September 8, 2020
A Laid-off Boomer’s Retirement Plan 2.0
Jennifer Lee wanted to work until 70 to max out her monthly Social Security checks – at least that was the plan before she was laid off three years ago from a Washington D.C. church.
The church’s newly hired pastor “decided he wanted a whole new staff,” she said. “I felt to a degree he was entitled to do that,” she said – except that “he was only eliminating people on the staff who were over 60.”
She wasn’t having any luck finding a new job and felt that her only choice was to sign up for Social Security at 63½ to pay her bills. Eventually, Lee, a one-time nurse and medical administrator, landed a nice part-time job as a Jack-of-all-trades in an oral surgeon’s office. Post-pandemic, her duties have expanded to include overseeing the COVID-19 safety protocols.
The recession is putting many baby boomers in a predicament similar to Lee’s: a layoff has derailed their plans to work full-time to build up their retirement savings. Since March, the unemployment rate for Americans who are at least 55 years old has more than tripled, to 9.7 percent in June.
“Most older people, when they’re laid off, will take Social Security right away,” but “that’s not their best short-term solution,” said Wendy Weiss, a Cambridge, Mass., financial adviser. She urges them to find other ways to generate income or reduce expenses, because delaying Social Security increases the monthly check by 7 percent to 8 percent for each additional year the benefits are postponed.
But, Weiss acknowledges, the recession is putting growing numbers of unemployed boomers in situations that aren’t easily solved. “It’s not going to be pretty,” she said about the next few years.
Lee, who is 65, was fully aware she should have postponed her Social Security. But it took her more than six months to find her current job, and she didn’t have any unemployment benefits to tide her over, because church employers don’t usually pay into state unemployment insurance funds. She wasn’t old enough for Medicare at the time of her 2017 layoff either.
“I waited five months to apply for Social Security. I waited as long as I could,” she said.
She sees a problem not in the difficult decisions she’s had to make but in a shortage of policies for older workers like herself, who may be more vulnerable to layoffs and also can have a tougher time finding a new job even in an expanding economy. …Learn More
August 13, 2020
Workers Lacking 401ks Need a Solution
Although COVID-19 has exposed alarming gaps in a health insurance system that revolves around the employer, the Affordable Care Act is one potential solution for workers who lack the employer coverage.
There is nothing equivalent on the retirement side, however.
Many workers between ages 50 and 64 are in jobs that provide neither health insurance nor a retirement savings plan. But, in contrast to the health insurance options available to them, “no retirement saving vehicle appears effective in helping older workers in nontraditional jobs set aside money for retirement,” concluded a new analysis of workers in these nontraditional jobs.
Nontraditional workers who want to save for retirement are left with two options: their spouse’s 401(k) savings plan or an IRA operated by a bank, broker or financial firm.
A spouse’s 401(k) hasn’t been an effective fallback for a couple of reasons. First, a substantial number of the workers who lack their own 401(k)s are not married. And second, if they are married to someone with a 401(k), they’re not any better off. The researcher found that married people currently contributing to 401(k)s do not save more to compensate for the spouse without a 401(k), reinforcing other research showing these couples don’t save enough for two.
The other option – an IRA – is open to everyone. But only a small fraction of Americans currently are saving money in IRAs, and most of them already have a 401(k). So IRAs, in practice, aren’t doing much for the people who need the help: workers who lack employer benefits. … Learn More
August 4, 2020
Financial Survival of Low-Income Retirees
Watch these six videos and walk in the shoes of low-income older Americans. It’s an arduous journey.
Social Security is the primary or only source of income for the retirees who agreed to be interviewed for the videos. Since their income doesn’t cover their expenses, they live with family, frequent the Salvation Army, and continually stress about money.
“You’re lucky if you come out even or a little behind” at the end of the month, said Howard Sockel. The 81-year-old resident of Skokie, Illinois, supports two sons – one with autism and one unemployed – on his Social Security, a small Post Office pension, and credit cards.
The older workers who were interviewed are on the same road to a difficult retirement. Cathy Wydra, who was 64 when the videos were made, shares the expense of a two-bedroom apartment in a Chicago suburb with her daughter and grandson and sleeps on an inflatable mattress.
“It’s a little scary. I think, am I going to be able to retire in two years?” she says.
One out of three older people can’t cover their costs comfortably, often because they lack savings, said Sarah Parker with the Financial Health Network, which produced the videos in conjunction with AARP Foundation and Chase. “You often have to rely on debt, and that’s a very precarious financial situation to be in,” she said.
The video topics are: “When Fixed Incomes Fall Short,” “All in the Family,” “The Caregiver Conundrum,” “A Shock to the System,” “When Retirement Won’t Work,” and “Good Advice Never Gets Old.”
Some of the retirees admitted to making strategic mistakes around their retirement finances. Many other people have made these same mistakes, but they are catastrophic for people who were already on shaky ground. Verner Reid, a former Chicago teacher, was forced to retire when she became ill. Rather than a teacher’s pension, she took a lump sum and is now short on funds – “the mistake of my life.” …
July 30, 2020
Pension, 401k Registry Bill Resurfaces
When COVID-19 throws people out of work, their chances of retiring comfortably can deteriorate rapidly. What better time to find a new way to help?
A perennial proposal just reintroduced in Congress would do some good: establish an online database of employer retirement plans so workers and retirees can locate old pensions and 401(k) accounts.
Workers are increasingly responsible for making sure they have enough money to retire. But moving from job to job is now the norm – the one-employer career is a distant memory – and pensions get left behind and 401(k)s fall by the wayside. People who try to find old plans often can’t locate employers that have changed names, merged, relocated, or terminated a plan.
The primary way to find retirement plans now is through the lost property records kept by each state. But Anna-Marie Tabor, director of the Pension Action Center in Boston, which recovers lost pensions and 401(k)s for the center’s clients, said billions more in unclaimed funds can’t be located in the state records, because employers are not required to turn over plan information to the states. Also, 401(k)s are hard to find since many employers transfer small accounts to third-party IRAs without the account owner’s awareness.
Tabor argues in the Journal of Aging and Social Policy that the COVID-19 recession brings new urgency to passing the proposed Retirement Savings Lost and Found Act of 2020, especially for low-income workers hit hardest by layoffs and older workers who are running out of time to repair their finances prior to retiring.
“Connecting people with money they’ve already earned is an easy and inexpensive way to support the economic recovery,” she said. …Learn More
July 28, 2020
Retirement Research Presented Virtually
Like much in life under a pandemic, the research presentations for the Retirement and Disability Research Consortium’s annual meeting are going virtual.
This year’s online meeting will also be scaled down from the traditional two days to one: Thursday, Aug. 6.
The purpose of the meeting, which is usually held in Washington, D.C., is for academics from universities and think tanks to describe their latest research to colleagues, policy experts, financial professionals, and the press. Topics this year will include taxes in retirement, federal disability insurance, housing, health, and labor markets. The U.S. Social Security Administration has funded the research and is sponsoring the meeting.
The agenda and information about registration are available online, and participants can register anytime. Questions for the researchers can be submitted during the presentations via a moderator.
One fresh idea being explored this year is taxes in retirement. Taxes are central to whether retirees have enough money to cover their essential expenses, but households that are approaching retirement age may not factor the need to pay federal and state taxes into their planning. Despite the importance of this issue, only a handful of existing studies have tried to estimate the tax burden. This paper fills the gap.
One session will feature a pair of papers looking at whether cognitive decline has a detrimental effect on older Americans’ finances. One will explore whether dementia leads to financial problems overall, and the other will focus exclusively on debt.
Researchers will also try to resolve a conundrum in the disability field: why are applications for federal benefits declining at the same time that Americans’ health is deteriorating? One hypothesis is that jobs are becoming less physically demanding. A second disability study will produce a publicly available database for researchers who want to examine the local factors affecting applications.
The agenda lists all of the papers that will be presented. Learn More
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
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