In a blog post from yesterday, titled “Same Old Story”, I wrote the following: for those individuals who either chose to retire or were forced to retire prematurely through job losses in 2007-2008, they had no time to make up for the catastrophic decline that turned their 401(k) into a 201(k). I remain very concerned about the American worker who involuntarily “retired” following a job loss that occurred later in one’s working career. But is my fear rational? Well, yes!
The New York Times has recently published an article, “When Retirement Comes To Early”, that specifically speaks to the troubles that older Americans have when they are involuntarily removed from the labor force. There was a time that older workers were held in high regard because of the experience that they had garnered, which lead to greater compensation and generally more protection during recessions. Regrettably, that “premium” has dissipated and the protection of experience is no longer evident during difficult economic times, including our current economic crisis.
Just how bad is this trend? According to an Urban Institute study that followed 2,000 full-time employees with generally higher levels of education than that of the average 50-year old and above from 1992 to 2016, nearly half of this cohort suffered an involuntary job loss. Incredible! According to Teresa Ghilarducci, a labor economist at the New School (and some one that I know and admire for her work) the coronavirus and recession that followed have intensified job insecurity for older Americans (people like me!!).
According to the New School’s Retirement Equity Lab, 2.9 million workers age 55-70 have left the labor market since March, and they were counted as having left because they were neither working nor actively looking for employment. Worse, they are predicting another 1.1 million older Americans will suffer a similar fate by November. When a job loss occurs at an older age there is less time for the employee to recover financially, which can create a series of spiraling events from bridging the unemployment with savings, to taking Social Security prematurely, to taking on debt.
Outrageously, only 1 in 10 of those suffering an involuntary job loss ever earns as much again. At age 65, “their median household income was 14% lower than for those that were not pushed out”. Just as bad, it takes older American workers longer to get back into the workforce. For those 62-years-old or older, only 41% had found employment within 18 months of their layoff. As a comparison, for those age 25-49, 78% had been hired within the next 18-months.
With regard to the financial hit of losing a job later in one’s career, many American workers are truly only able to begin to sock away money after paying for their home, raising their children, and meeting other more immediate needs. It is great that workers over 50-years-old have a make-up contribution of $6,000 available each year, but according to Vanguard only 15% of older workers take advantage of this elevated contribution limit. That isn’t surprising since most Americans don’t come close to earning $100,000, so the thought of contributing $25,000 is a pipe dream for a vast majority.
Losing a job later in one’s career that forces workers to forgo important saving years is very challenging. Compound that experience with having to tap “retirement” funds prematurely or take on additional debt or access Social Security earlier than desired and you’ve created a formula for financial disaster. Regrettably, this is what is transpiring today.
We need to do more for our workers. Financial security won’t happen for most of us if defined contribution plans are the only game in town. We need to preserve DB plans for the masses. We also need to consider extending unemployment insurance benefits, raising Social Security benefits, and providing an enhanced healthcare benefit. We don’t have the money, you say? We’ve proven that we do through the recent Federal stimulus programs. Remember: federal deficits translate into private sector spending. We need all the economic activity that we can muster at this point.
That is enough for today.