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A brief history of Social Security benefit claiming goes like this: In the beginning, benefits were available only at age 65. In 1956, reduced benefits were made available to women as early as age 62. In 1961, this treatment extended to men. Over time the age people claimed benefits steadily decreased and the average age for retirement stuck at 62 years old. In 1983, when facing an imminent shortage of funds, the age for full benefits increased from 65 to 67. While this reform did not change the earliest age you could claim Social Security, it reduced benefits further for early claimers. Currently, claiming benefits at age 62 instead of age 67 results in 25 percent less in every monthly check. So, $938 per month rather than $1,250 per month. Get it? Good!

In the past decade, the age of claiming Social Security benefits steadily increased as people began to comprehend how much money they lose by retiring early. That is, until the recent economic recession. A brief from the Center for Retirement Research at Boston College shows a large increase in early benefit claims from 2007 to 2009. More than 5 percent of the eligible population were enticed to claim Social Security at age 62, which was not part of their plan before the crisis. These individuals will now receive a reduced benefit for the rest of their lives.

Simulations by the authors suggest that compared to experiencing no recession, people claimed benefits about 10 months earlier than they planned, which reduced their monthly benefit by 8 percent. This many not seem like much now but every little bit helps when living on a fixed income. Ask an 82-year-old and she may tell you her Social Security check was plenty of income 20 years ago. Now she finds herself struggling to stay out of poverty.


Last week I was asked to present high school students with information on women in the workforce and saving for retirement. One of my major goals was to instill the value of starting early. But I had the sense, maybe because I’m not too far from high school age myself, that my slides about compound interest and Roth IRAs would be particularly boring.

Rather than watch their eyes glaze over I added a new slide: A personal story about my mother, her life course, marital history and saving behavior. I wasn’t saying anything novel but by explaining compound interest this way I kept everyone’s attention. So, I encourage you to share this with the young people in your life and reflect on what it really means to save early and save often.

(For simplicity, the interest rate at all time points is 5%. In actuality, she gained more during her earlier life and has lost a lot during the recent recession).

This figure tells us two stories. Let’s begin with the story in blue, which is what really happened. At age 21, my mom got married and started working a new job. She was so excited to finally have her own money and be able to buy all the clothes she wanted and decorate their new house. My dad, however, didn’t think this was a good plan and told her, “Save your money! We both should be saving now for our future.” Reluctantly she saved, putting $2,000 away each year for her retirement. By the time her first child was born (me!) she had saved up $20,000.

In her 30’s she had another baby and raised my sister and me. She was not working or saving at this time but her $20,000 continued to grow. By 42 her marriage was on the rocks and she became divorced. Now, all that planning for her future had to be done alone. She spent a couple years searching for a new job and struggling with the change. Even so, the savings from her 20’s continued to grow. By 45 she found a new job and started her career over. She was getting nervous about her retirement savings and started putting away $5,000 a year. The savings from her new job were added the nice nest egg she had accumulated while she wasn’t working. The final blue bar shows an optimistic future where she continues to save each year, the economy improves and hopefully she reaches over $300,000 by retirement.

What is the reality of saving? Well, you can’t always save when you want to or need to and it’s hard to predict the future. For example, my mom couldn’t predict that we’d be in an economic recession right at the time most people her age start saving for retirement. The green bars show us what this path would look like for her. Nothing in her life has changed except that she didn’t save in her 20’s. Instead she chose to ignore my dad’s suggestion and spend her money on clothes, new furniture and all the other things she wanted. The message is clear: Saving early, even if it’s just a little, makes a huge difference for your future.

I can tell you honestly that most of my mom’s friends are extremely worried about their futures. They are in their 50’s, starting to save now and having a difficult time. She knows, though she hates to admit it, my dad was right.

Today, after listening to the President speak, I started thinking about the economy’s impact on older Americans. I found an interesting report from The National Academies Press titled:  Assessing the Impact of Severe Economic Recession on the Elderly. You can read the document here, which summarizes a workshop called by The National Institute on Aging. The report’s main goal is to reflect on what we already know and what we need to learn about the current recession’s effect on older adults. Unfortunately, what we already know is quite bleak.

How People are Coping: All age groups are being affected by the recession but older workers are often unable to completely recover from these kinds of financial shocks. The most common ways people are coping with income loss are to reduce spending, reduce saving, utilize unemployment benefits, withdraw money from savings, get financial assistance from friends or family, and borrow money (i.e. credit cards, loans). Some older workers are also choosing to delay retirement as an additional coping method.

Our Health and Well-Being: Our health is being negatively effected by the economic recession. GDP is strongly, inversely related to mortality over the long term, and older workers who lose their jobs are at greater risk for certain health conditions than those who remain employed. Still the Gallup Well-Being Index found that people’s well-being significantly declined in the fall of 2008 but went back up substantially by May 2009. I am nervous, now that we lost our AAA rating and the current stock market is in turmoil, if people’s well-being will again decline.

Unemployment or Retirement: Unfortunately, older adults who lose their job are less likely to get hired back into the labor force compared to younger workers. Those who do find work are often making significantly less than they made at their previous job. Researchers find that age discrimination in the workplace continues to exist, particularly for older women. It is therefore not surprising that many older adults who lost their jobs are deciding to retire. This early retirement, however, could hurt future finances. Increases in Social Security’s full retirement age, less time to invest in your retirement accounts, fewer vested years with your employer, or simply having less in wages over your lifetime can all have negative effects on your finances in old age.

What Can You Do: The report summarizes a depressing situation and then has limited suggestions (and most of them seem pretty intuitive to me). I don’t know if it will tell you anything new but here they are along with my own comments:

  • Buy low, sell high – Experts suggest raising your contribution rates (if you can) to your stocks, bonds and pension accounts while the market is doing poorly. If the markets bounce back before you retire you may gain substantially (the younger you are the more you are likely to gain). If you are retired and have spare cash, consider moving it into low-risk funds so that you too may gain from the markets being low (Please consult a financial adviser who will learn about your personal situation. Do not take this as professional advice).
  • Reduce your spending – A no-brainer but often hard to do. Consider what you really need now and what can wait. Did you know that “I don’t need it” is the most common reason eligible individuals refuse welfare? Figure out what you really need, what you can live without, and what is most important to you.
  • Stay in your home – Selling now is not a great idea, so consider modifications if your home is currently not a safe place to grow old.
  • Keep your job – If possible, consider waiting to retire. If you have been laid off, consider looking for new employment and working a few more years before you retire. Collecting your Social Security benefits early will mean a lower monthly paycheck for the rest of your life.
  • Utilize family – Your family may be able to provide some insurance against financial shocks. It’s important to have someone you can call on for help, even if you don’t use them.
The report highlights a ton of questions we need to research before we can understand what is going on. Unfortunately all that means is the recession’s impact on older workers will be understood after it’s all over, providing them little support in the meantime.

Employment over one’s life time is rarely with a single company. Individuals often change jobs or employers over their working years. People leave to have children, to go back to school, or to try their hand at running a business.  All these changes in employment could confuse retirees trying to determine what pensions they are entitled to. And let’s be honest, who couldn’t use an extra $100 a month.

For New England residents there is a free resource that I’d love to share with you. The Pension Action Center was launched in 1999 and is based out of the University of Massachusetts Boston. Its primary program, the New England Pension Assistance Project, brings together pension experts, pension lawyers and a group of dedicated, knowledgeable volunteers to help you understand or obtain your pension benefits.

As their website states, the goals of the Center are to:

• offer individual counseling and assistance
• help you negotiate layers of bureaucracy
• help locate pension funds
• explain the benefits and rights under your pension plan
• supply referrals to attorneys if needed
• supply a listing of financial advisers if needed

The Pension Action Center complied this informative booklet in 2009 to help retirees answer a few burning pension questions. Am I entitled to a pension from my former employer or my spouse’s former employer? Where do I start looking? What documents will I need to understand my situation? What resources are available in my state? I think I have a lost pension, now what?

Employers are not required to provide a pension, so everyone’s results will be different. But now more than ever it is important to make sure you are getting all the benefits you are entitled to from your years of hard work. Check out the booklet to read more or contact the Center if you’d like to talk to someone directly. No one should be missing out on their much needed and well deserved retirement income.

The New England Pension Assistance Project
Phone: (617) 287-7307 or toll free (888) 425-6067
Fax: (617) 287-7080

Recently I’ve been working on this crazy data analysis for my professor. I say crazy because it involves 9 waves of data (different interview time points), a sample of over 22,000 Americans nearing retirement, and over 400 calculated Dow Jones scores representing changes in the stock market from 1992-2008 (That took me a better part of a week!) Our data comes largely from the Health and Retirement Study (HRS), a nationally representative, longitudinal data set  that looks at people over 50 and follows them through the end of their working lives and into retirement.

This all started with an idea about the lasting effects of the 2008 stock market crash. All else being equal, whether you were interviewed by the HRS in March or December should have no bearing on your retirement plans. Unless, of course, historical time and place played a role in your decisions. By December you may have been listening to the news, watching your stocks drop, and talking to your spouse about an unanticipated future. Did the changes in 2008 influence people’s plans for retirement? Preliminary results indicate, Yes. Many people who were planning on working till 62 or 65 are now planning to work longer or are no longer sure when they can expect to retire.

So we’ve taken it a step further (enter my hundreds of stock calculations) to examine stock market fluctuations from 1992 to 2008 and see whether or not economic conditions at the time people are interviewed have any effect on individuals’ plans for retirement. I mean sure, people may be thinking and worrying about it but have they really changed their plans? The answers are yet to come!

Social Security was projected to be in the red 6 years from now, yet it’s happening this year. Due to the current economic downturn and waves of individuals retiring earlier than expected because of unemployment, both the CBO and the Social Security Administration were taken by surprise.

But lets get one thing straight, you won’t notice. This above all else worries me. Because of the trust fund, the system will be able to pay all its checks on time. And since people will be receiving their checks, thoughts of increasing taxes, reducing benefits, or modifying the system in any way will continue to be met with opposition.

You won’t notice, but that doesn’t mean it doesn’t matter. For the first time Social Security will start to add to the deficit rather than subtracting from it. As the SSA states in their 2009 report, “Projected long run program costs are not sustainable under current program parameters” and after 2016 taxes will only be able to support 76% of scheduled benefits. In 2037 the combined OASDI Trust Fund is projected to be exhausted.  This is a big deal.

Talking with people, it seems some are confused about the trust fund, assuming it is similar to their 401(k) or savings account. It isn’t a pile of money in a bank vault. It’s actually a stack of IOUs from Uncle Sam. But don’t be too worried, we know how to fix it! The reform options are relatively well understood and have been for decades. The choices, however, are difficult and politically charged. Some combination of tax increases and benefit cuts will have to be put in place and the longer we wait the more painful both will be.

Dare I bring up Medicare? As the SSA says, “Its cost growth can be contained without sacrificing quality of care only if health care cost growth more generally is contained.” The problems for Medicare are coming sooner and will be more severe than those approaching Social Security.  Obama has said that fixing Social Security is on his agenda for next year. While there is much debate over the health care bill, I believe that if he can actually reform health care in America, Social Security will be a walk in the park and we may have a bright future ahead.

The United States economy is in rough shape, has accumulated a lot of debt, and is projected to continue to accumulate debt for some years to come. However, this debt is minuscule compared to the debt that has the potential to develop from our lack of alterations to the entitlement programs: Social Security, Medicare, and Medicaid in particular. A report by the Government Accountability Office (2008) states that if policy actions are not taken to reduce the deficit, not only will the government face unsustainable growth in debt but this would unavoidably result in a declining GDP and living standards in the future.

The most recent report from the Social Security and Medicare trustees (2009) states that our waiting to take action, in combination with the current recession has reduced to the date of reckoning to 2037. At this time the Social Security system will have exhausted the trust fund and will only be able to pay out about three-fourth of expected benefits. To wait and reform the system at this point would require a drastic change. Moreover, the Trustees Report shows that Medicare is in the worse shape as we are currently using the trust fund to pay benefits and with the HI trust fund being depleted by 2017. The costs of health care are projected to increase much more drastically than the earnings per worker. Acting soon to phase in changes will allow reforms to be less severe and also will allow more time for those most impacted by changes to adjust.

While Social Security is an important element of the long-term fiscal outlook, the real driver is health care spending. The federal health programs are a much larger, rapidly growing, and immediate problem. The government’s obligations to the newly created Medicare Part D will alone exceed the unfunded obligations for Social Security (GAO, 2008). The rise in health care costs is not only a federal problem, but also a challenge for state and local governments. Medicaid along with health insurance for state and local government employees and retirees is the primary issue surrounding their long-term fiscal problems. In addition, problems surrounding health care for children continue as researchers call to attention investing in our children’s health as part of the fiscal solution. It could be stated that the future of our country, the country that will exist for our children and grandchildren will be worse if we do not take action now and make touch choices. President Obama has issued a call to the American people to partake in a Grand Bargain. Tough choices need to be made to reform our entitlement programs and shape up our economy. With a Grand Bargain, everyone needs to lose a little, rather than a certain demographic or cohort taking on the entire burden.

And it seems like the time for a Grand Bargain in upon us. Perhaps there is nothing quite as convincing, bring together party lines and prompting politicians to take action, like a financial crisis. Many state that this may be the biggest advantage for President Obama because we are at a point where everyone is forced to focus on the nation’s long-term fiscal problems (Scherer, 2009). This does not mean that the Obama Administration will have an easier task than those before them but it seems the difficulty has not discouraged them. Provisions of the stimulus bill show that his Administration has already started the move to a more cost-effective health-care system and this may shed some light on what may be in store for a larger revamping of the system. As he continues this difficult reform process echos of this “new era of responsibility” seem to pop up in his words and actions. Are we finally in a new era of American society and government?

The Froma Harrop article The old folks are doing fine, has a lot in it to make someone confused about elders’ current situations in retirement. Before I go into the specific problems I had with the article’s content, I wanted to go over some basic facts about the significance of Social Security as income to older Americans, since the author seems to feel that Social Security does not matter and is not important enough to fix. I found a Social Security brief from the National Academy of Social Insurance titled Social Security and Retirement Income Adequacy which helped articulate these facts. About 9 in 10 older Americans receive Social Security and of the total dollars received in retirement, on average 4 out of 10 dollars are from Social Security. The paper broke up elders into 5 income groups. The two lowest income groups (elders with incomes below $16,350) received more then 80% of their total income from Social Security. The middle group ($16,360-$25,590) received nearly 60% of their total income, and the next highest group (up to $44,130) received nearly 50%. This proves that Social Security is by far the largest single source of retirement income for elders regardless of income levels. Older American need Social Security and in the Harrop article and a lot of the political and philosophical debates on reform, they seem to be missing this point. The consequences of any choice or solution, whether it be to reform the system or wait until it runs dry, will impact millions of retirees.

To the first point made in the article about how “40 years of solvency sounds pretty darn good these days,” I ask, compared to what, Medicare? Yes, perhaps Social Security is in a better place than Medicare (which is a discussion for another time) but this does not mean we should just forget about fixing it. As mentioned numerous times by professionals and scholars, we need to start thinking about and initiating solutions for maintaining Social Security sooner rather than later. The changes will not have to be as severe, nor the cuts as deep, if we handle it now when there is more time to deal with adjustments. Also, if we don’t “fix” Social Security and it is 2049 then what? All those individuals who paid into the system suddenly get a huge benefit cut and only receive what is coming in from the current workforce (Expected to be about 70% of what they are suppose to recieve). Or, the converse, we raise taxes significantly to cover the benefits promised. Both solutions are utterly ridiculous because acting NOW can prevent these options from being reality and acting NOW cushions any negative changes resulting from reform.

I found that the tone of the article patronized older adults. Sentences like “burdened with debt because they foolishly treated their homes like ATM machines,” and “while the gray heads chowed down on the fish and chips,” were really unnerving. This author seems to have sampled a few high income snow birds (individuals who travel to a warmer location during winter months) currently living in Florida comfortably, rather than talking with the average older American. There is a big difference between the elders who are married, recent retirees, and under 75 versus those widowed 85 year olds living in cities. One can hope her views on Social Security would change if the author talked with these elders during this financial crisis. Or simply talk to the elders who cannot afford a winter home, cannot afford to go out for fish and chips, and do not own homes that they can “treat like ATMs.” They are completely forgotten in this paper.

I want to conclude with the fact that medical care is on the rise and Medicare has cut a lot of its benefits. Unlike those working-age individuals who on average do not have significant health issues, seniors get more health problems as they age…not very surprising. These health issue cost money, often lots of money, and often without long term care insurance individuals are spending everything they have and getting financial help from family to handle visiting nurse care, assisted living situations, or nursing homes. So, the article seems to belittle the Social Security system and implies we do not have to worry about it, “the old folks are doing fine.” But instead of sampling a few Floridians, if someone actually took a good look at America’s elder population you would see they are not all fine and that we cannot simply let Social Security go.

I was recently reading a text that sparked my interested of how the cohorts of baby boomers will fare in their coming retirement years. This obviously depends on many factors, as the book pointed out, such as “the future state of the economy and capital markets, the timing and nature of labor force withdrawal, and reform initiatives.” Toward the end of chapter three, we see that the discussion of baby boomer retirement does not paint a bleak picture. The boomers seem to be doing as well or better than their parents. While there will be some form of benefit cuts or eligibility delays in the social insurance programs, researchers find that the boomers will enjoy “a higher standard of living then their parents did in retirement years, though it might fall short of their own pre-retirement standards.”

This text, however, was written before the current financial crisis began to take effect. I am interested in how the economic crisis will affect baby boomer retirement. An article in U.S. News and World Report by Emily Brandon (2008) addressed some of my questions. With any large crisis and heavy market loss time heals the wounds. The boomers, however, are the group with the least time to recover. She recognizes three ways the current crisis is negatively affecting the retirement of the boomers: stock market declines on their retirement accounts, falling home prices that are affecting their home equity, and decreasing job prospects that are reducing their chances of post-retirement labor force participation.

These three do seem valid concerns to me, but I am mostly interested in  addressing the last problem of decreasing jobs available to older workers. The article encourages older workers to go back to school and increase their skill set so they have a better chance of a job after 65. While this would indeed be helpful for some, it is unrealistic for many older adults. First and foremost, finances are a huge factor in determining if someone can go back to school. Therefore, the low-income individuals who would benefit most from a “new” job in their later-life are unable to get the necessary skills. Furthermore, various health conditions are more prevalent among these age groups, making it unlikely that they are physically able to get an education and return to the workforce.

The article also discusses how many older adults “experiment with retirement” and how, if they do not enjoy their leisure or cannot afford it, the often go back to work. This, however, is becoming more challenging and the opportunities scarcer. They comment on how potential retirees need to think twice before leaving their full-time jobs because it may be difficult if their change their minds.

I have a few thought on this discussion. First, I believe the article is trying to encourage older workers to remain at their jobs and in the labor force. This seems a good idea for a few reasons. Of course, the older worker themselves will benefit from extending their participation as the article points out that one additional year on average increases a worker’s annual retirement income by 9 percent. Therefore, the longer they work, the less they will need to depend on the government and social insurance programs in general. In addition, I was thinking the increased labor force participation, especially from so large a group as the baby boomers, may help slightly to sustain Social Security and Medicare. Indeed, if more people are working, putting off retirement, and putting into the system then we initially anticipated, this may soften the blow when the baby boomers enter their retirement years.

My second though was around the articles pessimistic outlook on part-time retirement jobs during these times. While it is possible that the availability of these jobs may by drying up, I can also imagine the opposite occurring. As organizations and companies attempt to reduce costs during this time, an experienced, knowledgeable, and part-time (which often means employers not paying costly benefits and health insurance) older work may be just what they would need. Granted this may depend on the skills of the older worker, or the companies and jobs that are thriving, but if the organization can cut back costs by hiring two part-time older workers rather than one full-time relatively young employee, perhaps the way companies view older workers may change. The opportunities may not be as flexible and the jobs may not be ideal, but it is possible that depending on how companies view and utilize older workers and how older workers market themselves, they could have a leg up during this financial crisis. Just an idea.

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