11/21/2011 8:15 PM ET|
Over 55 and desperate for work
Baby boomers who've seen their savings decimated aren't so much looking forward to retirement as trying to postpone it. For those without jobs, it's especially hard.
Fred Edgar, a 61-year-old unemployed product marketing manager, spends his days scouring the Internet and networking with former co-workers to find work. Laid off from Honeywell last October, the Dighton, Mass., resident needs to rebuild a retirement nest egg that lost more than 50% its value over the past four years. He's already pulled out $35,000 to keep himself afloat.
"All these things I planned for and paid into have taken a beating, and I'm worried there will be nothing there when I need it if I don't get hired soon," Edgar said. "It's not a place I thought I'd be at this point in my life. It's spooky."
Edgar isn't the only one spooked. Millions of aging baby boomers on the cusp of retirement not only lost their jobs in the Great Recession but also saw their savings eviscerated. Remaining in the labor force longer than planned is their only option for replenishing what they lost.
Yet workers in their late 50s and older face bleak job prospects. During previous downturns, unemployment among people 55 and older was lower than for other age groups, which some economists attributed to older workers' greater experience as well as union seniority rules. Earlier generations in this demographic group had compelling incentives to retire and not work, thus potentially lowering the unemployment rate. Mandatory retirement at age 65 or earlier was a given in most industries until age-discrimination laws were enacted. And, more important, when workers did approach retirement, they were confident that their defined-benefit pensions and Social Security benefits would suffice. Now, defined-benefit pensions have been replaced by less-secure 401k's, which fell prey to the 2008 stock market crash.
The shift from defined-benefit pension plans to defined-contribution plans encourages workers to continue working. Under a defined-contribution system, the longer a person works, the more he or she can save. Most pension plans, on the other hand, cap the payout after a person works a certain number of years. "Why would you want to tell someone, 'You worked 30 years . . . no matter what you do afterward it doesn't help your pension, so you might as well retire,'" asked James Sherk, a senior policy analyst in labor economics at the conservative Heritage Foundation.
The death of the gold-watch retirement
Unemployment at the peak of the current downturn for workers 55 and older, now 6.8%, was 40% higher than it was at the height of the last major recession in 1982, according to the Bureau of Labor Statistics.
One reason for the rise: A greater proportion of older workers has remained in the workforce. Early retirement -- once considered part of the American Dream -- is losing ground. The workforce participation rate for individuals 55 and older grew to 40.2% in 2010, up from 39.4% in 2008 and 29.4% in 1993, according to Census Bureau data. Relatively recent changes in Social Security law may account for the dramatic increase.
Since 1939, earnings-test laws have precluded people from collecting their maximum Social Security benefits if they earn more than a certain amount. In 2000, a law passed under President Bill Clinton removed limits on the amount people who had reached full retirement age -- then 65 and now 66 -- could earn before their Social Security checks were reduced. But the law left in place rules that workers ages 62 to 64 get their benefits reduced $1 for every $2 they earn above $14,160 a year.
The sharp decline in retirement assets from the 2007-08 stock market plunge has also contributed to older workers remaining in the job market. Defined-benefit pensions have gone from covering 80% of private-sector workers in 1985 to only 20% in 2008.
This growing desperation among older workers has given a boost to career coaches like Bruce Blackwell in White Plains, N.Y. He never saw 58-and-older workers five years ago, but now his business among that age group is thriving.
"People in that age group were either gainfully employed or, if not, often had the means to think about retiring before. But now I have plenty of people in their late 50s and early 60s knocking on my door," he said. "That age used to be a time where people could wind down their careers and enjoy the fruits of their labor if they wanted to. . . . Now they are fighting for work so that they can eventually enjoy financial stability."
There is at least one bright side to older workers remaining on the market, analysts said. It should reduce the total cost their retirement poses for employers and the federal government.
"If you've got workers who are capable of working and providing value to the economy, it makes sense to have the system set up so that they're not discouraged from doing that," said Heritage's Sherk.
But that's scant solace to aging baby boomers who lost their jobs and can't find new ones. The average duration of unemployment was 52.9 weeks in October for workers ages 55 and over, compared with 37.3 weeks for workers under 55, according to the Bureau of Labor Statistics.
Of course, unemployed older workers have always faced difficulty in the job market because they have higher salary expectations and employers are reluctant to hire job candidates they consider overqualified for lower-paying work. But now older workers face another hurdle: competition from other boomers.
Straining retirement plans and federal aid
"In 1983, you used to have relatively fewer older workers, and a lot more younger workers," said Barry Hirsch, a labor economist at Georgia State University in Atlanta. "But today, the relative size of the older population is much higher, and the younger population much lower, so the demographics have deteriorated for older persons and improved for young people."
Another factor holding back older workers from finding new jobs is the rapidly shifting technological skills demanded by many new jobs, especially in the information technology sector. "I don't think Facebook is out there hiring tons of workers my age," said Hirsch, who is 62.
Some economists fear the economy, even after it recovers, will not generate enough new jobs for older workers, leaving large swaths of boomers with inadequate retirement savings. That could leave the federal government and society to pick up the pieces.
"Unemployment in your late 50s and early 60s could really erode people's future retirement security in an ugly way," said Richard W. Johnson, the director of the Urban Institute's retirement policy program. People in that situation often start dipping into their 401k's sooner than expected or begin collecting Social Security benefits at age 62, leaving them with monthly benefits 25% below what they would have had if they waited until age 66 to start collecting.
Johnson says a likely scenario 10 years down the road is more elderly people get added to Medicaid assistance rolls -- the programs that help seniors with incomes up to 150% of the poverty line pay for premiums and prescription drug costs. "As baby boomers get into their 70s and 80s, we know Medicare premiums will continue to rise. In the case of those who couldn't find work and retired early, Social Security benefits will be smaller, too. That, to me, is a recipe for more poverty, unpleasantness and increased government outlays," Johnson said.
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