The two things that are most likely wrecking your retirement savings


If you earn a decent income but have trouble saving, the culprits could be the roof over your head and the car in your driveway.

Retirement savers who contribute more to their 401(k)s often spend less on housing and transportation than their peers, according to a study by the Employee Benefit Research Institute and J.P. Morgan Asset Management.

Better savers also spend less on food and drink, but housing and transportation are bigger expenses that tend to be less flexible. Once you commit to a place to live and a car payment, you’re typically stuck with those expenses for a while.

“It may be decisions that you’re making as you are building your life that will ultimately crowd out saving for retirement,” says Katherine Roy, chief retirement strategist for J.P. Morgan Asset Management.

The researchers divided 10,000 households into three groups: the 25% who contributed the least to their retirement plans, the 25% who contributed the most, and the “middle savers” whose contributions landed them in the middle 50%. High savers, not surprisingly, had higher incomes than the other two groups. Middle and low savers had similar incomes, but middle savers contributed about 5% at the start of their careers while the low savers contributed about 2%.

See: What if I’m in my 40s and don’t have a retirement fund?

That 3 percentage-point difference in contributions is largely attributable to the lower savers spending more on housing, transportation, and food and beverage, the researchers found. By retirement age, middle savers had accumulated savings equal to twice their salaries. Low savers had accumulated about half as much.

A ‘beater’ truck and a fat 401(k)

Driving older vehicles and owning a modest home are the top two sacrifices cited in a study of Principal Financial Group customers ages 20 to 54 who contribute big chunks of their income to retirement accounts.

One of those savers is Erryn Ross, 30, of Tigard, Oregon. For several years after college, the accounts receivable coordinator lived at home and drove a “beater” truck, a hand-me-down from his dad. By the time he was ready to replace the truck, he had saved enough to pay cash for a new one while also maxing out his 401(k) contribution.

Ross credits his mother — who drives a 2002 Honda Accord, previously owned by her father — with getting him started.

“She said, ‘OK, you can either pay me $1,000 for rent, or you can put $1,000 in index funds every month,’” Ross says. He put the money into his retirement account.

Ross recently bought a house with his fiancée, and they chose a home that cost about half of what their lender said they could afford. They figured out how much they felt comfortable spending each month and based their purchase on that amount.

“I don’t really need a million-dollar home here,” Ross says. “I just need something that’s going to house the family.”

It’s not all about choice

Both studies have their limitations. Perhaps the biggest one is that the researchers studied only people who had access to workplace retirement plans. Before the pandemic, 55 million working Americans lacked such access, according to Georgetown University Center for Retirement Initiatives. Access makes a huge difference: AARP found that people are 15 times more likely to save for retirement if they have access to a payroll deduction plan at work.

Also see: Has COVID-19 stopped Americans from chasing early retirement? Not exactly

The researchers also didn’t factor in the cost of living, which varies widely across the country. Living expenses are 46% higher in San Francisco and 86% higher in Manhattan than in Portland, Oregon, for example.

People’s personal costs of living matter hugely as well. Someone with health problems and lousy insurance likely will have more of their income eaten up by medical bills than someone in excellent health who has good coverage. The number of people you have to support — children, elderly parents, for example — affects how much you can save. People with student loan debt have less discretionary income than those whose parents paid for college. And so on.

Income matters, of course. Some people save on small incomes, while others don’t on large ones. But the more money you make, the easier it is to save.

Also read: The pros and cons of buying a certified used car

In other words, any number of factors — such as, say, losing a job during a pandemic — can affect someone’s ability to save.

When you do have choice, though, choose wisely. The decisions you make about the big expenses now can have a huge effect on what you can spend in retirement.

“Often in our financial wellness programs, we lead with, ‘You need to have a budget’ or ‘Don’t have that Starbucks
SBUX,
-1.14%

  cup of coffee,’” Roy says. “I think it’s more fundamental than that.”

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Mall owners Simon, Brookfield close to buying J.C. Penney out of bankruptcy


A shopper heads into a J.C. Penney store in Seattle in 2017.


Associated Press

NEW YORK — Mall owners Simon Property Group and Brookfield Property Partners are close to a deal to buy department store chain J.C. Penney out of bankruptcy and keep the chain running.

Penney’s lawyer Josh Sussberg announced the tentative pact, which will save roughly 70,000 jobs and avoid liquidation, during a brief hearing in bankruptcy court Wednesday.

Sussberg said that the Penney
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+108.25%

would have an enterprise value of $1.75 billion, including $300 million in cash from the two landlords and $500 million in new debt.

He noted that a letter of intent including more details of the pact will be filed with the bankruptcy court in the next day. Penney will be left with $1 billion in cash after the deal is completed, he said.

“We are all committed to moving this quickly and saving J.C. Penney,” Sussberg said during the court hearing.

The 118-year-old department store based in Plano, Texas, filed for Chapter 11 bankruptcy protection in mid-May, one of the biggest retailers to do so since the pandemic temporarily shut down non-essential stores around the country. As part of its bankruptcy reorganization, Penney said it planned to permanently close nearly a third of its 846 stores in the next two years. That would leave it with just over 600 locations.

More than 40 retailers have filed for Chapter 11 bankruptcy this year, including more than two dozen retailers since the coronavirus outbreak. Among the hardest hit have been department stores, which were already struggling to respond to shoppers’ shift to online shopping.

The tentative agreement between two big landlords and Penney is the latest example of mall owners’ increasing willingness to buy out their pandemic-hit tenants. Mall owners are facing big challenges as stores close or are unable to pay rent. The exit or closing of retailers also triggers a clause that would allow other tenants to break their leases or get a rent reduction without facing penalties.

In fact, a retail venture owned by licensing licensing company Authentic Brands Group and Simon agreed to purchase 200-year-old clothier Brooks Brothers for $325 million last month.

Neither Simon
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-1.69%

nor Brookfield
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+0.27%

responded to requests for comment regarding the tentative deal with Penney.



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Gaps in the CDC’s eviction ban could leave some renters homeless, housing advocates say


The U.S. Centers for Disease Control and Prevention has issued a historic nationwide ban on evictions, but ambiguous language in the order leaves open the possibility that renters could still be forced to leave their homes during a global pandemic, housing advocates say.

The CDC’s moratorium went into effect immediately when it was announced on Tuesday and will remain in place until Dec. 31. Altogether, Treasury Secretary Steven Mnuchin said, the moratorium should protect some 40 million renters nationwide.

(For more information on how renters can access the protections provided by the CDC’s eviction ban, click here.)

The CDC’s order specifically prohibits people from being evicted from rental units for nonpayment of their rent. However, there are still a range of scenarios where a tenant could be kicked out of their home.

“The overall spirit of the order is designed to protect public health and keep people from being evicted except for reasons of misconduct,” said Eric Dunn, director of litigation at the National Housing Law Project. “But the order’s very ambiguous about how some of those situations would work.”

The moratorium carves out some exceptions for landlords: Tenants can still be evicted for engaging in criminal activity on the premises, threatening the health or safety of other residents, damaging the property or violating any other contractual obligation of the rent.

Read more: California eviction moratorium is ‘a real nightmare’ for renters to understand — here’s what you need to know

But it’s not clear what a landlord can do, for instance, if a renter’s lease is set to expire, but the property’s owner doesn’t want to renew with them. If a tenant were to remain on the property past the period of their original lease, they would technically be violating the terms of the contract, Dunn said, which would mean the landlord could technically still have the right to evict them.

“It leads to an absurd result,” Dunn said. “You’re in a Catch-22 where in order to comply with your lease to avoid being evicted you need to the leave the property.”


‘The overall spirit of the order is designed to protect public health and keep people from being evicted except for reasons of misconduct.’


— Eric Dunn, director of litigation at the National Housing Law Project

Also unclear is how the law applies for people without a formal lease agreement. This has become a concern in New York State in particular. The state currently has its own moratorium on eviction that covers people who have verbal agreements or month-to-month arrangements with landlords, protecting them from being evicted for not paying their rent in full.

Many people nationwide may also be subtenants who are not on the original lease and don’t have a direct relationship with the property’s landlord, or a lease may only have one of multiple roommates officially listed.

Additionally, the order explicitly exempts hotels and motels from abiding by its rules. Nationwide, though, many low-income individuals live in extended-stay hotels or motels as if they were apartments, Dunn said.

“A lot of people in different parts of the country don’t have written leases,” said Ellen Davidson, a staff attorney at the Legal Aid Society in New York. “It’s just not clear from the order whether those tenants would be protected.”

The CDC’s order states that in cases where a state or municipality has its own eviction ban that provides as much or more protection as the national order, the nationwide moratorium will not apply. New York’s moratorium is set to expire on Sept. 30 — as a result, Davidson said she and other advocates are pushing for the state to extend its own moratorium given that it offers more protection.

Whether renters are safe to stay in their homes in these various scenarios not explicitly mentioned in the CDC’s directive will come down to judges. The national moratorium does not explicitly prevent eviction filings from occurring — though landlords who evict tenants who were covered by the moratorium could face criminal penalties including jail time if those people become sick with COVID-19.

“There will be courts all across this country all making this determination,” Davidson said. “It’s a big country out there with lots of different courts at every level. It would not surprise me that some places in this country would not want to follow a federal rule.”

Another concern is what might happen in a situation where landlords face foreclosure themselves. Many small landlords across the country are facing severe financial challenges as a result of tenants not being able to pay rent. Moratoria like the CDC’s order could make matters worse, because the policy was not immediately accompanied with extra funding for emergency rental assistance.


Many low-income Americans live in hotels and motels, but the CDC’s order exempts those businesses from the temporary ban on evictions.

During the housing crisis that preceded the Great Recession, many Americans suddenly faced eviction when their landlord went into foreclosure. Today, renters do have more protections. In 2018, President Trump signed into law a permanent extension of the Protecting Tenants at Foreclosure Act. This law allow renters to remain in homes for at least 90 days or the remaining term of the lease if the property goes into foreclosure.

But after those 90 days, tenants could face significant challenges securing safe and affordable housing, particularly if they are unemployed or were unable to pay rent for many months because of the pandemic.

Ultimately, the CDC’s nationwide eviction ban is not a permanent solution, housing and legal experts said. “It does not actually prevent evictions — it delays them,” said Diane Yentel, CEO and president of the National Low Income Housing Coalition. “It buys some time for the actual solution, which is emergency rental assistance.”



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Thinking of moving from the city to the suburbs amid the pandemic? 5 financial factors you should consider first


Sick of being cramped inside a small apartment where you now not only live, but work and teach your kids, too? You’re far from alone these days.

But buying a home and moving to the suburbs is far from a fool-proof decision from a financial perspective, even in an era of rock-bottom mortgage rates.

Many city dwellers have taken a newfound interest in suburban and rural living as the coronavirus pandemic has transformed our daily lives and living spaces. Sales of new and existing homes have skyrocketed in recent months thanks to a combination of pent-up demand from the spring and city residents entering the market in search of more space.

“We’ve been speculating about increasing interest in the suburbs and rural areas since the start of the pandemic,” Redfin economist Taylor Marr said in a recent report from the real-estate brokerage firm. “Now we’re seeing concrete evidence that rural and suburban neighborhoods are more attractive to homebuyers than the city, partly because working from home means commute times are no longer a major factor for some people.”

Redfin
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+2.12%

found that home prices are up 11.3% year-over-year in rural areas and 9.2% in the suburbs. In urban areas, meanwhile, prices are up just 6.7%.

But the price of the home and the interest rate you can get on a mortgage are just two of the financial factors that buyers need to consider before renting a U-Haul to live the suburban life. Here are five other factors to consider when calculating the cost of such a move:

Buying a home may be cheaper, but property taxes can be higher

Property taxes accounted for more than 30% of all the tax revenue that state and local governments collected from Americans in fiscal year 2017, according to the right-leaning Tax Foundation. Property taxes are the single largest form of state and local tax revenue, the think tank said.

Though property taxes can go as low as a median of $200 in some places, the five counties with the highest median property tax bills are in suburbs surrounding New York City, according to Tax Foundation data. The 2018 median bill in these counties — Bergen and Essex in New Jersey and Nassau, Rockland and Westchester in New York — exceeded $10,000.

It’s important to keep the tax burden in context, said Jared Walczak, the Tax Foundation’s vice president of state projects. “All-in suburban property costs tend to be lower than those in prosperous downtowns, but the property tax itself may be higher. This is certainly true for some of the wealthiest suburbs of cities like New York and Philadelphia, but isn’t necessarily true across the country.”

Still, he added, “even if property taxes are higher, overall taxes are lower in the suburbs. For instance, both New York and Philadelphia impose high municipal income taxes that neighboring jurisdictions lack.”

Median property tax bills in some Illinois counties and Bay Area counties of California can range between $6,000 and $7,000, according to Tax Foundation data.

A bigger living space can mean higher utilities, water and garbage bills

Be ready to potentially pay more in utilities if you are living in the suburbs with more space to heat or cool — especially if you are working from home and running fans, computers, appliances and other electronics during the work day.

Here’s an object lesson from ConEd,
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+3.70%

a utility provider for New York City and the suburban Westchester County to the north of the city.

A typical New York City customer paid a $94.25 electric bill in July, according to spokesman Allan Drury. Meanwhile, a Westchester customer paid $112.99. That’s not even a $20 difference, but the costs add up. From January to July, the typical Westchester customer paid almost $135 more for electricity alone, the ConEd data show.

It’s not a hard and fast rule that suburbanites will pay more, Drury noted. It comes down to energy usage, and someone in the city could use more power than someone in the suburbs.

There’s also the water bill and other possible expenses like fees for garbage removal. Those may or may not be included in town services. The average monthly water bill in the U.S. is around $70, according to Move.org, a website with tips on moving and listings for moving companies. Trash removal can range from $30 to $50, according to Homeadvisor.com.

City-dwellers need to remember they already pay for these services in a certain way, said Alison Bernstein, president and founder of The Suburban Jungle, a real estate firm that focuses on moves out of cities into suburbs. Client demand is up 500% year-over-year from the second and third quarter of last year compared to this one, she noted.

Water bills and garbage fees might just be wrapped up into the rent and common charges people pay in the city. Prospective buyers eyeing a particular house should ask about monthly utility costs to get a better sense of the incidental costs, Bernstein said.

Owning a home means your responsible for its maintenance and upkeep

The downside of owning your home is you will no longer have a building super or landlord to handle fixing the leaking pipes and chipped paint — or pay for it.

“The amount of money that any homeowner should budget for annual upkeep and maintenance is anywhere between 1% and 4% of the value of the home,” said Dana Menard, founder and CEO of Twin Cities Wealth Strategies, a financial advisory firm based in Maple Grove, Minn.

In other words, for a home worth $320,000, you can expect to pay between $3,200 and $12,800 a year on maintenance, Menard said.

But that can easily go much higher depending on where you live. In more expensive parts of the country, the cost of hiring people to fix your home will naturally be higher. For instance, a 2018 report from real-estate website Zillow
ZG,
+0.72%

and services marketplace Thumbtack found that homeowners in Portland, Ore., paid $3,800 annually on average for services like house cleaning and appliance repairs. Comparatively, folks in Miami only pay $2,570 on average.

And if you choose to buy a home in a neighborhood with a homeowners’ association, you may face added costs for maintenance services such as lawn care as part of your HOA fees.

Leaving the city can mean relying more on cars and commuting

Between public transit and tightly clustered neighborhoods, you don’t need a car in many major cities. (That’s part of the allure for some who don’t want to deal with parking rules.) But in the more spread-out suburbs, life without a car could be trickier — especially if you’ve got kids in tow.

A move to the suburbs might also mean getting a second vehicle, depending on a particular family’s work schedule and lifestyle needs. People need to figure out what’s best for them, said Bernstein. “Anything can work, you just have to plan ahead and factor that into your life.”

If it means buying a car, people should realize the new and used market isn’t what it was a couple months ago, said Michelle Krebs, executive analyst at Cox Automotive, the parent company of brands including Kelley Blue Book.

Around March and April, many car makers trying to move new vehicles off the lot were offering 0% financing for the life of the loan to buyers with excellent credit.

“People grabbed those. As inventory has dwindled down, those deals have started to dry up,” Krebs said. In July, a new vehicle cost $38,378, which is up from $37,629 at the same point last year. Between supply chain woes and new social distancing protocols at automotive plants, Krebs thinks inventory will stay low for the rest of the year — and that won’t give dealers a lot of leeway to haggle.

“The normal channel for used cars has also been disrupted,” Krebs said. For example, drivers are not trading in their vehicles and lenders are giving cash-strapped drivers forbearance on loans, which means cars are not being re-possessed.

Earlier in August , the average price of a used car was $20,212, the second consecutive week where the price exceeded $20,000. The average used car price hasn’t broken the $20,000 mark in the years Krebs has been tracking the number.

More space can mean buying more furniture and décor

Owning a bigger house will eventually mean needing furniture to fill the additional rooms. And many first-time homeowners find themselves in a trap where they can’t resist buying that furniture right away.

Doing so could be a huge mistake though, Menard said. “Many people make the mistake of pulling out the credit card to take care of it quickly,” he said. Because many homeowners don’t think to budget for those impulsive purchases, they often don’t have the funds to cover the credit card balance.

Therefore, buying the fixings to spruce up your new abode with credit cards can “ultimately add an additional 25% to 50% of costs,” Menard said, once the interest rate on the credit card is factored in. Currently, the average annual percentage rate for credit cards is 16%, according to CreditCards.com.



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Moving? What you should know about doing it in a pandemic


Moving is stressful enough without throwing a pandemic into the mix.

Many Americans may be forced to consider moving as some federal foreclosure and eviction moratoriums have expired. In the first week of July, 32% of Americans did not make a full, on-time housing payment, according to a nationally representative survey by the website Apartment List. Others may relocate to save money, be closer to loved ones or simply leave a densely populated area.

If you’re considering moving, here’s what to know from a financial standpoint, as well as tips to make moving day safer.

Budget for extras

Aside from the usual expenses like buying boxes, renting a van or hiring movers, plan for extra costs because of the pandemic.

You may need to buy heavy-duty supplies to deep-clean your old place, for example, or to sanitize your new accommodations. If you are moving out of a rental unit, some landlords may ask you to pay for professional cleaners or take the cost out of your security deposit.

The Big Move: I work in Silicon Valley, but my job is now remote. I can finally live somewhere cheaper. Where should I go?

Moving across county or state lines? Check what the quarantine requirements are in your new location, says Jean Wilczynski, a certified financial planner and senior wealth adviser at Exencial Wealth Advisors in Old Lyme, Connecticut. You may have to pay for quarantine accommodations like a hotel or Airbnb if your new apartment or home is not move-in ready, she says.

If you are receiving unemployment benefits, check the rules on how your benefits carry forward in your new location and what the taxes are if it is a new state, Wilczynski says. You can typically find this information on your state’s Department of Labor website, she says.

Also see: Relocating? Ask these 6 questions to find the place that’s right for you

If you are unemployed or your income has dropped as a result of the pandemic, you can also check whether you qualify for moving assistance by calling 211.

You might not be able to really get to know your new place until you’re living there, so prepare yourself (and your wallet) for surprises like leaky faucets or broken appliances. Landlords and real-estate agents may offer only virtual tours. And if you can see the new accommodations in person, you may be required to sign a waiver, wear a mask and avoid touching anything while in the house.

Stay safe during the move

How to move safely depends on whether you are doing it yourself or using movers. Current guidance from the Centers for Disease Control and Prevention suggests that the main way the coronavirus spreads is through respiratory droplets, says Lindsay Slowiczek, pharmacist and drug content integrity manager at Healthline.com. That’s why wearing a mask and staying away from people is important to slow the spread of the virus, she says. Sanitizing surfaces is also an extra precaution worth taking.

Moving yourself

If you’re renting a moving truck, companies like U-Haul offer contactless pickup and drop-off options. Slowiczek suggests sanitizing the door handles, steering wheel, radio and the metal tongue on the seat belt in the rental van.

Using movers

Before picking a moving company, check its website or call and ask about its safety practices in response to the pandemic, Slowiczek says. Ask whether the movers wear masks and gloves during the move.

On moving day, she suggests being prepared with a plan to limit interaction with movers and maintain social distancing. This includes packing as many things as you can yourself, or consider using a self-pack moving container as Slowiczek did for her own recent move.

The Big Move: I’m tired of renting in Manhattan, but love living in New York. Is now the time to buy if the city is supposedly dead?

If the movers will pack the truck, create a schedule for the movers. For example, ask them to start with a particular room as you stay in another. This is also particularly useful if you live with family members who are vulnerable or immunocompromised, she says. Try to limit their involvement with the move as much as possible.

“Plan out the way [the movers] are going to move through the house,” says Slowiczek. “If possible, move all of [your boxes] to one area in your home so they don’t have to come throughout your house as much.”

Keep hand sanitizer or soap handy during the move so that you and the movers can use it periodically, she says. (Check on the FDA website that your brand of hand sanitizer is methanol-free, Slowiczek adds). After the move, use disinfectants registered with the Environmental Protection Agency to clean surfaces or furniture.

“Just using the product as-is is not enough — read the instructions on how long it should be wet on the surface,” Slowiczek says.

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