The recession is having a lingering impact on the baby boomer’s retirement plans. Retirees and those close to retirement lack the time to properly recover from job losses, falling home prices, and investment portfolio losses. Their retirement options are to work longer, save more, or settle for a lower standard of living in retirement. Here is how the recession has impacted the retirement plans of people age 50 and older.
Spending savings early. Many older Americans had to dip into their savings to cope with the impact of the recession. A quarter of Americans age 50 and over report exhausting all of their savings during the recession, according to an AARP Public Policy Institute report released this week. Nearly half (48 percent) of older workers have had trouble making ends meet over the previous three years, typically because household expenses increased (60 percent) or household income fell (56 percent), the survey of 5,027 older Americans who are currently employed or who have been in the labor force at some time during the past three years found. Those who had trouble making ends meet were particularly likely to withdraw money from a savings account (57 percent). The majority of those surveyed (75 percent) are worried about depleting their savings too quickly in retirement.
Claiming retirement benefits early. Over a quarter (29 percent) of the survey respondents became unemployed at some point during the past three years or are currently unemployed. Many of these unemployed workers elected to claim their retirement benefits early. Unemployed survey respondents (17 percent) were about twice as likely as the employed (9 percent) to have begun collecting Social Security in the past three years. Opting for early Social Security benefits generally means receiving reduced monthly payments for the rest of your life.
Declining home values. Workers can no longer count on consistently rising home values to help fund retirement. Almost a third (32 percent) of older Americans say their home has declined in value since the recession began.
Carrying debt into retirement. Americans are increasingly entering the retirement years with debt. Some older Americans fell behind on credit card payments (19 percent) or had trouble paying their rent or mortgage (15 percent) over the past three years, AARP found. A few people also filed for bankruptcy (3.6 percent), have been forced to sell their home (1.4 percent), or lost their home to foreclosure (1.4 percent).
Health funding problems. Most people over 50 are worried about not having enough money to pay for health care expenses in retirement (75 percent). But most individuals aren’t taking steps to protect themselves from excessive health costs either. Only a minority of Americans over 50 have an employer-provided retiree health plan (18 percent), long-term care insurance (13 percent), or savings earmarked for large health care costs (6 percent). The only method of combating health care expenses a majority of the survey respondents are engaged in is maintaining healthy lifestyle habits such as a proper diet, regular exercise, and preventive care (61 percent).
Extreme frugality. Over two-thirds of those having trouble making ends meet have taken steps to reduce their expenses. Cutting back on non-necessities such as dining out or movies will be good for many people's retirement finances. But some cutbacks, such as for health insurance or medical care, are more troubling. Many older Americans (50 percent) have put off medical or dental care or skipped taking medication due to financial concerns and 12 percent dropped health insurance coverage.
Working more. Older workers who haven’t saved enough will need to continue to work during the traditional retirement years. Many people over 50 plan to work part-time in retirement (44 percent) or delay retirement (33 percent).
More anxiety. Most older Americans (57 percent) report feeling less confident that they will have enough money to live comfortably throughout retirement than they did before the recession. People over 50 are concerned that their retirement income might not keep up with inflation (82 percent), that they won’t have enough money to pay for long-term care (79 percent), and that they won’t be able to afford to stay in their current home for the rest of their life (58 percent). “Older Americans have good reason to be worried about the future because they have less time than others to recover from the impact of the last three years,” says John Rother, AARP’s executive vice president for policy, strategy, and international affairs. “When older Americans are borrowing against their future or betting against their health, serious challenges lie ahead.”
Passing nothing on. Some Americans would like to pass their wealth on to heirs. But 48 percent of older workers are concerned that they won't have money left over to leave to their children. Many people are uncertain that they will even be able to support themselves for the rest of their lives. Almost half of individuals over 50 are concerned that they might have to rely on children or other relatives for financial assistance (49 percent) or even move in with them (44 percent).
Declining expectations. Most baby boomers aren’t expecting to retire more comfortably than their parents did. Only a quarter (26 percent) of the survey respondents expect to be better off than their parents in retirement, AARP found. The majority of those surveyed expect their retirement standard of living to be the same (23 percent) or worse (44 percent) than that of the previous generation. “This unprecedented economic recession has left a legacy of low confidence, lower savings, and the lowest employment rates in decades,” says Rother. “Older Americans will feel the effects of the recession for years to come.”