I recently read this quote from a retirement expert in a MarketWatch article titled, “Opinion: Half of Americans Over 55 May Retire Poor”:
Our data is showing that, because of the COVID recession, about 50% of workers over the age of 55 will be poor or near-poor adults when they reach 65. . . A person who’s 65 will be near-poor or poor if they’re living on less than $20,000 a year. . . I think we could all agree that means chronic deprivation for the rest of your life.
First, I want to say I have no idea if this statement is true. Yet, sadly, such statements have become increasingly common, so there may be some truth there.
There’s no denying the current pandemic has had severe economic consequences (mostly due to the lockdowns and not the virus itself). Some, if not all, of us, probably know someone who has been adversely affected, including furloughs and layoffs. However, current unemployment numbers don’t show that 50% of the 55-plus population is unemployed.
According to the Bureau of Labor Statistics, after reaching a high of 13.6 percent in April, the unemployment rate for Americans at least 55 years old and older was 6.7 percent in September. (The rate for those aged 25 to 54 was slightly higher at 7.2 percent; it was highest for those aged 25 to 34, 8.7 percent.)
Many of those who lost their jobs will get by on unemployment benefits (for a while), including the additional federal payments. But those are starting to run out, and the future of further payments is uncertain (with no big stimulus package is on the horizon and politics being what they are these days).
Other assistance is available, such as food stamps and local programs, but many would prefer to get back to work instead. But what if you can’t? Or, if you don’t want to?
Even if a small percentage never return to work and rely only on Social Security starting sometime in the future, the average benefit per individual is about $18,024 in 2020. For married couples, it’s $2,531 a month or $30,372/year. They would, therefore, be “poor” based on the “$20,000 per person” standard used in the article, but they would still be above the poverty line. (According to the federal government, the poverty threshold for a two-person household in 2020 is currently $17,240.)
That is not to suggest that a retired couple with an income of twice the poverty level will have an easy time with it. They most certainly won’t and may need some financial assistance.
A precarious situation
Losing a job can be a very traumatic experience, no matter what your age. If you have experienced it or know someone who has, you know what I mean.
It’s no secret that the worst consequence of major recessions, such as the Great Recession of 2008 and now the 2020 recession precipitated by the Coronavirus, is job losses. By the end of March 2020, and going into the summer, the unemployment numbers—especially for those aged 18 to 30—were staggering.
But what you may not have heard a lot about are those who lose their jobs who are age 55 and older and therefore in that tenuous time of 5- to 10-plus before their target retirement age. (This is a time that retirement professionals call the “red zone.”)
Losing a job at 55, especially with no severance payments and without an emergency fund, presents a severe financial challenge. But whether it will automatically cause 50% to live in poverty by age 65 is doubtful. There will be some economic damage, but there are still many years to recover, even if they don’t quickly rejoin the full-time workforce with roughly the same income.
Regardless of how this plays out statistically, it’s a particularly challenging situation for the older unemployed. Since they are not working, they are not saving. And they may also be depleting any emergency funds or drawing down (or borrowing against) their retirement savings.
As the MarketWatch article pointed out, “the CARES Act removed the 10% penalty on withdrawals up to $100,000 from those retirement accounts for people under 59½. It also allows them to pay back the money over a three-year period without having their withdrawals recognized as income for tax purposes.”
Though helpful to those in dire straits, if retirement savings are minimal (according to a recent Transamerica study, the average 50-year-old has about $120,000), they will have more challenges in the future if those savings are tapped.
The financial markets are highly volatile, which complicates things even further, and there have been weeks with more down days than up.
And if all that wasn’t enough, there is another concern: increased costs for other benefits of employment, such as healthcare.
Healthcare becomes challenging, especially maintaining some form of healthcare insurance. As you may know, Medicare is not available before age 65 for older people who have been laid off. Medicaid is only available to those at or below the poverty line.
Most laid-off employees will be eligible for COBRA, enabling the continuation of employee benefits at group rates but without employer subsidies. This makes them very expensive. Other alternatives, such as insurance through the ACA (Obamacare) insurance marketplace, will be more costly than employer coverage unless you qualify for a subsidy.
Begin with your heart
First of all, if this is you (or someone you know), I want to offer you some encouragement from God’s Word. The Bible provides us much help and guidance in times such as this. Here are a few things to remember:
Resist succumbing to emotion.
This can be a difficult, emotional issue. It can make you very concerned or even fearful about your future. In such a situation, it’s essential to look to the hope we have in the promises of our loving Heavenly Father and the peace and assurance He can give.
Fear, perhaps leading to hopelessness and despair, can be a typical response. But remember, anxiety and fear are the enemies of wise retirement stewardship. They cause us to make decisions and take actions due to emotion, not sound-mind thinking and reasoning. They can also cause us to overreact or to look for quick, easy answers.
…for God gave us a spirit not of fear but of power and love and self-control. 2 Tim. 1:7 (ESV)
God has promised to care for you.
For the Christian, one of the essential truths in the Bible—that gives us great hope and assurance—is, in addition to all that he had done for us in Christ to secure our eternal future, God has promised to take care of His children now.
This is not a possibility or a maybe—it’s a promise! It’s as sure as God’s character is. There are many scriptures in the Bible that assure us of God’s willingness and ability to care for us. Perhaps none are as familiar as these words from Jesus Himself:
Therefore I tell you, do not be anxious about your life, what you will eat or what you will drink, nor about your body, what you will put on. Is not life more than food, and the body more than clothing? Look at the birds of the air: they neither sow nor reap nor gather into barns, and yet your heavenly Father feeds them. Are you not of more value than they? And which of you by being anxious can add a single hour to his span of life? Matt. 6:25-27 (ESV)
God expects you to do your part.
You may be wondering if God’s care for us is somehow conditioned on, or despite what we do or don’t do for ourselves. We’ve all heard the oft-quoted Bible verse that’s not actually in the Bible: “God helps those who help themselves.” In reality, the vast majority of God’s promises are non-conditional—they are ours because of His mercy and grace—but that’s not true in every case. Consider these verses:
This Book of the Law shall not depart from your mouth, but you shall meditate on it day and night, so that you may be careful to do according to all that is written in it. For then you will make your way prosperous, and then you will have good success. Have I not commanded you? Be strong and courageous. Do not be frightened, and do not be dismayed, for the Lord your God is with you wherever you go. Jos. 1:8-9 (ESV)
This verse suggests a conditional relationship between Israel’s success and prosperity their obedience to the Law of Moses. There are other promises in the Bible that are conditional, but the majority are not based solely on God’s love and grace. God’s promises are a gift to us and not something we deserve.
In addition to His promises, God also offers us much wisdom in the Bible about how to respond and what to do in certain situations. It doesn’t speak to job-loss in a modern context, but the wisdom that God has provided can point us in the right direction.
Learning and applying the wisdom that God has given us and then trusting Him for the result puts us in the best position to deal with any challenge in life, including job loss.
God is sovereign in how he distributes His blessings of jobs and income and possessions, and some wise people will not prosper greatly in this life. They may only truly experience that in the life to come.
The bottom line: God knows, understands, and cares about your situation.
God knows what’s going on in your life—your job and your bank accounts. He knows all your needs even before you ask. He wants to help you. But he also wants you to do everything you can to find a job.
. . . casting all your anxieties on him, because he cares for you. 1 Pet. 5:7b (ESV)
May the God of hope fill you with all joy and peace in believing, so that by the power of the Holy Spirit you may abound in hope. Rom. 15:13 (ESV)
Should you just retire?
Whether it’s downsizing, rightsizing, layoffs, health issues, or something else, a sudden, unexpected decision about retirement can come up at any time. And it can leave you feeling stunned, perplexed, and uncertain of what to do.
If you are in this situation, perhaps someone has said, “so, why don’t you just retire?” You may feel the pressure to do so due to your inability to find work. Plus, even if it’s sooner than you planned, depending on your age, couldn’t you go ahead and tap your Social Security benefits, retirement savings, or start distributions from a pension or annuity?
Well, the reality is that many unemployed people in their mid-50s to mid-60s are simply are not ready to retire—financially or emotionally.
If you weren’t planning on retiring, but it looks like you may not have a choice, here are some things you can do to build a new plan of action if you’re faced with a sudden retirement decision.
Avoid impulsive decisions.
Don’t instantly file for Social Security, a pension, annuity payments, or start withdrawals from retirement savings unless you have a clear income plan that is optimal for you. Too many people make a rash decision of starting Social Security or a pension early, only to find work a year later.
Buy time with short-term income.
The idea here is to buy some time so that you don’t have to make a quick decision. Take full advantage of your company’s severance plan (if offered). Tap all liquid financial resources other than retirement savings or Social Security to make ends meets until you can find work. Unless you have a firm conviction against it, take advantage of all the government assistance you are entitled to.
Consider “stop-gap” employment.
Try to find something to do, even if it’s part-time until you find more optimal full-time employment. If you’re married, consider having both spouses work, even if it’s only part-time. (One study found that two-thirds or more of jobless claims of those between age 55 and 65 rely on their spouses for income. With only one spouse working, this creates hardships.)
Consider alternative types of work.
You have a lifetime of experience and many skills you can leverage. Perhaps you can use them in ways you hadn’t considered before. First, reach out to former work contacts to see if you can get an idea of what is available and what type of project or “piece” work might be available. You could consider consulting, either as your own business or part of a firm, as a way to put the skills you have to good use.
Re-evaluate all expenses.
When your income is suddenly lower than expected, you will need to cut back on discretionary spending. You can always add them back later. Go through your bank and credit card statements and find ways to eliminate the extras right away. Also, try to negotiate rent payments, mortgage payments, other loan payments, and payments to creditors. This can help buy you some financial breathing room to figure out a longer-term plan.
Tap retirement accounts only as a last resort.
You can start taking income from retirement savings without penalty if you are older than age 59 1/2. If you must do this, try to do so without selling (and, therefore, depleting your income-producing assets (i.e., take interest and dividend income only). Depending on the amount of savings, it may not be much. As noted earlier, the CARES Act eliminates the 10 percent penalty provision and lets you borrow from your accounts tax-free if you pay it back within three years.
Only start Social Security benefits immediately upon becoming eligible if absolutely necessary.
Many unemployed near-retirees who are old enough to file for their Social Security benefits feel pressured to do so before they had planned, sacrificing a larger check if they delayed filing a few more years. If you start benefits at your earliest eligibility (age 62 for most), you are making an essentially irreversible decision to receive a reduced monthly check for the rest of your life. It would be better to find other ways to generate income or reduce expenses because delaying Social Security than to forego the 7 to 8 percent increases for each additional year you postpone.
Use Home equity sparingly, if at all.
Home equity will be their “ace in the hole” for many families to help fund their retirement. It is best to tap it only as a last resort, as that usually means borrowing against it or selling and downsizing, both of which can be traumatic during an already difficult time. One option is to take out an equity-line-of-credit, but you have to make the payments.
Distinguish Between Temporary and Permanent Choices.
A temporary decision to cut back spending on wants or take an odd job is not the same as a permanent decision. Making an interim decision to alter something may be precisely what is needed for you to buy enough time to get your permanent retirement plan in place.
Seek wise advice.
One of the best things you can do when facing a sudden retirement decision is to seek the assistance of a qualified financial planner/advisor, preferably someone who will help you create a plan—not someone who is just going to try to sell you something. Take the time to find a fiduciary financial planner who has your best interests in mind, and then work with them to create an interim plan or a plan for your sudden retirement.
This last suggestion won’t be very popular, but here goes:
Get help and support from your family.
I know that’s the last thing that anyone would want to do, but it is an option. Families should take care of each other. As parents, you scrimped and sacrificed for your kids. Perhaps you spent money you could have saved for emergencies or retirement sending them to college, paying for an expensive wedding, or helping with the down payment on a first house. Let them know you could use some help. That doesn’t mean something as drastic as moving in with them, but it might.
If you decide to retire
A retirement income plan is one that shows you how much income you will have, where it will come from, and when it starts (if not all the same). It includes Social Security, pensions, annuities, anticipated savings, non-retirement investment account withdrawals, and retirement account withdrawals. Once this plan is in place, you can tweak it based on how things are going (that is, decide if you must reduce expenses, find additional work, or if you’ll be just fine as is).
We already discussed this above, but perhaps you can work part-time in retirement. Many folks find they enjoy the social interaction and a sense of purpose and income, but the focus is on the latter. Part-time work can help your retirement income picture, but keep in mind that you may not be able to work indefinitely.
You can also use your plan to compare alternatives. In many sudden retirement cases, people think they must start Social Security early, or instantly begin their pension, but that isn’t always the best option. You might consider annuitizing some of your savings, tapping home equity, or taking more risk with your savings withdrawals percentage.
Your plan allows you to layout various combinations of things and see which one gives you the best long-term outcome. Then, move ahead in faith and adjust as necessary.