It’s no surprise that Americans approaching retirement age are being hit especially hard by the recession. Middle age and older workers had the most money in the stock market to lose. A new AARP survey of 1097 people age 45 and older found that 79 percent of those with a 401(k), IRA, mutual fund, or individual stocks and bonds have lost money. Many older Americans are responding to their diminished nest eggs by becoming more frugal and adjusting their retirement plans. But some people have cracked into their nest eggs early and are putting off paying bills in a move that could only further hurt their retirement prospects. This is how baby boomers and seniors say they are coping with the recession.
Let’s just stay home. Thrift is quickly making a comeback as a desirable and necessary attribute in the United States. Many adults in the AARP survey reported difficulty paying for necessities such as food, gas, and medicine (52 percent), utilities like heating, cooling, or phone service (44 percent), and making mortgage or rent payments (25 percent). But they’re cutting back on entertainment (68 percent), eating out (64 percent), and postponing travel plans (52 percent). AARP offers these 15 tips to same money immediately, and estimates how much you can save from each one.
I’ll just work forever. Working longer than you originally planned to is another potential solution to dwindling retirement accounts. About 57 percent of those who lost money last year plan to delay retirement and work longer as result of their investment losses, and 26 percent say they have already postponed plans to retire, AARP found. Some people are working more to bump up household income too. About 28 percent of employed adults have increased the number of hours they work in the past year. And a quarter of retirees have either looked for work or are considering looking for work because they need extra income.
But working longer doesn’t have to mean working forever. It will take approximately 1 year and 9 months in the workforce to recoup market losses for employees who have spent between 20 and 29 years on the job, according to calculations by Jack VanDerhei, research director for the Employee Benefit Research Institute. For workers who exit the stock market and stash their nest egg in a safer place like money market funds, it will take 2 years and 1 month to neutralize the market drop, VanDerhei found.
Tomorrow is another day. Some baby boomers are taking the Scarlett O'Hara approach to retirement planning and thinking about it tomorrow. The AARP survey found that some older Americans have stopped putting money into retirement accounts (32 percent), postponed paying bills (23 percent), and even prematurely withdrawn funds from retirement accounts (17 percent). All of these strategies will quickly erode retirement prospects. Early withdrawals from retirement accounts come with a 10 percent penalty, in additional to income tax on the amount. And unpaid bills often accumulate late fees. If you put expenses you can’t pay on a credit card, interest rates can quickly multiply your debt to unmanageable levels. About 14 percent of adults over age 45 have also had to rely on family or friends to help make ends meet.