Before shredding the safety net, consider the state of older Americans
This year, lawmakers and presidential candidates have batted around proposals to privatize Social Security, raise its retirement age or reduce cost-of-living adjustments. Medicare privatization has been pushed in three or four versions; any of the options would slash the value of benefits by changing Medicare from a program of defined benefits to one of defined contribution levels.
Against that backdrop, it's worth stopping and asking: What is the state of older Americans and our system of retirement? Before the debate kicks into high gear on just how much to shred the safety net, let's consider just how much the recession has ravaged the economic security of seniors:
--Retirement confidence is low. The annual Retirement Confidence Survey from the Employee Benefit Research Institute (EBRI) finds that Americans' confidence in their ability to afford a comfortable retirement has hit a new low. The percentage of workers who say they're "not at all confident" about having enough money for a comfortable retirement grew from 22 percent in 2010 to 27 percent in 2011, the highest level measured in the study's 21-year-history.
Meanwhile, Americans are pushing back their expected retirement ages. For example, 15 percent of Americans now tell EBRI they expect to work until age 70, up from 11 percent as recently as 2006.
--Assets are inadequate. The median level of financial assets in 2007 -- before the market crash -- was about $72,000 for households approaching or entering retirement (age 55 to 64), according to a recent report from the U.S. Government Accountability Office (GAO). Assuming a four percent withdrawal rate in retirement, those assets would replace only about five percent of annual household income for median-earning families ($55,000), GAO says. Most financial planners agree with that four percent withdrawal rule of thumb -- but most also tell their clients that they should aim to replace 80 percent of pre-retirement income.
Forty-four percent of full-time workers in their 50s have neither a defined benefit (DB), nor a defined contribution (DC) pension from their current employer, according to GAO.
--For many, Social Security is everything. Americans over 65 in the lowest income groups depend on Social Security benefits for 83 percent of total income, GAO found; middle income seniors depend on Social Security for 64 percent of total income.
--Joblessness has jumped. Unemployment among workers over age 55 has doubled since the recession began, according to GAO. Once older workers do lose their jobs, it takes much longer to find new ones -- if they're able to find employment at all. The BLS report for October stated that it took 52.9 weeks for workers over age 55 to find new jobs, compared with 37.3 weeks for younger workers.
--People are making difficult choices. Nearly a quarter of respondents to an AARP survey of Americans over age 50 said that that they or someone in their family had exhausted or used up all of their savings during 2007-2010, while more than 12 percent stated that they or someone in their family had lost their health insurance. Among this group, nearly half reported that they delayed getting medical or dental care, or delayed or ceased taking medication.
The GAO report was produced at the request of the U.S. Senate subcommittee on Primary Health and Aging, Committee on Health, Education, Labor and Pensions. At a committee hearing on the report in October, Sen. Al Franken (D-Minnesota) asked one of the report's principal researchers what older Americans reeling from the recession could do to rebuild their retirement savings.
"I wish I knew," replied Barbara Bovbjerg, GAO's director of education, workforce and income security issues, according to a transcript of the briefing. "If you're already retired and you're reliant on a 401(k) or an IRA, you're reliant on the financial markets. You are probably really reducing your spending on other things. You're probably making a significant change to the standard of living."
A NOTE TO READERS
My first Retire Smart column appeared in January 2008 -- about seven months before the economic crash and ensuing recession began to reshape the story of aging in America so dramatically. Four years later, it's time for me to move on to new assignments, and this will be my last Retire Smart column.
I'm pleased to report that I'm being replaced by one of the most knowledgeable personal finance journalists in the country -- Jill Schlesinger, editor at large for CBS MoneyWatch. I've had the pleasure of appearing with Jill on the "Ask the Experts" program that she hosts weekly on the MoneyWatch website, and on her syndicated radio program. Along with her deep expertise, Jill brings a great sense of humor and professionalism to all that she does.
I'll be writing a twice-weekly column about retirement, aging and the economy for Reuters, so I'll look for you online. Meanwhile, my best wishes and thanks to all readers of this column, especially those who've taken the time to write with thoughtful comments, questions, compliments and complaints. I've enjoyed the conversation thoroughly.
(Mark Miller is the author of "The Hard Times Guide to Retirement Security: Practical Strategies for Money, Work and Living" (John Wiley & Sons/Bloomberg Press, June 2010). Subscribe to Mark's free weekly eNewsletter at http://retirementrevised.com/enews. Contact: firstname.lastname@example.org. Twitter: @retirerevised