When 52% of older workers are pushed out of their jobs, working longer is not a viable choice. The stark truth is that a significant share of older workers -- age 55-64 -- are not anywhere near being on track to afford retirement. The median retirement account balance for older workers is only $15,000. Even the highest income workers -- those earning over $200,000 per year who are in the top ten percent of the income distribution -- do not have enough money to retire and maintain their standard of living. Their median account balance is under a year’s salary at $200,000 and 15% of the highest earners have no retirement plan except Social Security.
For nearly 20 years, the advice to older people has been to make up for inadequate retirement wealth by working longer. Yet, from 2008 to 2014, at least 52% of retirees over 55 left their last job involuntarily as a result of direct job loss (they were laid off or their business closed or changed ownership); they felt they were pushed out so they quit; their health deteriorated; or they had to leave work to take care of a sick family member.
University of Massachusetts Sociologist Katherine Newman (in a forthcoming book Downhill from Here, 2019) tells the story of one worker whose friend told him how to navigate the financial options his company offered him. “Take the lump sum and run… the company is going to hell,” was the given advice. Interviews of workers who left Verizon years before they intended to revealed that, “the company was hovering over its older workers, pressuring them with more rigorous performance evaluations and emphasizing if they didn’t take the retirement deal they could face retractions in benefits instead.” These stories illustrate the pressure and difficulties older workers face as they work longer to make up for a lack of savings.
Often, working longer is unsustainable and cannot serve as an alternative to adequate retirement savings. Those pushed into retirement early face barriers to returning to work. They are likely to be unemployed longer than younger people. And, if older people land a job after searching for work it is likely their new job will pay 25% less than their previous salary.
How did we get here? Retirement used to be a time most middle-class workers could remain middle-class retirees. The 401(k) plan was born in the early 1980s and since then has become the primary retirement vehicle for most American workers despite design flaws like patchy coverage, high fees, and opportunity to take pre-retirement withdrawals. Those exposed to the 401(k) system for most of their working lives are now approaching retirement with far less than they need to maintain their standard of living. The result is that forty percent of middle class older workers are at risk of being downwardly mobile and falling into poverty when they reach retirement age.
Public policy that relies on the hope that people can work longer to make up for eroding pensions is not realistic. Hope is not a plan. To ensure people can retire when they need to without experiencing economic deprivation we need to strengthen Social Security, get some control over Medicare premiums and copays, and create pension plans that every worker and employer must contribute to.And the large share of older workers forced into retirement makes it clear: because of many factors -- dynamics of a labor market, which demands ever-changing skills, health issues, and age discrimination -- working longer is not a solution to the retirement income security crisis. Workers cannot rely on being able to work until they are ready to retire.
My coauthor and I, Tony James, have proposed Guaranteed Retirement Accounts (GRAs), a not-for-profit 401(k) or IRA plan. The proposed GRAs are universal, secure retirement accounts funded by employer and employee contributions throughout a worker’s career paired with a refundable tax credit. They would allow all Americans access to dignified retirements after a lifetime of work.
Working longer is not a solution to the retirement savings crisis because workers cannot rely on being able to work until they are ready to retire.