A recent AARP report focuses on the major challenges that baby boomers, those aged 50 and older, face from the Great Recession. As the title portends “Boomers and the Great Recession: Struggling to Recover,” the report documents how boomers were affected and coped with the challenges of the market meltdown in 2007 and the subsequent Great Recession, which they say ended in October of 2010. The report pointedly notes that “the young have time on their side and the old are to some degree protected by Social Security and Medicare.” So what cushions the boomers? The short answer predictably is uninterrupted full-time employment; having current, desirable skills and/or more education; being part of a household or a couple; having savings; and being female. As many have documented, men have had a tougher time at least in terms of unemployment and reemployment during this economic cycle than women. However, even when blessed with these “cushions,” boomers were impacted by declining home values, investment losses as well as declines in savings or exhausted savings. In fact, the report found that, “boomers are uncertain and probably frightened about what the future holds for them as they edge toward retirement.” Here’s why:
- 17 percent of the boomers when first surveyed in 2010 were jobless and looking for work.
- 12 percent although reemployed reported that they had been unemployed.
- 40 percent reported experiencing some decline in income.
- 51 percent said they were less secure financially than they had been before the crisis and had experienced difficulty making ends meet.
- 67 percent of boomers had experienced some reduction in retirement savings balances.
As the chart illustrates, the major reasons boomers reported that they had difficulty making ends meet during the recession were an increase in every day expenses, a decline in household income, and extraordinary and unexpected expenses.
Interestingly, boomers did not give loss or reduction of savings as a reason they had difficulty making ends meet. Some 67 percent of boomers reported some reduction in retirement savings balances during the recession. The 67 percent who reported a reduction in savings balances were also nearly the same regardless of employment status or gender. However, boomers seemed to have weathered this setback surprisingly well since 60 percent also reported that they were somewhat positive about the future of their retirement savings. Further, 10 percent reported that their retirement savings balances had been restored to pre-crisis levels and almost half reported that balances were moving in a positive direction.
The report found that boomers did make efforts to live within their means. In fact, the majority cut back on expenses, withdrew money from a savings account or delayed medical care and/or filling prescriptions. Some 37 percent stopped or cut back on savings for retirement, while 31 percent stopped or reduced non-retirement savings. The chart details the different strategies boomers deployed to live within their means.
The report also focused on how the crisis affected boomers’ attitudes towards debt and savings.
The report found 45 percent of boomers were either somewhat or very uncomfortable with their level of debt. For the 15 percent who were jobless that participated in the surveys, the percentage rose to 66 percent that were uncomfortable with their level of debt. The report found that whether or not boomers were saving for retirement was highly dependent on their employment status. Half stated they were saving for retirement. The percentage rises to 67 percent for those who were continuously employed but drops to 41 percent for those who have experienced unemployment and declines even further to 17 percent for those who are currently unemployed. While these numbers might seem encouraging given the recession, when boomers were asked about the size of their retirement nest eggs, 51 percent reported balances under $100,000, which is woefully insufficient for most given their proximity to retirement.
For the other half of boomers who reported they were not saving for retirement, 75 percent said they had saved for retirement in the past, but they also reported having saved less than $100,000 in total. While none of the savings statistics were very encouraging, the report found that boomers were aware of the shortcomings of their saving habits and had taken steps to move themselves towards a more financially secure retirement. The chart details the steps boomers had reported taking.
When AARP did the second survey to determine how boomers felt having ridden out the recession (the report defines the recession as beginning in December 2007 and ending in October of 2010), they found mostly a somber group. Some 24 percent reported their financial position had declined in the year between the two surveys due to declines in their savings and going deeper in debt. Another 22 percent said their sour outlook was due to their inability to find a job.
The second survey also found nine percent who described their financial status as having improved. The top reasons for this improvement were reducing or getting out of debt (36 percent), increasing income through a promotion, raise or better-paying job (33 percent) and rebuilding retirement savings (29 percent). The two charts included detail the reasons given for boomers saying their financial situation had improved or declined.
Boomers reported nagging concerns over the economy and their financial situation. For example 70 percent said they were somewhat or very worried about another recession, high inflation, rising taxes and further decline of the stock market. Interestingly, the survey did not ask, nor did boomers report concerns about low interest rates, which has reduced the effect of compounding, which Albert Einstein once hailed as the Eighth Wonder of the World, to a non-event.
The report also offers a series of policy options to address many of the employment issues and retirement concerns that plagued boomers in the recession. Two of the options address retirement, while the others are more employment or anti-age discrimination focused. The retirement policy options are:
Encouraging workers to save, to save more, and to keep retirement savings invested for retirement. The report found that when unemployment occurs, retirement savings were understandably used as income. As part of this recommendation, the report suggests improving the adequacy of unemployment benefits as well as providing job training and job search assistance to lessen the need to tap retirement savings by reducing periods of extended unemployment.
Recognizing Social Security as the bedrock of retirement income security and that the majority of workers will remain dependent upon this program for income support. As the crisis proved, defined contribution plans and personal savings are highly vulnerable to the downside of the market especially for those close to or in retirement. Additionally, fewer Americans have the benefit of traditional defined benefit plans.
Boomers’ experiences with job loss, lower wages, declining home values and investment losses has considerably dampened their retirement plans and expectations. So what have we learned based on the boomers’ experience regarding retirement? To quote the report, “The result will likely mean longer work lives for those who can work and perhaps a reduction in anticipated living standards in retirement for those who cannot. At the very least, the study reveals considerable insecurity about retirement among boomers surveyed.”