The COVID-19 pandemic is forcing many older workers to retire earlier than they intended due to increased health risks coupled with decreased job prospects, leaving them vulnerable to old-age poverty and exacerbating an already sharp recession.
According to the latest Older Workers Report from the Retirement Equity Lab within the Schwartz Center for Economic Policy Analysis at The New School, over half of unemployed older workers are at risk of involuntary retirement.
The report, authored by Michael Papadopoulos, Bridget Fisher, Teresa Ghilarducci and Siavash Radpour, found 2.9 million workers ages 55-70 have left the labor force since March, and an additional 1.1 million are expected to join them in the next three months, meaning a total of 4 million people in that age range could potentially be pushed into retirement before they are ready.
Additionally, 51% of older workers who went from employed to out of the labor force reported they first tried to find a job but gave up—one of several indicators showing many older workers who exited the labor force are unlikely to return. Between March and June of 2020, 38% of unemployed older Americans gave up looking for work and left the labor force.
In outlining the big picture, the report notes people who retire earlier than planned often claim Social Security benefits earlier, leaving them with lower monthly benefits for the rest of their life.
They are also likely to begin drawing down their retirement assets in career arc years when workers should be maximizing their savings toward 401ks and IRAs. Finally, unplanned retirements mean assets must last more years than originally planned, increasing the risk of outliving one’s assets. All three factors put involuntary retirees at risk of poverty in retirement.
Fixing the problem
At least the New School, a private research university based in New York City, offers a range of solutions Congress could enact which it says would alleviate the problem:
“Congress should increase and extend unemployment benefits for older workers, discourage withdrawals from 401ks and IRAs, lower Medicare eligibility to 50, and create a Federal Older Workers Bureau,” The New School recommends in the report.
Beyond that, the report recommends expanding Social Security and instituting a minimum benefit to soften the blow for workers who are forced to retire before they are ready and prevent many from falling into poverty.
“Congress should expand Social Security benefits by $200 per month and increase the Special Minimum Benefit up to 125% of poverty,” the report states.
Reverse CARES Act provision
The New School also advises Congress discourage rather than encourage retirement account withdrawals by reinstating the 10% penalty for early withdrawals removed by recent passage of the CARES Act.
Citing a May survey showing 3 in 10 workers have withdrawn from their retirement accounts to make ends meet during the pandemic, the report notes removing the penalty encourages individuals to sacrifice their future needs for short-term spending. “Rather, Congress should enact measures to ensure the income needs and health insurance needs of those who lost jobs in the COVID-19 recession,” the report says.
Extend unemployment benefits
As for unemployment benefits, the report recommends extending and increasing unemployment benefits—one of the current major stumbling blocks between Democrats and Republicans in stalled stimulus package negotiations.
“Older workers who are laid off experience longer spells of unemployment, which contributes to why many give up looking for work and retire earlier than planned. Increased unemployment benefits—even more than the $600 a week which expired July 31—can help older workers by allowing them to preserve retirement assets and put off claiming Social Security early, protecting their monthly benefits from the early retirement penalty,” the report says. “Moreover, Congress should suspend the job search requirement for older workers and their caretakers to be eligible for unemployment benefits. Older workers should not be forced to look for work at a time when work puts them at risk of severe illness or death.”
Lowering Medicare age
In advocating for lowering the Medicare age to 50, the report says it would ensure older laid-off workers get the health care they need. The New School also wants to make Medicare first-payer, meaning it would cover medical expenses before private insurance. This, it says, would lower firms’ costs associated with providing health insurance to older workers. “Easing the burden of hiring older workers in this fashion would help prevent involuntary retirements while increasing older workers’ health coverage.”
Create a Federal Older Workers Bureau
An Older Workers Bureau at the U.S. Department of Labor would formulate standards and policies to promote the welfare of older workers, improve their working conditions, and advance their opportunities for profitable employment, the report says.
The Bureau would be tasked with three goals. First, provide resources to identify, research and analyze topics of concern for older workers. Second, create innovative policies to advance quality employment opportunities for this increasingly vulnerable population. Last, the bureau would be responsible for outreach and education. This would include efforts to share and promote policies identified and created by the bureau, but also to raise awareness of the economic and societal benefits of promoting quality work for older workers.
Interested persons can download The New School’s full report here.
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
