October 11, 2022

How Eager are Employers to Hire Boomers?

Older Americans’ share of the labor force has doubled since the early 1990s, and they constitute roughly one in four workers today.

But their dominance is mainly an artifact of the baby boomers’ demographic bulge moving through the labor force and says little about how employers view the growing ranks of aging workers.

Employers’ willingness to hire or retain older workers, especially when someone younger is available, is an important issue for a couple related reasons. Boomers are under increasing pressure to work as long as possible to improve their finances before retiring. It’s also easier for many to work well into their 60s since people are living longer and technological advances have reduced the physical requirements for some types of work.

But do employers want boomers on the payroll?

A study by Damir Cosic at the Congressional Budget Office and C. Eugene Steuerle at the Urban Institute finds some evidence that employers increasingly view them as pretty good substitutes for workers in their prime whose age – the mid-30s to mid-50s – and experience puts them at peak productivity. What distinguishes this research is its focus on understanding the demand for older workers, a departure from the many studies describing the changes in their labor supply.

The analysis turned on whether the growth in the older labor force has affected prime-aged workers’ wages. If, for example, their wages are increasing relative to the wages of workers over 55, this may indicate that employers are more willing to hire workers in their prime, because they have qualities the older workers lack.

If, however, the younger workers’ wages are declining relative to boomers’ wages as the growing supply of older workers puts some downward pressure on pay, employers may view the boomers as acceptable substitutes for their younger counterparts and are equally willing to employ them.

The researchers found that employers viewed older workers as increasingly attractive substitutes over the period 2000 through 2018. This trend was clearly evident in several specific industries, including utilities, real estate, information, government, finance, transportation, and wholesale. …Learn More

August 23, 2022

Good Riddance Medicare Donut Hole!

Medicare’s donut hole is the bane of existence for retirees with expensive medications.

They will get substantial relief in 2025, when the Inflation Reduction Act, signed by President Biden last week, will cap all retirees’ annual drug copayments at $2,000. Monthly drug plan premiums are not included in this cap.

The cap will effectively eliminate the donut hole that currently requires retirees to pay 25 percent of the cost of their prescription drugs until they reach a threshold amount. The threshold increases every year and hit $7,050 this year.

A relatively small group of about 1.5 million retirees pay more than $2,000 for their prescriptions. But many of them are spending $5,000, $10,000 or more.

“It’s going to be an amazing thing” if the cap is implemented as Congress intended, said Ashlee Zareczny, compliance supervisor for Elite Insurance Partners, a Medicare health insurance broker outside Tampa.

Some of her firm’s retired clients pay so much for their medications that they have to make difficult choices between medications and food or other essential items. People who rely on Social Security “shouldn’t have to make those choices,” Zareczny said.

The cap will apply to all Medicare beneficiaries, whether they get their prescription drug coverage through a Part D plan or Medicare Advantage insurance plan, she said.

Under the current system, insurers that sell Medicare drug plans have a $480 maximum they are permitted to charge for the deductible. After meeting the deductible, retirees make their predetermined copayments under the insurance plan. They enter the donut hole after they spend $4,430 out of pocket, and then they are required to pay 25 percent of the cost of their drugs until they reach a threshold that pushes them into the catastrophic phase of Medicare’s drug coverage.

Once the catastrophic coverage kicks in, however, they are still responsible for 5 percent of the remaining drug costs. In 2024 – a year before the $2,000 cap goes into effect – the new healthcare law will eliminate the 5 percent copay.

The cap on total spending will protect any retiree who develops a medical condition requiring them to take very expensive medications. Currently, there is no limit on how much they may have to spend.

And, Zaraczny said, “They’re not prepared to put forth this money.” …Learn More

August 18, 2022

The Racial Roots of Retirement Inequality

Financial advisers and retirement experts say the best advice they can give workers to prepare for old age is to save, save, save.

But two young researchers might argue this advice isn’t sensitive to the hurdles that Black and Hispanic workers face when they try to save. At a recent panel discussion, the researchers presented a laundry list of the hurdles, which are harder for minority workers to clear and can be insurmountable.

One disadvantage is widely understood: people of color tend to be in lower-paying jobs overall and disproportionately work in the retail or the food service industries, which have irregular hours, high turnover, and wages that often depend on tips. Many of these jobs do not include employee health and retirement benefits, putting people of color at greater risk than White workers that their retirement income will fall short.

But the roots of retirement inequality run deeper and can be seen in the racial differences in intergenerational wealth – whether homeownership or a college education that leads to a good job – said Dania Francis, an economist at the University of Massachusetts Boston and a panelist at the event hosted by the university’s Pension Action Center.

White Americans, Francis said, are in a better position to retire because they receive inheritances at dramatically higher rates than Black and Hispanic Americans. She cited Federal Reserve data from 2010 through 2019: 42 percent of White households within 10 years of retiring had already received or expected to receive an inheritance from their parents.

The inheritance numbers were 14 percent for Black and 11 percent for Hispanic households.

White parents also provide money to their young adult children at higher rates to pay for investments in their future such as college or a down payment on a house, Francis said. And, she added, the lower wages earned by workers of color will also make it harder for them to ever “bridge that gap.”

Taha Choukhmane, an assistant professor at the MIT Sloan School of Management, agreed. But he pointed to the billions of dollars in retirement incentives built into a tax code that also favors White workers and “contributes to inequality.” …Learn More

July 28, 2022

Most Boomers Don’t Rely Solely on SSA.gov

In 2000, Social Security launched a website allowing retirees to sign up for their benefits online without having to call or visit the agency. By 2013, about half of new retirees were using this feature to file their claims. However, progress stalled after that, despite continued growth in the number of baby boomers who were retiring.

A new survey of 2,600 people between ages 57 and 70 finds that even the people who sign up for their benefits online often wind up contacting Social Security for assistance. In the end, only 37 percent of all retirees claim completely online and never visit a field office or call the agency’s 800 number at some point during that process, suggests research by Jean-Pierre Aubry, a researcher at the Center for Retirement Research.

The boomers who are the most likely to complete the entire application online are college-educated people who are comfortable banking or filing their taxes, according to Aubry’s study. At the same time, older people of color are more hesitant to sign up for their benefits without calling or visiting their local Social Security office.

Given Social Security’s staff shortage and budget constraints, both the agency and retirees would benefit from fewer calls and visits. Fortunately, the share of retirees who apply for benefits exclusively online is likely to increase in the future. It is second nature for young adults – regardless of their race or whether they went to college – who grew up with cell phones in their hands to manage their finances online or buy things. When they start retiring, they will be more at ease than their parents with signing up for benefits without speaking with someone at the agency.

But there are things Social Security could do to increase online activity now. The agency already provides a personalized online statement that details eligibility and benefit levels for workers of all ages who create a my Social Security account. Based on the survey of older workers, Social Security could make it easier to get answers to basic inquiries such as whether an application, once submitted, is being processed. …Learn More

July 21, 2022

Research to Look at Work, Retiring by Race

The racial disparities embedded in our work, retirement, and government systems will be front and center at the annual meeting of a national research consortium.

One of the presentations at the online meeting on Aug. 4 and 5 will explore the impact of wealth and income inequality on Black and Latinx workers at a time these populations are rapidly aging. The researchers are concerned with how their decisions about when to retire will impact their economic security.

Growing inequality “point[s] to greater risks of financial insecurity” for future Black and Latinx retirees, the researchers said.

Another paper will address a related topic: the differences, by race and ethnicity, in workers’ levels of knowledge about how Social Security benefits work. Understanding the ins and outs of the federal retirement benefit – and specifically the advantages of delaying retirement to get a larger monthly check – are critical to improving living standards in old age.

Other research will explore an area that hasn’t been well studied: government programs used by non-parental caregivers such as Black grandparents or members of Latinx three-generation households to support the children in their care. The researchers will examine minority and low-income workers’ and retirees’ use of SNAP food stamps, child care subsidies, Temporary Assistance for Needy Families, and various benefit programs overseen by Social Security.

COVID is another topic on the agenda. One study compares the financial impact of the pandemic on early retirement for different income groups with the patterns in the aftermath of the Great Recession more than a decade ago. Another study examines how mortality rates might change in the wake of the pandemic.

Research on many other topics will also be featured, including health insurance, mothers, and longevity. The agenda and information about registration are posted online. Registration is free. …Learn More

June 30, 2022

The Many Facets of Retirement Inequality

Retirement inequality is a thread running through several articles that have appeared here this year.

One blog that was particularly popular with our readers distinguishes retirees who have enough wealth to maintain the same spending levels throughout retirement from those who will, over time, have to cut back and reduce their standard of living.

The research behind the article – “Health and Wealth Drive Retirees’ Spending” – makes clear that wealth is just one component of a satisfying lifestyle. Even retirees who can afford to maintain their living standard may not be healthy enough to enjoy their money to the fullest. The retirees who have both – health and wealth – are best equipped to maintain their pre-retirement lifestyle.

Homeownership also marks a dividing line between the haves and have-nots. A home is one of retirees’ largest sources of wealth. Although most are hesitant to withdraw home equity, the ones who have equity and tap it to pay medical bills see large, positive health benefits, according to “Using Home Equity Improves Retirees’ Health.”

Pensions are another dividing line. “Retirees with Pensions Slower to Spend 401(k)s” shows the value of having guaranteed income from defined benefit pensions, which are all but extinct outside the public sector. …Learn More

May 26, 2022

Parents Work Less After Kids Leave Home

When children grow up and become financially independent, how do parents adjust their finances? Are they finally spending money on themselves? Saving more for retirement? Paying down debt?

No one has come up with a convincing answer yet. Especially puzzling is that past research has shown that parents seem to reduce their consumption after the adult children move out. Yet there’s no evidence that much of the extra money is going into 401(k)s. So what’s going on?

A new study for the first time finds a missing puzzle piece: parents, freed from the obligation to support their children, are choosing to work less.

Parents work one to two hours less per week after their adult children leave home for good, according to researchers at the American Enterprise Institute and the Center for Retirement Research.

Consistent with this finding, their household income declines roughly 4 percent because they’re working fewer hours or finding less demanding jobs with lower pay.

Reaching this conclusion required a series of steps. First, the researchers broadened the definitions of saving and consumption used in earlier studies to see if that shed any light on the issue. Finally, they looked at the parents’ decisions about work.

In the past, the estimates of saving had largely been confined to putting money in 401(k)s. Perhaps something could be learned by counting paying off a mortgage or other debts as a form of saving. But the researchers still found no evidence parents are paying their debts off faster after the kids leave.

So where is that extra money going? …Learn More