From Disability to Low Retirement Income

By their early 60s, four out of five workers have chronic health problems. One in four has developed some type of physical or cognitive limitation.

If these problems force them to stop working, they can apply to Social Security for disability. But developing a disability late in a career still has long-term financial consequences. These workers not only give up their steady paychecks. Their preparations for retirement are also derailed at a critical time.

A 2018 study in the Journal of Disability and Policy Studies quantifies the financial fallout. Four groups were compared, each ranging in age from 67 to 69. One started receiving disability benefits sometime between 58 and 62. A second group went on disability between 62 and Social Security’s full retirement age, which is 66 for most boomers. The other two groups claimed their regular retirement benefits. One signed up between the earliest age allowed – 62 – and the full retirement age, and one started their benefits after the full retirement age, which yields a larger monthly check.

Where each of the four groups falls in a ranking of retirement incomes is easy to predict: the earlier a worker starts disability benefits, the less income he’ll have. Healthy retirees, on the other hand, enjoy big rewards from continuing to work, saving in a 401(k), accruing pension credits, and delaying Social Security.

Household income for the last group to retire was $76,000 per year at ages 67 to 69, with Social Security providing only about a third of it, according to researchers at Mathematica who conducted the study for the Disability Research Consortium. Households that claimed a retirement benefit between 62 and the full retirement age had $48,000 in income, with 45 percent supplied by Social Security.


 
The retirees who had been on disability were far worse off in their late 60s. If they started receiving the benefits between 62 and their full retirement age, they had only $36,000 in household income in their late 60s – not even half the income of the late retirees. Social Security retirement benefits were the largest source of income, supplying two-thirds of it. …Learn More

What’s Driving the Longevity Gap

The decline in U.S. life expectancy is unlike anything we’ve seen  

Bombshell headlines like this popped up in major news outlets last November after the government reported that life expectancy in 2017 fell for the third year in a row.

This is a troubling break from the steady improvements in lifespans since 1900, which were powered by a combination of medical breakthroughs and healthcare policy. Early in the 20th century, antibiotics dramatically increased infant lifespans. Later, new treatments like statins and stents, as well as expanded access to healthcare through Medicare and Medicaid, increased life expectancy across the age range.

But there’s another story behind this story: life expectancy very much depends on where one falls on the economic ladder.

Between 1979 and 2011 – prior to the very recent fall in longevity – the increase in lifespans was much larger for more educated, higher-earning Americans than the gains for people with less education and lower incomes, according to a study by the Center for Retirement Research (CRR).

Smoking is an important factor in this socioeconomic divide. The decline in smoking and cardiovascular disease greatly contributed to rising longevity in the latter half of the 20th century. But while all Americans are smoking less today, those in lower socioeconomic groups still smoke much more. Today, one in four of them is a smoker, compared with just one smoker for every 10 people who attended college, the CRR found.

Looking ahead, education will remain a clear dividing line, and life expectancy will continue to depend crucially on the future prevalence and impact of smoking, as well as obesity, CRR predicted. …Learn More

Social Security poster

Readers Debate Retirement Issues

It’s always interesting to see which Squared Away blogs get the strongest reaction from our readers. The June blog, “Husbands Ignore Future Widows’ Needs,” was one of them.

Some readers felt that the results of the study described in the article don’t match up with their experiences. The researchers determined that husbands often are not sensitive to the fact that if they sign up for Social Security in their early 60s, they could be locking in a smaller survivor benefit one day for their widows.

“The elderly couples with whom I do retirement planning are typically very conscious of each other’s needs,” said a critic named Jerry.

But financial planner Kathleen Rehl has the opposite experience when working with couples. “Most couples hadn’t previously known their options and ramifications of those choices,” she said. “Such an important planning concept.”

The blog was based on a study conducted for the Retirement and Disability Research Consortium – consortium studies by researchers around the country are featured regularly on Squared Away.

Here are other 2019 articles about the consortium’s research on various retirement and labor market issues that readers weighed in on: …Learn More

Paper airplanes in a row

Second Careers Late in Life Extend Work

Moving into a new job late in life involves some big tradeoffs.

What do older people look for when considering a change? Work that they enjoy, fewer hours, more flexibility, and less stress. What could they be giving up? Pensions, employer health insurance, some pay, and even prestige.

Faced with such consequential tradeoffs, many older people who move into second careers are making “strategic decisions to trade earnings for flexibility,” concluded a review of past studies examining the prevalence and nature of late-life career changes.

The authors, who conducted the study for the University of Michigan’s Retirement and Disability Research Center, define a second career as a substantial change in an older worker’s full-time occupation or industry. They also stress that second careers involve retraining and a substantial time commitment – a minimum of five years.

The advantage of second careers is that they provide a way for people in their late 40s, 50s, or early 60s who might be facing burnout or who have physically taxing jobs to extend their careers by finding more satisfying or enjoyable work.

Here’s what the authors learned from the patchwork of research examining late-life job changes:

People who are highly motivated are more likely to voluntarily leave one job to pursue more education or a position in a completely different field, one study found. But older workers who are under pressure to leave an employer tend to make less dramatic changes.

One seminal study, by the Urban Institute, that followed people over time estimated that 27 percent of full-time workers in their early 50s at some point moved into a new occupation – say from a lawyer to a university lecturer. However, the research review concluded that second careers are more common than that, because the Urban Institute did not consider another way people transition to a new career: making a big change within an occupation – say from a critical care to neonatal nurse. “Unretiring” is also an avenue for moving into a second career.

What is clear from the existing studies is that older workers’ job changes may involve financial sacrifices, mainly in the form of lower pay or a significant loss of employer health insurance. But they generally get something in return: more flexibility. …Learn More

Fewer Contingent Workers Seek SSDI

The vast majority of so-called contingent workers – think Lyft drivers, AirBnB hosts, independent contractors, consultants, and freelancers – have built up the work history necessary to apply for federal disability benefits if they become injured.

The 86 percent coverage rate for contingent workers in their 50s and early 60s is less than the 92 percent for regular workers – but not by much.

Despite their relatively high rates of eligibility, however, older contingent workers are significantly less likely to end up on Social Security Disability Insurance (SSDI) than similar workers in traditional jobs, according to a new study by the Center for Retirement Research.

This finding is mainly driven by contingent workers’ lower application rates for SSDI. Applications are lower even for people with the physical, cognitive or emotional conditions that the government explicitly lists as SSDI-eligible.

“Even the contingent workers who need SSDI the most are less likely to apply for and be awarded benefits,” the researchers said.

They offer a couple reasons for the lower application rates. One reason might be that contingent workers would get less in their disability checks than workers with traditional jobs receive, because the benefits are based on earnings – and contingent workers earn an average $592 per month less than other workers.

A more compelling explanation is that they simply lack access to the natural avenues for learning about the program’s existence and their potential eligibility: unions, fellow employees, and a traditional employment arrangement.  For example, private-sector employers often require people on their payrolls to apply for federal SSDI before receiving the company’s disability coverage. Contingent workers outside of this kind of arrangement are rarely covered by any employee benefits, let alone private disability insurance. …Learn More

Photo of an older white man

Why are White Americans’ Deaths Rising?

Rarely does academic research make a splash with the general public like this did. A grim 2015 study, prominently displayed in The New York Times, showed death rates increasing among middle-aged white Americans and blamed so-called “deaths of despair” like opioid addiction, suicide, and liver disease.

Rising mortality, especially for white people with low levels of education, ran counter to the falling death rates the researchers found for Hispanic and black Americans. The husband and wife team who did the study proposed that “economic insecurity” might be an avenue for research into the root cause of white Americans’ deaths of despair.

A 2018 study took up where they left off and found a connection between economic conditions and some types of deaths. Researchers from the University of Michigan, Claremont Graduate University, and the Urban Institute said poor economic conditions – in the form of local employment losses – have played a role in the rising deaths since 1990 from chronic health problems like cardiovascular disease, particularly among 45 to 54 year olds with a high school education or less. However, they could not establish a connection to the rise in deaths of despair.

In a 2019 study in the Journal of Health and Social Behavior, these same researchers instead focused on what is driving the growing educational disparity in life expectancy trends among whites: life expectancy is rising for those with more education but stagnating or falling for less-educated whites.

As for the health reasons behind this, they found that chronic conditions like cardiovascular disease and even cancer are critical to explaining less-educated whites’ life expectancy, and they warned against putting too much emphasis on deaths of despair. In the medical literature, they noted, cardiovascular disease, and some cancers are consistently linked to the “wear and tear” on the body’s systems due to the stress that disadvantaged Americans experience over decades, because they earn less and face adversities ranging from a lack of opportunities and inadequate medical care to substandard living environments. …Learn More

Washington, DC skyline

Spotlight on Our Research, Aug. 1-2

Topics for this year’s Retirement and Disability Research Consortium meeting include the opioid crisis, retirement wealth inequality over several decades, trends in Social Security’s disability program, and the impacts of payday loans, college debt, and mortgages on household finances.

Researchers from around the country will present their findings at the annual meeting in Washington, D.C. Anyone with an interest in retirement and disability policy is welcome. Registration will be open through Monday, July 29. For those unable to attend, the event will be live-streamed. The agenda lists all of the studies.

Here are a few:

  • Why are 401(k)/IRA Balances Substantially Below Potential?
  • The Impacts of Payday Loan Use on the Financial Well-being of OASDI and SSI Beneficiaries
  • The Causes and Consequences of State Variation in Healthcare Spending for Individuals with Disabilities
  • Forecasting Survival by Socioeconomic Status and Implications for Social Security Benefits
  • What is the Extent of Opioid Use among Disability Applicants? …

Learn More

12345...1020...