can get complicated. For example, green card holders are eligible for a check, but not necessarily their spouse.

Likewise, both people in a married couple need a Social Security number to get the stimulus check, the IRS says. If one person has an “individual taxpayer identification number,” a tax number for non-citizens, the IRS says the couple cannot collect the check.

Several lawsuits have challenged the rules on stimulus checks and immigration status.

In some pending class-action cases, U.S. citizens contend they are missing out on stimulus money because they are married to non-citizens. They are being punished because of who they choose to marry, they say.

In one case, seven U.S. citizen children born in the states to non-citizen parents argue they are being deprived of their $500 stimulus checks because of their parents’ immigration status. Either one or both of their parents are undocumented immigrants, court papers said.

Last week, District of Maryland Federal Judge Paul Grimm said the children could proceed with the case. He denied the government’s dismissal motion and scheduled more briefing in the case for next month.

The Justice Department and Treasury Department did not immediately respond to a request for comment.

‘Being anti-racist is a verb, so it requires action’: Don’t stop demanding racial equality — how to become a lifelong ally

Maybe you posted a black square on Instagram FB, +0.03%, donated money to a racial-justice organization, reflected with friends about your own privilege, or purchased a title from one of the internet’s many anti-racism reading lists in the last three weeks.

But as nationwide protests and a reckoning with America’s racist past —and present — hurtle onward, activists say the work is far from done. In fact, they say, today’s conversations are only the beginning.

“Realize that what’s going on now is part of a long-term pattern of racial injustice, discrimination, exploitation and violence,” Paul Kivel, an educator, activist and author of the book “Uprooting Racism: How White People Can Work for Racial Justice,” told MarketWatch. “It’s really important for us to understand that we need to be always working for racial justice, whether there’s dramatic moments or not.”

The country’s current scrutiny of police violence, discrimination and historic inequalities doesn’t show signs of abating anytime soon. But in the event that it does, you can still work toward racial equality in your everyday existence — and stand with your Black friends and coworkers even after the statements of solidarity fade from social-media feeds.

You can start, of course, by understanding the history of Black-owned businesses and making the conscious decision to shop at them. (MarketWatch has your starter guide here.) Here are more ways to keep your foot on the racial-equality gas pedal at home, at work and out in the world:

Continue educating yourself

Become a “racial equity learner” and find ways to learn about how racial inequality persists today, said Rashawn Ray, a University of Maryland sociology professor and fellow at the center-left Brookings Institution.

“We need to educate ourselves about how racism looks and operates and what the history is, how it plays out today, and how are people of color organizing to address it,” Kivel said. “We should be turning and listening to people of color, and there’s wonderful films and books and YouTube GOOG, -0.36% clips and art and dance and music.” Race-focused book lists abound; they often include a mix of introductory texts about race and literature by Black authors.

Leslie Mac, an organizer and digital strategist, suggested reading “as many books and content from Black women as you possibly can.” She recommended contemporary works by authors such as Charlene Carruthers and Crystal Fleming, as well as historical works by authors like Frantz Fanon and Angela Davis.

“If you’ve ever heard that a Black writer or thinker is ‘too radical,’ that’s who you should be reading right now,” she said. “Any book that is imagining a world that looks different from the one that we have, and is not just talking about things in theory, is really useful right now and will move people beyond that 101 framing, which is ‘I know that racism exists.’”

As for learning from your Black friends or coworkers, “don’t have conversations that could easily be handled by a Google search,” Mac said. “You can have a conversation with them about their experiences, about your behavior with them. Those are conversations that can be fruitful,” she said. “But if you’re just looking to download information from Black people, just skip it.”

Talk to your friends and family — and speak up when you witness racism

The next step, Ray said, is to become a “racial equity advocate.” That means holding people accountable for their actions and statements about inequality at the dinner table, in your friend group and at work, he said. Don’t let racist statements go unchecked.

“Part of the fundamental way you know you’re an advocate is if you speak up and speak out when the group that’s being vilified is not present or when they cannot help themselves,” Ray said. “If you don’t say anything, you’re letting that racist statement ride, and it’s assumed that you support it even if you don’t. You have to purposely say something about it.”

Pushing back with responses like, “I actually don’t agree with that,” “I’m not sure if that’s true,” or “I’m not sure if we should be talking about people like that” can go a long way, especially if there are other people observing, he said.

You can also be an advocate in public. Notice a pattern of Black customers at your local restaurant not being served or only being seated in the back corner? Ask for the manager or write a letter to the head of the company later. See someone being mistreated by the police or others? Record video of the encounter. “Without mobile phones, we wouldn’t know what happened to George Floyd, Ahmaud Arbery, Christian Cooper,” Ray said. If you have the time and opportunity, you can also acknowledge what happened to the person and let them know you didn’t agree with it, he added.

The bare minimum you can do to promote racial equality is to break the silence, Kivel said. “Part of how racism continues is that we don’t talk about it — so we need to have the conversations with our family and friends, with our children, with our neighbors, in our workplaces,” he said.

‘When the tenor of the conversation shifts, people are still going to be sitting with their experiences of structural racism, systemic racism and the daily microaggressions — and they’re going to look to these same coworkers who blacked out their square on Instagram that day and put up the hashtag and sent them a note that said, “I am with you.”’

— Laura Morgan Roberts, a professor of practice at the University of Virginia’s Darden School of Business
Promote equality at work

Take ownership and responsibility for trying to positively change the culture of your workplace, said Laura Morgan Roberts, a professor of practice at the University of Virginia’s Darden School of Business who has researched and consulted on diversity.

Be on the lookout for microaggressions, listen for stereotypical comments disparaging a person’s qualifications, and “call out that flawed assumption or characterization” in the moment, she said.

Be proactive to ensure that people of color are included in meetings and important decisions, Roberts added; if you notice your Black coworker was left off an impromptu Zoom ZM, -0.60% meeting invite, take the extra step to loop them in. When a coworker of color does really well on a project or makes an important contribution to the team, shine a light on their accomplishments.

If you have some authority at work, use your newfound enlightenment on race to promote greater equality in hiring and promotion decisions, Roberts said. Make sure people of color are being considered for leadership roles, task forces and other opportunities that could benefit them and their career. “Their name might not be considered naturally when people talk about high potential, so throw that person’s name in the hat too,” she said.

If you’ve put yourself forth as an ally during this time, Roberts added, expect that coworkers of color might eventually approach you to share an experience they’ve had in the workplace — and be ready to offer validation, support, empathy and compassion, rather than dismissing or second-guessing their account.

“When the tenor of the conversation shifts, people are still going to be sitting with their experiences of structural racism, systemic racism and the daily microaggressions — and they’re going to look to these same coworkers who blacked out their square on Instagram that day and put up the hashtag and sent them a note that said, ‘I am with you,’” she said. “They’re going to test that commitment by sharing an incident or an episode that otherwise they would’ve never told their white coworker about.”

‘Being anti-racist is a verb, so it requires action for you to claim that particular mantle — and it requires consistent action.’

— Leslie Mac, an organizer and digital strategist
Leverage your money, time and clout

“Realize that because we have various benefits and privileges that we get from being white, we can use those to leverage resources for racial justice,” Kivel said. One of those resources is money, of course, but there’s also time, energy, experience, skills and connections, he said.

Support and volunteer with grassroots organizations led by people of color that are “organizing for systematic change for racial justice at an institutional level,” Kivel said, and addressing issues such as housing, jobs, education and health care. Mac said she often looks for Black-led organizations that truly understand that “all Black lives matter” — meaning they’re supportive of Black trans lives and Black LGBTQ+ lives. Scrutinize the work an organization does and see whether it’s working alongside other groups, she said, because “very rarely does good community organizing happen in a vacuum.”

“The piece that’s important is that whatever work you’re trying to do is to complement and be in concert with the work that Black, brown and Indigenous organizers are doing on the ground,” Mac added.

Use your power to influence systems

Interrogate the systems that you have direct influence over and participate in, whether that’s the PTA or a board you sit on, Mac said. “Being anti-racist is a verb, so it requires action for you to claim that particular mantle — and it requires consistent action,” she said.

In that vein, the third step in Ray’s framework is to become a “racial equity broker,” meaning you advocate for racially equitable and transparent policies in spaces like your workplace, place of worship, homeowners’ association and kids’ school. “You’re interrogating the rules, policies, practices and laws that are in place that govern what you do,” he said.

“Speaking as a white person in those kinds of public settings, whether it’s a school-board meeting or a city-council meeting, does carry weight,” Kivel said.

Vote

“It’s important to think about who we vote for and that we support candidates of color — not indiscriminately, because we care about what they stand for [and] what their politics are,” Kivel said. He urged voting for candidates who are working toward goals like affordable housing, health care for everyone and safe communities. Consider candidates’ stances, behavior and past records on racism, he added: “Are they going to take us toward racial justice, or are they going to entrench us further in division?”

‘They get a get-out-of-jail-free card’: How qualified immunity protects police and other government officials from civil lawsuits

As the deaths of unarmed Black people such as George Floyd, Breonna Taylor and Rayshard Brooks have reignited the national debate on excessive force and police accountability, activists have called for an end to qualified immunity, a legal doctrine that protects law-enforcement officers and other government officials from lawsuits over their conduct.

The Supreme Court this month declined to hear a handful of cases related to qualified immunity, putting the ball squarely in Congress’s court.

MarketWatch spoke with legal experts about how qualified immunity works, how it came to be, what it looks like in practice, and how critics across the ideological spectrum are working to challenge it:

What is qualified immunity?

Qualified immunity, a type of legal immunity, is a defense that a government actor can pose to defend against a civil lawsuit, said Taryn Merkl, senior counsel at the Brennan Center for Justice and a former assistant U.S. attorney in the Eastern District of New York. It essentially protects a government official from a lawsuit unless that official violated a statutory or constitutional right that was “clearly established,” Merkl told MarketWatch, and it “can be posed very early on in a case to prevent the lawsuit from going forward at all.”

Supreme Court Justice Samuel Alito wrote in an opinion for the 2009 case Pearson v. Callahan that qualified immunity balanced two key interests: “the need to hold public officials accountable when they exercise power irresponsibly and the need to shield officials from harassment, distraction, and liability when they perform their duties reasonably.”

Qualified immunity is only applicable in civil lawsuits.

Many courts have interpreted the “clearly established” piece of qualified immunity to mean that there needs to be a prior case that held that somebody’s actions in similar circumstances violated a person’s rights, Merkl said. “Some courts have held that unless there are facts that almost match the facts of an alleged violation, it wasn’t clear to the officer that what he did was unconstitutional,” she said.

Qualified immunity is only applicable in civil lawsuits — which, as the libertarian Institute for Justice points out, are often families’ and individuals’ only means of seeking relief in the absence of criminal charges being brought.

Amir Ali, the director of the MacArthur Justice Center’s Washington, D.C. office and a Harvard Law School lecturer, sees it this way: “Qualified immunity is basically a rule that police officers, correctional officials and other public officials are above the law and above the Constitution,” he told MarketWatch. “It says that even when a police officer engages in gross misconduct, whether it be police brutality or murder as we’ve seen time and time again in video after video, that they’re granted immunity from any suits trying to hold them accountable for their conduct.”

Why do critics want to end qualified immunity?

Qualified immunity has united skeptics and critics across the ideological spectrum, including conservative Supreme Court Justice Clarence Thomas, liberal Justice Sonia Sotomayor, the American Civil Liberties Union and the libertarian Cato Institute. A principal concern is the idea that it insulates officers from liability for potential constitutional and statutory wrongs, “but also that it encourages a culture of lack of accountability,” Merkl said.

‘Qualified immunity gives government officials a rubber stamp to violate your rights, as long as they do so in a way that no one has ever thought of before.’

— Robert McNamara, a senior attorney at the Institute for Justice

“Whether you subscribe to a world of bad apples or you think the whole tree is rotten, we’re already talking about somebody who is a bad enough apple that they’ve done something that no reasonable officer in the circumstance would have done,” Ali said. “But qualified immunity says even that person is going to walk away with impunity — if the victim isn’t able to find a case out there that happens to look pretty much exactly like this case.”

Robert McNamara, a senior attorney at the Institute for Justice, argued that qualified immunity “makes it almost impossible to hold government officials accountable for violating the Constitution” — and in a certain way, he added, “it makes it more difficult to make a government official liable the more unusual and egregious their conduct is.”

“They get a get-out-of-jail-free card simply because they violated your rights in a way that is slightly different,” McNamara told MarketWatch. “Qualified immunity gives government officials a rubber stamp to violate your rights, as long as they do so in a way that no one has ever thought of before.”

The 2001 Supreme Court decision Saucier v. Katz outlined a two-step test to determine whether an official would receive qualified immunity: A court must first consider whether the facts alleged demonstrate that a constitutional right was violated, and if so, it must examine whether that right was “clearly established.” Qualified immunity applied unless the official’s conduct violated a clearly established right. But eight years later in Pearson v. Callahan, the Court held that while this two-step protocol was “often beneficial,” it wasn’t mandatory.

“What the Supreme Court has said is that in evaluating a qualified-immunity defense, courts can skip directly to the second prong — meaning if a court thinks that the law is not clearly established, they don’t have to address the question of whether this person’s constitutional rights were violated,” Ali said.

In 1982, the Supreme Court redefined the qualified-immunity doctrine so that it no longer turned on evidence of an officer’s good faith but, instead, focused on whether the law was ‘clearly established.’

This effectively deprives families seeking some legal remedy and accountability of their day in court, Ali said. It also leads to a “perverse outcome” for people whose rights are violated in the future, he added: If the courts never decide in a certain case whether there was a constitutional violation, they don’t create the precedent necessary to show that the law was clearly established — thus leaving the door open for another government actor to do the same thing down the line.

“You end up in this Catch-22 where courts are saying, ‘Well, you’ve got to point to a case that looks just like this one where we said it was a constitutional violation’ — but then they’re never creating those cases or issuing those decisions which made clear it was a constitutional violation,” he said.

In the years since the 2009 Pearson case, “appeals courts have increasingly ignored the question of excessive force,” according to a Reuters investigation published in May.

“In such cases, when the court declines to establish whether police used excessive force in violation of the Fourth Amendment, it avoids setting a clearly established precedent for future cases, even for the most egregious acts of police violence,” the report said. “In effect, the same conduct can repeatedly go unpunished.”

What was the doctrine originally intended to do?

The 1871 Civil Rights Act, a Reconstruction-era law largely aimed at protecting Black Americans from violence, allowed people who were deprived of their constitutional rights by state or local officials acting “under color of law” to sue in federal court. This provision launched the U.S. Code’s Section 1983, which would form the basis for many cases against police officers.

Nine decades later, the Supreme Court created qualified immunity in 1967 “on the ground that it reflected common-law, good-faith immunities available under state law,” Joanna Schwartz, a professor at the UCLA School of Law, told MarketWatch in an email.

“At the time, the Court described the immunity as necessary to protect officers from personal liability when they have acted in good faith,” she said. “The justifications for the doctrine have changed over time — now the Court focuses not only on financial liability for officers but also on the need to shield them from the costs and burdens of defending themselves from insubstantial cases.”

The qualified-immunity doctrine, she added, “has shifted a great deal in the decades of its existence.”

“It originally just protected good-faith behavior. Then in 1982, the Court redefined the doctrine so that it no longer turned on evidence of an officer’s good faith but, instead, focused on whether the law was ‘clearly established,’” she said. “And the definition of ‘clearly established’ law has shifted over time. Now, law is only clearly established if the Supreme Court or a court of appeals has held unconstitutional virtually identical conduct to the case on point.”

How has this played out in practice?

Critics of qualified immunity say a number of cases highlight the doctrine’s shortcomings. For example, there’s Jessop v. City of Fresno, Calif., in which a pair of businessmen alleged that police officers had stolen some $225,000 in cash and rare coins they had seized while executing search warrants. The officers were deemed entitled to qualified immunity because “at the time of the incident, there was no clearly established law holding that officers violate the Fourth or Fourteenth Amendment when they steal property seized pursuant to a warrant.”

“Not only does that show you how absurd the doctrine is — because officers shouldn’t need a case where other officers have stolen something pursuant to a warrant to know that it is wrong — but what it tells you is that if you live in the Ninth Circuit, which actually governs a huge part of this country, that officers are free to go do it again and they won’t be held accountable,” Ali said. “So the next officer who executes a search warrant in the Ninth Circuit is free to pocket some of the proceeds.”

Another prominent case is Baxter v. Bracey, in which a court granted qualified immunity to officers who released a police dog on a burglary suspect who was sitting on the ground surrendering with his hands in the air. A prior case, meanwhile, had established that “the Fourth Amendment prohibited unleashing a dog to attack a suspect who had surrendered by lying on the ground.”

“But the court nevertheless held that the police had not ‘knowingly’ violated Baxter’s rights, because in that prior case, the suspect was laying on the ground, whereas Baxter was sitting on the ground with his hands up,” writes Jay Schweikert, a policy analyst at the libertarian Cato Institute.

What are the best arguments for keeping qualified immunity in place?

The International Association of Chiefs of Police, a professional association of more than 31,000 members in 165 countries, calls the doctrine “an essential part of policing and American jurisprudence” that “allows police officers to respond to incidents without pause, make split-second decisions, and rely on the current state of the law in making those decisions.”

“This protection is essential because it ensures officers that good faith actions, based on their understanding of the law at the time of the action, will not later be found to be unconstitutional,” the IACP said in a statement. “The loss of this protection would have a profoundly chilling effect on police officers and limit their ability and willingness to respond to critical incidents without hesitation.”

‘The loss of this protection would have a profoundly chilling effect on police officers and limit their ability and willingness to respond to critical incidents without hesitation.’

— International Association of Chiefs of Police

Attorney General William Barr spoke out against reducing qualified immunity earlier this month, and White House Press Secretary Kayleigh McEnany later called the idea a non-starter. South Carolina Sen. Tim Scott, who is leading Republican senators’ police-reform efforts, said the prospect of ending qualified immunity would be a legislative “poison pill” for the GOP.

“I don’t think you need to reduce immunity to go after the bad cops, because that would result certainly in police pulling back,” Barr told CBS News. “Policing is the toughest job in the country, and I frankly think that we have — generally, the vast, overwhelming majority of police are good people. They’re civic-minded people who believe in serving the public. They do so bravely. They do so righteously.”

McNamara argues that the concern over law-enforcement officers’ need to make split-second decisions under pressure “is already baked into the constitutional standard” with its question of reasonableness. The Fourth Amendment specifically prohibits “unreasonable” searches and seizures, he pointed out.

“All qualified immunity does is take a government official who made a decision that we can all agree was unreasonable and ask whether that unreasonable decision is new,” McNamara said. “I just don’t see why it should matter whether it was new — what should matter is whether it was unconstitutional.”

Could employees be bankrupted by lawsuits if not for qualified immunity?

“No,” Schwartz said. “Officers are virtually always indemnified, meaning that they don’t pay anything in settlements and judgments against them.” In Schwartz’s 2014 study of police-misconduct settlements and judgments across 81 U.S. law-enforcement agencies between 2006 and 2011, she found that governments had paid about 99.98% of the millions of dollars awarded to plaintiffs in civil-rights lawsuits.

“Law enforcement officers in my study never satisfied a punitive damages award entered against them and almost never contributed anything to settlements or judgments — even when indemnification was prohibited by law or policy, and even when officers were disciplined, terminated, or prosecuted for their conduct,” she wrote in the study.

What’s one big misconception about qualified immunity?

“The idea that removal of the doctrine will have an immediate effect on officer behavior is not likely to be the case,” Merkl said. “Removal of the doctrine could, however, cause municipalities and departments to reconsider their training strategies and their policies to increase officer accountability, because they may be subject to additional financial risk.”

How could qualified immunity be ended?

Rep. Justin Amash, a former Republican turned libertarian, and Rep. Ayanna Pressley, a Massachusetts Democrat, this month introduced the “Ending Qualified Immunity Act,” while House Democrats’ “Justice in Policing Act” calls for eliminating qualified immunity for law enforcement. Democratic Sens. Ed Markey of Massachusetts, Kamala Harris of California and Cory Booker of New Jersey are leading a similar effort on the Senate side. And Sen. Mike Braun of Indiana, a Republican, introduced a bill Tuesday to limit qualified immunity for police officers.

States are also “perfectly capable” of passing laws that hold officers accountable for constitutional violations, Ali said. A Colorado police-reform bill recently signed into law says that “qualified immunity is not a defense to liability.”

At the national level, “it could happen through congressional action,” Schwartz said. “The Supreme Court could also decide to take this up in the fall.”

Retire Better: Why your first five years of retirement are critical

If you’re a glass half full person, here’s some good news: About half of retirees are able to maintain their spending levels—in other words, their lifestyles—during their first five years of retirement. 

On the other hand, half aren’t. 

That’s according to a study by the federal government’s Consumer Financial Protection Bureau (CFPB), which looked at retiree spending habits over a 22-year period ending in 2014.

Obviously, retirees are like snowflakes: no two are alike. Yet the study says most tend to have one important thing in common: They usually spend more in their first five years of retirement than at other times, and then it begins to decline. For example, if you’ve dreamed of traveling the world, checking things off from your bucket list and so forth, you’re more likely to do so in the early stages of your golden years than the latter ones, when you may be slowing down.

And it’s not just splurging in Italy or taking the grandchildren to Disney World. The CFPB cites an external study by the Employee Benefit Research Institute, which notes that retirees also tend to buy fewer clothes, fewer home furnishings and other things as time goes by. 

Read: I want to retire to a rural location with four seasons that gets me out of New York state — so where should I go?

But there’s something else you need to know about why spending declines after a few years, and it’s important. More on that below. 

Naturally, being able to maintain spending is easier for some than others. The CFPB report says that 27% of retirees were able to spend based solely on income from pensions, Social Security, annuities and other sources of income. Another 24% wear able to so by dipping into savings and selling off investments, in addition to the above things. 

But remember: if you dip too deeply into these things—your principal—it raises the chances of you running out of money later on. There’s a common rule of thumb that you should never take more than 4% of your principal a year, but this is something you should discuss with a trusted financial adviser.

So the first five years are telling, and can reveal how the rest of your life, financially, is likely to go. 

Perhaps you’ve heard that a sound retirement is best compared with a three-legged stool: One leg is a pension, one is Social Security, and the third is personal savings. But the stool has gotten wobblier over the years. Fewer companies have defined pension plans than ever before, shifting responsibility to employees to save through 401(k), IRA and other plans. But tens of millions of Americans, for a variety of reasons, haven’t saved much, if anything: Nearly 70% have less than $1,000 stashed away, according to a 2019 survey by GOBanking rates. Countless other studies say pretty much the same. 

Read: My retirement income is $95,000 a year, and I want a walkable, affordable beach town to spend the winter. Where should I retire?

This leaves Social Security, which was never meant to be a primary source of income, yet for millions, that’s exactly what it is. According to the Social Security Administration, “50% of married couples and 70% of unmarried persons receive 50% or more of their income from Social Security.” Even worse: “21% of married couples and about 45% of unmarried persons rely on Social Security for 90% or more of their income.”

If you’re already in retirement, you know where you stand. If you only have one or one-and-a-half of those legs of the stool, chances are you’re still working (or trying to in this economy), and chances are you’ve downgraded your standard of living. It very well could be that Social Security is just about all you’ve got. 

However, for younger workers, perhaps 10 to 15 years away from retiring, the CFPB study offers data that could help strengthen your finances as your career winds down. 

It showed that homeowners (59%) are more likely to be able to maintain spending in retirement than renters (30%). And not surprisingly, homeowners who paid off their mortgages before retiring were in even better shape. Think about that: No monthly payment to anyone.

If this isn’t you, you might want to consider the cost advantages of downsizing. If you’re still working and can’t relocate, can you at least find something smaller and/or cheaper? I recognize that this may be difficult, and perhaps painful, but if it helps you get a better grip of your finances, it may be worth considering. 

And here’s a no-brainer: Stay out of nonmortgage debt. It’s awfully hard to live well in retirement if you’re saddled with car loans, credit card or even student loans—yes, some retirees still have student loans. Get this stuff off your books as fast as you reasonably can. Focus on paying off whatever has the highest interest rate first. 

Finally, remember how I said there’s something else you need to know about why spending declines after a few years? Many people, forced into a corner financially, have no other choice. The CFPB found that retirees who couldn’t maintain their standard of living wound up slashing spending by 28% over their first five years in retirement. Of that number, 17% cut spending by more than half. 

This is sobering data. Nobody wants to cut their spending—their lifestyle—by half. But if retirement is still on the horizon for you, consider taking steps now to bolster your situation—before you’re forced to later. 

Now my question (s) of the month: If you are eyeing retirement what are you doing now to strengthen your finances? And if you are already in retirement, have you been forced to make any changes? Tell me your stories. Write to me—Paul Brandus—at RetireBetterMarketWatch@gmail.com. Thanks and I hope you’re staying safe this summer. 

Where Should I Retire?: I want to get out of New York state and retire to a rural location with four seasons — where should I go?

Dear MarketWatch,

I currently live in upstate New York (Saratoga County). I will retire from my state government job with an $80,000 public pension. If I stay, I won’t have to pay state income taxes on my pension, Social Security and the first $20,000 annually from my deferred compensation. Despite all of that, all the other taxes in New York make retiring here seem very expensive.

I’m looking for a rural retirement location with four seasons and where I can have a hobby farm. I like living less than 45 minutes from a town with a vibrant downtown, golf, fishing, hiking, hunting, and skiing. The location must be affordable, including housing, as I will have a mortgage and also want good health-care options.

To add to the wish list, I’d love to be closer to my family who are in Fort Collins, Colo., and Mesa, Ariz.), or least be within 90 minutes of an airport so I can visit often.

Any suggestions would be most appreciated!

Sandy

Sandy,

Let’s look out West for that four-season retirement spot and also get you closer to family. Your $80,000 pension already makes you better off than many retirees, and that’s before any investment or other income, so you have plenty of choices. Natural beauty and amenities often come with a price premium, of course. I’ll suggest three smaller cities and leave you to scout out the nearby rural options and the hobby farm possibilities.

The cost of farmland varies widely across the U.S., depending on local conditions and what the land is used for, but on the whole, it’s cheapest in the mountain states region, which includes Wyoming and Montana. I’m assuming you have worked out the time commitment and financial implications of having such a farm and already know that hobby farms don’t qualify for the tax breaks that small farms do.

As always, spend some time in any place you’re considering and make sure to experience it in all kinds of weather. Sometimes no matter how perfect a place may sound on paper, it’s the intangibles that capture your heart — or turn you off.

Cheyenne, Wyoming

Wyoming, as you may know, has no state income tax. For someone who wants out of New York state taxes, that’s a big plus. It’s also 45 minutes from your family in Fort Collins, so that eliminates one set of airline tickets without, I hope, being too close.

You’re definitely in cowboy country here. In Cheyenne, the state capital, you’ll find 65,000 people, one of the biggest hospitals in the state, several golf courses — and the world’s largest outdoor rodeo festival in Cheyenne Frontier Days. Laramie, home to the University of Wyoming and just over half the size of Cheyenne, is an hour away.

Don’t worry about hunting opportunities. Your closest option for downhill skiing, Snowy Range Ski Area, is 90 minutes away, on the other side of Laramie.

The downside: the cost of housing is above the national median, even though the overall cost of living is just below the national average. Of course, that’s for Cheyenne, and you’re looking for something more rural but with land. You can see what’s on the market right now across Laramie County on Realtor.com (owned, as is MarketWatch, by News Corp.)

If the Laramie area (in Albany County) is more to your liking, here’s what your money buys there.

Pocatello, Idaho

The tourism office calls this town of 57,000, located in the southeast corner of the state, an unassuming mountain town, but it’s livelier than you might expect given Idaho State University and its 12,000 students. You’ll find golf, fishing in the Snake River, skiing just 30 minutes away (only $43 for a lift ticket!) and plenty of hiking trails. You didn’t mention cycling, but the website Singletracks rates Pocatello No. 3 among the best affordable mountain bike towns .

To top off all the outdoor opportunities, you’d be sandwiched between two vastly different national parks —- Crater of the Moon National Monument and Grand Teton National Park.

Both housing and the cost of living are below the national average. It’s also one of the choices that comes up using MarketWatch’s “where should I retire?” tool. (Coeur d’Alene, at the other end of the state, does too, but it’s pricier.)

Here’s what’s on the market now in Pocatello and Bannock County.

Yes, Idaho has a state income tax but its “tax freedom day”, as calculated by the National Tax Foundation and taking all federal, state and local taxes into account, actually comes a few days earlier than Wyoming’s. That’s a good reminder that income taxes aren’t the only tax to consider.

One downside is the local airport’s limited service. But the airport in Idaho Falls (population 63,000) just an hour away has more options. That’s also your closest “big city,” though you’ll find some of the state’s largest hospitals in both Pocatello and Idaho Falls. Both Salt Lake City (with its major airport) as well as Jackson Hole and the Tetons are about 2½ hours away.

Bozeman, Montana

A reader recently flagged Livingston, a town of 7,000 on the way to Yellowstone National Park, as a retirement destination. The New York Times has called it “the literary town on the Yellowstone River”. Another writer described it as having “a blue-collar heart and a bohemian soul.”

The big city, just 30 minutes away, would be fast-growing Bozeman, now about 51,000 people and home to Montana State with almost 17,000 students. Among the many reasons I like college towns is that state universities often let retirees audit classes for free. That’s the case here.

Montana checks the box on low taxes (including no sales tax) — its “tax freedom day” is April 6, the same as Idaho’s — and Bozeman has a large hospital. The local economy has been strong, with unemployment below the national average. Unfortunately, housing costs are above average, even within 20 miles of Bozeman. So finding your new home and farm may take some looking.

To see what’s on the market across Gallatin County (home to Bozeman), click here.

Outside Bozeman, Mt.

courtesy Bozeman CVB

In some ways, this is the most rural choice; the nearest really big city — Salt Lake City — is 400 miles.

What you do get in exchange is plenty of outdoors. It’s no coincidence that the big ski resort an hour south of Bozeman is called Big Sky, with one run that goes on for 6 miles. Fishing is big here. Golf courses are plentiful. You can get to Yellowstone National Park in less than two hours. On the way is Livingston as well as the rugged Absaroka-Beartooth Wilderness (nearly 1 million acres, with many peaks above 12,000 feet) and hot springs.

With all there is to do, will there be time for a hobby farm?

A word of warning: winter is no joke here. Bozeman on average gets more than 5 feet of snow. But that’s similar to what you now get in Saratoga County. Winter is long, with frost into late May. The flip side is a low-humidity summer.

And if you want a break from all that snow, what better time to visit the family in Mesa? Even better, you can catch a non-stop flight from Bozeman Yellowstone International Airport.

Readers, where do you think Sandy should go?