July 2, 2020
Recession Destabilizes Boomers’ Finances
The COVID-19 recession has changed everything.
This extreme disruption in our lives is always top of mind, which was reflected in our most widely read articles so far this year, based on the blog’s traffic.
Baby boomers, their retirement plans having been deeply affected by the Great Recession, are once again reassessing their finances. One popular article explained that the boomers who were in their early to late 50s during the previous recession lost about 3 percent of their total wealth at the time. This put their retirement planning at a distinct disadvantage compared with earlier generations in their 50s, whose wealth, rather than shrinking, grew 3 percent to 8 percent. The current recession is the second major setback in just over a decade.
Prior to the pandemic, readers liked articles about making careful retirement plans. Post-pandemic, the most popular article was about laid-off boomers desperate for income who may have to start their Social Security prematurely. The retirement benefits can be claimed as early as age 62, but doing so locks in the smallest possible monthly Social Security check – for life.
Even before Millennials were hit by the recession, they were already farther behind older generational groups when they were the same age. One article explained that the typical Millennial had just $12,000 in wealth. They are “the only generation to have fallen further behind” during the pre-pandemic recovery, the Federal Reserve said.
Here are a dozen of this blog’s most popular articles for the first half of 2020. They are grouped into three topics: COVID-19 and Your Finances, Retirement Planning, and Retirement Uncertainties.
COVID-19 and Your Finances:
Social Security Tapped More in Downturn
Lost Wealth Today vs the Great Recession
Boomers Facing Tough Financial Decisions …Learn More
June 23, 2020
Recessions Hit Depressed Workers Hard
Anyone who’s suffered through depression knows it can be difficult to get out of bed, much less find the energy to go to work. Mental illness has been on the rise, and depression and myriad other symptoms get in the way of being a productive employee.
So it’s not surprising that men and women with mental illness are much less likely to be employed than people who have no symptoms. But the problem gets worse in a recession.
In 2008, the first year of the Great Recession, the economy slowed sharply as 2.6 million workers lost their jobs. During that time, people who suffered from mental illness left the labor force at a much faster pace than everyone else, according to a new study from the Retirement and Disability Research Consortium.
The researchers compared average labor force participation, as reported in the National Health Interview Survey, for three periods. Two periods of consistent economic growth bracketed a period that included the onset of the Great Recession: 1997-1999, 2006-2008, and 2015-2017.
Labor force participation for people with no mental illness dipped less than 1 percent between the late 1990s and the period that included the recession. By 2015-2017, roughly three out of four of them were still in the labor force – only slightly below pre-recession levels.
Contrast this relative stability to large declines in activity for people with mental illness – the more severe the condition, the steeper the drop. Participation fell 17 percent among people with the most severe forms of mental illness between the late 1990s and the period that included the recession. By 2015-2017, only 38 percent of them remained in the labor force – well below pre-recession levels. …Learn More
June 11, 2020
401ks are a Source of Cash in Pandemic
The U.S. retirement savings system has always been a little leaky. But the leaks seem to be getting bigger.
Some Americans are eyeing withdrawals from their 401(k) plans as the best of a few bad options for paying their rent or solving other cash-flow problems.
As of May 8, 1.5 percent of retirement plan participants had taken some money out of their 401(k) plans under new federal legislation permitting penalty-free withdrawals, The Wall Street Journal reported. An April survey by the non-profit Transamerica Institute put the number of savers responding to the pandemic much higher – about one in five.
But the data included people who took out loans from their 401(k)s, in addition to withdrawals from 401(k)s and IRAs. Further, Transamerica reported not only on what people have already done but what they say they plan to do. Younger workers and men were the most likely to resort to this desperation move.
Prior to the pandemic, many workers were already behind on their retirement savings and still had not fully recovered from the recession a decade ago.
The current economic downturn will only set them back further as the layoffs, reduced hours and sales commissions derail or curtail their efforts to save. Employers having to lay off workers are also conserving cash by suspending their matching contributions to their employees’ 401(k)s.
“The negative economic effects of the pandemic are further threatening retirement savings and security,” said Catherine Collinson, chief executive of the Transamerica Institute, a partner of the Center for Retirement Research, which funds this blog.
The Coronavirus Aid, Relief, and Economic Security Act passed in March made it easier to withdraw money by waiving the standard 20 percent income tax withholding and 10 percent penalty, which usually applies to people under age 59½. But one estimate made prior to the pandemic shows this is a costly strategy: prematurely taking money out of 401(k)s and IRAs reduces the average amount of money available for retirement by about one-fourth.
People who still have jobs are also saving less. One in five workers have reduced their 401(k) contributions, a Magnify Money survey shows. The informal poll isn’t representative of the population but is certainly an indication of the financial strain the pandemic is putting on workers.
Employers are pulling back too. At last count, some four dozen companies reeling from a drop in revenue – including big names like AutoNation, Best Buy, Hilton Grand Vacations, and Tripadvisor – are temporarily halting their matching contributions, according to a list compiled by the Center for Retirement Research. …Learn More
March 12, 2020
Market Drops Hit Those Who Don’t Invest
Photo by T. Charles Erickson
How fitting that I would see the play “Sweat” on Feb. 28 – a Friday night at the end of a week in which the stock market dropped 12 percent and the specter of recession reared its ugly head.
The Pulitzer Prize-winning “Sweat” – I saw the Boston revival – is about the havoc the boom-bust economy and falling financial markets wreak on working people’s employment security and their personal lives. In fact, the timeline of the play is bracketed by 2000, when the stock market crashed, and 2008, when it crashed again.
At the beginning of each scene, a voice-over broadcasts the day’s bad financial news. The stock market never crosses the lips of the characters in the play, which is set in a local bar that is the social center of the working class town of Reading, Pennsylvania. Their chief concern is the fate of their jobs at the steel tubing plant. But the unspoken stock market is an invisible character shaping their plight.
Playwright Lynn Nottage got her inspiration for “Sweat” during visits to Reading over 2½ years. Two female characters and each of their sons work at the plant – very typical of a factory town. The bartender used to work there until he injured his leg. An immigrant who is a busboy at the bar briefly gets a shot at the American dream as a scab worker when the company locks the union out of the plant. There is tension between the immigrant and the long-time residents, and between the assembly line workers and the one worker who is promoted to management. But in the end, all of their lives are tragically upended by the plant closing.
Factories began shutting down in the 1980s, in part because U.S. manufacturers learned they could hire workers at much lower wages overseas. But manufacturing’s long-term decline was perpetuated by the 2001 recession, which was triggered by a market drop, and a second recession that began with the 2008 market collapse.
Which brings us to 2020. …Learn More
July 16, 2019
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? …
January 24, 2019
Hispanic Retirement Outlook Gets Worse
One thing really stood out in a recent study: the deterioration in Hispanics’ retirement prospects since the 2008-2009 recession.
Workers’ success at saving for retirement is becoming increasingly important to their financial security in old age. This puts Hispanic households at a clear disadvantage: they earn half as much as white households, which makes it that much more challenging to build retirement wealth by buying a house or saving more in their 401(k)s – two-thirds of Hispanic workers don’t even participate in an employer 401(k).
White Americans aren’t exactly in great shape either. Today,
48 percent of them are at risk of experiencing a drop in their standard of living after they retire – this is 6 percentage points higher than before the recession, according to a new study by the Center for Retirement Research. Black Americans are worse off than whites, though their situation hasn’t changed much over the past decade.
But 61 percent of Hispanic workers are at risk – a 10-point jump since the recession – the study found. A big reason is that Hispanic homeowners were hit especially hard by plunging house prices during the mortgage crisis in states like Florida, Nevada, Arizona, and California, where they are heavily concentrated. Their home equity values dropped 41 percent, a result of buying “houses in the wrong place at the wrong time,” the researchers said.
The loss of home equity has a big impact on retirees by reducing the amount they can extract from their properties by purchasing less expensive housing or taking out a reverse mortgage. (The researchers assume that when workers retire, they will use reverse mortgages.) …Learn More