HAHN: Older workers increasingly confronting involuntary retirement

Keywords Investing Column

Personal Finance: Jalene HahnThe retirement savings crisis has been growing for several years. The COVID-19 pandemic is accelerating the impact.

One factor is increased unemployment and involuntary retirement among older households. A recent study by the New School of Social Research’s Retirement Equity Lab, or ReLab, found that “2.9 million older workers left the labor force since March.” The organization anticipates an additional 1.1 million workers will be added in the coming months.

The COVID recession has increased the country’s overall joblessness. It has disproportionately hurt older workers. Finding employment after 50 is difficult in normal circumstances. It generally takes twice as long to find a new position and when it’s secured, earnings are often lower.

In the current environment, unemployed older workers not only face reduced job prospects but are also facing increased health concerns about returning to work.

Many older workers become discouraged and just end up leaving the labor market.

A ReLab report released in May highlights the anticipated downward mobility for millions of older workers. According to the report, “the COVID-19 recession will force 3.1 million older workers and their spouses into de facto poverty when they retire.”

The report explained the de facto poverty line as twice the federal poverty rate. The federal poverty line is currently $25,520 for individuals and $34,480 for couples.

Middle-earning households (those earning above $48,000 and below the Social Security earnings cap of $137,700) will be especially hard hit.

These households not only face potential job loss but might also experience a financial loss in their retirement accounts.

Many households are not prepared to retire. Inadequate savings and disappearing pensions have left many households vulnerable.

For many households, the time between their 50s and retirement is when they plan to increase savings, pay down debt and continue to build a nest egg.

Involuntary retirement disrupts those plans and puts additional stress on an already-fragile financial situation.

Workers exiting the labor force early will have fewer assets saved and a longer time horizon to make their investments last.

In order to meet the income gap, households will often begin to draw down retirement assets earlier than planned.

The other step is to take early reduced Social Security benefits. Taking Social Security benefits before full retirement age will permanently reduce monthly benefits, not only for the worker but also for the surviving spouse. Households that were covered by health insurance will see higher medical costs until qualifying for Medicare.

While the Coronavirus Aid, Relief, and Economic Security Act has helped millions of homeowners stay in their homes, many of those provisions are ending.

The provision that prohibits lenders from foreclosing ends Aug. 31. The mortgage forbearance allows you to pause payments for only a limited time.

When the time has expired, the missed payments will need to be repaid. This could mean a lump-sum payment or higher mortgage payments.

Already-stretched budgets might not be able to sustain the higher costs and many will end up in foreclosure.

The resulting housing crisis could result in lower home values. For many households, their primary asset is their home.

The other reality for many older households is an increasing debt burden.

They have seen incomes diminish and costs increase. Many have turned to credit card debt to bridge the widening gap. The additional interest costs will further burden older households.

There are no easy answers for people who find themselves being forced into involuntary retirement or for society at large.

They face reduced incomes and higher costs. They will live longer in retirement and will need more funds than they have adequately saved. They will begin Social Security distributions early and therefore receive reduced benefits over their lifetime.•

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Hahn is a certified financial planner and owner of WWA Planning and Investments in Columbus. She can be reached at 812-379-1120 or jalene@wwafp.com.

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