Monday, October 20, 2008

Slump's Serious Repercussions for Seniors

On October 1, 2008, the Urban Institute issued a Press Release entitled "How Is the Economic Turmoil Affecting Older Americans?" announcing a "Fact Sheet" of the same name prepared by Richard W. Johnson, Mauricio Soto, & Sheila R. Zedlewski.

In the "
Fact Sheet: How Is the Economic Turmoil Affecting Older Americans?"(PDF, 12 pages), the authors examined the impact of recent economic woes on seniors, as summarized in the Report's Introduction:

The slumping stock market, falling housing prices, and weakening economy have serious repercussions for the 94 million Americans age 50 and older who are approaching retirement or already retired.

Retirement accounts lost about 18 percent of their value over the past 12 months, and between January 2007 and May 2008, housing prices fell from 4 to 20 percent depending on where seniors live.

Older Americans have little time to recoup the values of their homes, 401(k) plans, and individual retirement accounts — all important parts of their retirement nest eggs. More and more older Americans are working to bolster their retirement incomes, but the rising unemployment rate, now 6.1 percent, limits their prospects.

This fact sheet examines the impact of the ongoing economic turmoil on retirement savings, home values, and retirement decisions. * * *

The Fact Sheet noted the serious repercussions of the steep decline in stock market values that occurred during the past year, which accelerated during the past month, because most retirements accounts contain many stocks, now far lower in value:
The stock market lost 27 percent of its value between September 30, 2007 and September 30, 2008, a roughly $7 trillion drop.

The loss has reduced the retirement savings of many Americans, particularly older adults. * * *
  • Forty-nine percent of households ages 50 and older own retirement accounts. Seventy-nine percent of these accounts include stock holdings.
  • The typical retirement account of households ages 50 and older invests 50 percent of its assets in stocks. However, households ages 70 and older hold much less in stocks, reducing their exposure to market fluctuations. * * *
The authors considered aspects of the decline in investments that supported seniors' retirement plans, with statistics:
  • How Much Have Retirement Accounts Fallen?
  • How Are Different Age Groups Affected?
  • How Much Do Households Hold in a Typical Retirement Account?
Then the authors considered how the simultaneous decline in home prices will affect seniors' retirement plans, by addressing these questions:
  • Does home equity represent a large share of older adults’ wealth?
  • How has housing wealth changed for older adults?
  • What is the importance of home equity in retirement?
  • Are reverse annuity mortgages a good way to shore up retirement incomes?
Finally, the authors turned to employment of older workers as a means of shoring up retirement plans:
The plummeting value of retirement assets –– housing, pensions, and other savings –– could force more older adults to delay retirement and remain at work and could encourage some retirees to return to work.

At the same time, contracting credit markets could weaken the labor market,
limiting employment opportunities for older adults. * * *
These are their specific questions about employment:
  • How will the financial crisis affect retirement decisions?
  • How will the credit crunch affect jobs?
  • Are older workers likely to lose their jobs?
  • Will older adults find new jobs?
  • How does unemployment at older ages affect retirement income security?
The Urban Institute's conclusions are reflected in personal stories reported recently by various publications, including:
AARP, based in Philadelphia, PA, also has posted excellent articles about seniors facing an economic downturn.
Probably the best article that I've read on the subject appeared in The New York Times on September 22, 2008, entitled "Retirees Filling the Front Line in Market Fears" by John Leland & Louis Uchitelle, who note that "Older Americans with investments are among the hardest hit by the turmoil in the financial markets and have the least opportunity to recover."

This is pretty depressing news. It must be met with personal tenacity and a will to survive.

“Tenacity is a pretty fair substitute for bravery,

and the best form of tenacity I know
is expressed in a Danish fur trapper's principle,

'The next mile is the only one a person really has to make.'”

-- Eric Sevareid (American Journalist, 1912-1992)