July 21, 2020
Pandemic Puts More Retirements at Risk
Americans’ retirement outlook has gone from bleak to bleaker.
The unemployment caused by COVID-19 has pushed up the share of working-age households not able to afford their current standard of living in retirement from 50 percent to 55 percent, according to a new analysis by the Center for Retirement Research, which sponsors this blog.
The analysis updates a previous estimate, based on 2016 data, to include the harmful effects of surging unemployment. The researchers estimate that perhaps 30 percent of workers – far more than is reflected in the monthly jobless rate – could be affected by layoffs now and in the future. They did not factor in the recession’s impact on the housing and financial markets, which could make things worse.
Unemployment hurts retirement in a variety of ways. Laid-off workers’ paychecks vanish immediately, but they may also earn less in the next job. The depressed earnings, over months or years, reduce the money flowing into their 401(k)s, and the amount they’ll receive in pensions and future Social Security benefits. It may also force some to spend down savings that, had they not lost their jobs, would’ve been preserved for retirement.
Interestingly, the impact on low-income workers is mixed. In one way, they’re protected by Social Security’s progressive benefit formula, which will replace a higher percentage of their earnings as their lifetime earnings decline. But low-income workers have had more layoffs, which widens the gap in their retirement savings – between what they can save and what they should be saving – more than for higher-income people.
The 2020 recession will impact retirement “in a very different way” than the Great Recession, the researchers said. This time, “the destruction is occurring more through widespread unemployment and less through a collapse in the value of financial assets and housing.” However, the lessons of the previous recession can’t be dismissed either. …Learn More
June 16, 2020
Readers Lament Decline in Boomer Health
The share of people in their late 50s with the second most severe form of obesity has tripled since the early 1990s. This grim fact, featured in a recent Squared Away article, clarifies COVID-19’s danger to older Americans.
The article, “Our Parents Were Healthier at Ages 54-60,” summarized research establishing that baby boomers are less healthy than their parents’ generation due to several conditions related to obesity, including diabetes, pain levels, and difficulty performing daily activities. The poorest Americans’ health deteriorated the fastest – and COVID-19 is preying on them.
“This decline in markers of metabolic health seems to correlate with increased vulnerability to the pandemic,” wrote one reader, Dan O’Brien, who was among several who commented on recent health-related blogs.
That’s what happened during the H1N1 flu pandemic in 2009. Hospitalizations – and possibly death rates – were tied to obesity in adults with multiple health conditions, according to the National Institutes of Health.
“The vast majority of [COVID-19 patients] who reach the ICU suffer from comorbidities. My takeaway is that metabolic dysfunction is tied to immune-system failure in ways we don’t yet understand,” O’Brien said.
Another reader, Lorraine Porto, advocated a simple way for people to keep their weight in check: walk. An elderly woman she knows “walked miles every week.” Porto believes this healthy habit saved the woman’s life when she broke her hip in her 80s and was “walking around, sprightly as ever, less than two months later.” The woman lived into her 90s, Porto said.
A second health-related blog popular with readers looked at the unexpected costs of treating medical conditions that become more common in old age.
Older workers and retirees who try to anticipate their future medical expenses might feel a bit like they’re throwing a dart at a dartboard. The researchers did the work for them in a study described in the blog, “Unexpected Retirement Costs Can be Big.” …Learn More
May 21, 2020
Lost Wealth Today vs the Great Recession
For older workers starting to think about retiring, the economic maelstrom the coronavirus set in motion is a reminder of that sinking feeling they experienced just over a decade ago.
In 2008, the stock market plunged nearly 40 percent, accelerating the steep decline that was underway in U.S. house prices. The unfolding 2020 recession is playing out differently. But both downturns have one thing in common: Social Security as a stabilizing influence on older workers’ retirement finances.
A 2011 study of the change in baby boomers’ finances during the Great Recession found that total wealth dipped by 2.8 percent, on average, between 2006 and 2010 for households between ages 51 and 56.
The 2.8 percent decline in wealth at the time was a significant setback for baby boomers. In more normal times, earlier generations had increased their wealth by 3 percent to 8 percent at comparable ages.
Nevertheless, things could have been so much worse for baby boomers were it not for the substantial wealth they had built up over several decades in their future Social Security benefits – an amount that is unaffected by the collapse of financial and housing markets. The average value of these future Social Security benefits was 30 percent of boomers’ wealth.
Wealth in the study also included home equity and retirement plan accounts.
This time around, it’s too early to determine the severity of the downturn’s effects on older workers. Unlike the previous recession, though, this one has had little impact on house prices so far, and the stock market, after sinking in March, has regained about half of its losses thanks to aggressive action by the Federal Reserve.
The major worry is unemployment. The jobless rate approached 15 percent in March – well above the 2009 peak of 10 percent – and economists expect it to keep rising.
But, in any recession, Social Security is a stabilizing force. Today, it represents a large share of older workers’ wealth just as it did a decade ago. And lower- and middle-income workers’ benefits are a much larger share of wealth, because they are far less likely to have substantial assets in 401(k)s. …Learn More
April 9, 2020
Social Security Tapped More in Downturn
It happened after the 2001 and 2008-2009 recessions, and it will happen again. Some older workers who lose their jobs will turn, in desperation, to a ready source of cash: Social Security.
In the wake of a stock market crash like the one we just experienced, baby boomers’ first inclination will be to remain employed a few more years to make up some of the investment losses in their 401(k)s. But as the economy slows and layoffs mount, that may not be an option for many of the unemployed boomers, who will need to get income wherever they can find it.
Age 62 is the earliest that Social Security allows workers to start their retirement benefits. In 2009, one year after the stock market plummeted, 42.4 percent of 62-year-olds signed up for their benefits, up sharply from 37.6 percent in 2008, according to the Center for Retirement Research (CRR).
Social Security is a critical source of income even in good times. One out of two retirees receives half of their income from the program, and they can also count on it when times get tough.
But the financial cost of starting Social Security prematurely is steep, because it locks in a smaller monthly benefit for the rest of the retiree’s life. For those who can wait, the size of the monthly check increases an average 7 percent to 8 percent per year for each year claiming is delayed up until age 70.
Unfortunately, the people who claimed Social Security early in the wake of the 2001 recession had fewer financial resources to begin with – namely, their earnings were lower, they had less wealth, and they were less likely to have a spouse to fall back on – according to the CRR study.
“These simple characteristics suggest that those hardest hit by recessions are most likely to use Social Security as an income-insurance policy,” the researchers concluded. …Learn More
April 7, 2020
Our Parents Were Healthier at Ages 54-60
Baby boomers aren’t as healthy as their parents were at the same age.
This sobering finding comes out of a RAND study that took a series of snapshots over a 24-year period of the health status of Americans when they were between the ages of 54 and 60.
The researchers found that overall health has deteriorated in this age group, and they identified the specific conditions that are getting worse, including diabetes, pain levels, and difficulty performing routine daily activities.
Obesity is an overarching problem: the share of people in this age group with class II obesity, which puts them at very high risk of diabetes, tripled to 15 percent between 1992 and 2016.
In addition to declining health, the study for the Retirement and Disability Research Consortium uncovered strong evidence of growing health disparities among 54 to 60-year-olds: the poorest people are getting sicker faster than people with more wealth.
The increase in women’s pain levels has been starkest over the past 24 years. The wealthiest women have seen an increase of 6 percentage points in the share experiencing moderate to severe pain from conditions like joint or back pain. But the poorest women saw a 21-point leap. The disparity for men was also large: up 7 points for the wealthiest men versus 15 points for the poorest men.
The bottom line: today’s 54 to 60-year-olds are not as healthy as their parents were, and the study suggests that the disparities between rich and poor will continue to grow.
To read this study, authored by Peter Hudomiet, Michael D. Hurd, and Susann Rohwedder, see “Trends in Health and Mortality in the United States.”Learn More
March 31, 2020
Boomers Facing Tough Financial Decisions
For baby boomers who thought they were on the path to retirement, the road is shifting beneath their feet.
Danielle Harrison, a financial planner in Columbia, Missouri, sees a raft of problems stemming from the COVID-19-induced economic slowdown.
Many older workers getting close to retirement age are taking big hits to nest eggs that were already too small. Some boomers who lacked pensions and were behind on saving tried in recent years to make up for lost time with a riskier portfolio in the rising stock market – now they’re experiencing the downside of that risk. Others are scrambling to pay expenses or maintain debt payments as their income drops, altering their financial security now and changing their calculations for the future.
“It’s really going to hurt people,” said Harris, who believes that some baby boomers who had planned to retire in the near-term may be rethinking those plans.
And she’s talking about the boomers who still have jobs. The layoffs have already begun and will continue. Economists estimate GDP will contract in the second quarter at an unprecedented 10 percent to 24 percent annual rate.
Evan Beach, a financial planner in Alexandria, Virginia, predicted that “People are going to get fired, and the people who get fired are not the 25-year-olds making $60,000. They’re going to be the 50- and 60-year-olds making $120,000.”
The economic stimulus package Congress passed last week could help, because it was designed to mitigate some job losses by extending loans to businesses that preserve their payrolls. It will do nothing to repair investment portfolios, however.
Beach and other financial advisers worry that panic decisions in this tumultuous time will only make things worse for boomers who, now more than ever, need to preserve their retirement resources.
Just as they did in the years after the 2008 financial market crash, some unemployed boomers will pound the pavement for a job and will scrape by – through odd jobs, short-term contracts, and unemployment benefits – rather than be forced into a premature retirement.
But Beach anticipates that many of them may have no other option than to claim their Social Security – the program’s earliest claiming age is 62. The problem with starting Social Security now is that it would permanently lock in a smaller monthly check. This goes against a central tenet of retirement planning, which is that many people would be better off delaying the date they sign up to increase a retirement benefit they will need for the rest of their lives.
Beach conceded, however, that claiming the smaller benefit now is not irrational for a couple with one laid-off spouse, only $2,000 in income, and $3,000 in expenses. If the laid-off spouse can start getting $1,000 from Social Security, he said, “that’s not irrational. That’s desperate.” …Learn More
March 24, 2020
If People Can Work Longer, They Will
A majority of adults believe there’s better than a 50-50 chance they will still be working full-time after age 65, a new study found.
The evidence suggests this goal is fairly realistic.
In the study, adults ranging in age from 18 to 70 were asked to rate themselves on a 1-to-7 scale for 52 different cognitive, physical, psychomotor, and sensory abilities that determine their capacity to work. These abilities run the gamut from written comprehension, pattern recognition, and originality to finger dexterity, reaction time, and vision acuity.
Of course, physical abilities decline with age. But when the researchers compared older and younger participants in the study, they found that many self-assessments of their abilities were very similar. For example, psychomotor abilities – such as hand steadiness, manual dexterity, and coordination – were at peak levels for the people in their 30s. But these abilities were only slightly diminished for the people in their 60s. And despite concerns about cognitive decline among older workers, the difference between 50- and 60-year-olds was minor.
The heart of the research, funded by the U.S. Social Security Administration, was determining whether each individual’s distinct set of abilities affected his or her work capacity, as well as how long and how much the individual intends to work as they age. This issue is important, because extending a career is a powerful way to improve one’s financial security after retirement.
To determine this capacity for work, each individual’s self-assessed abilities were matched up with the skills required to do nearly 800 different U.S. occupations. The researchers then calculated the percentage of these occupations each person would be able to do, given their education and training level.
Here are three of the central findings:
The more occupations people can do, the more likely they were to say they would work past 65.
Workers over 60 with a higher capacity to work said they would be more likely to remain employed even after 70.
One in four of the retirees with a very high capacity for work would consider “unretiring” and returning to the labor force. …Learn More