52% of Older Workers Forced into Involuntary Retirement

August 2018 Unemployment Report for Workers Over 55

August2018 Jobs ReportThe Bureau of Labor Statistics (BLS) today reported a 2.8% unemployment rate for workers age 55 and older in September, a decrease of 0.3 percentage points from August.

Despite the low headline unemployment rate, many older workers leave the workforce involuntarily. click

Older workers often need to continue working to make up for inadequate retirement savings due to lost pensions and inconsistent employer contributions. Yet, from 2008 to 2014, at least 52% of retirees over 55 left their last job involuntarily, the result of job loss or a deterioration in health.

Those pushed into retirement early face barriers to returning to work. They are likely to be unemployed longer than younger people, and when they find a job they will earn on average 25% less than their previous salary.

Working longer is not a solution to the retirement savings crisis. Workers cannot rely on being able to work until they are ready to retire. Those who have inadequate retirement accounts and leave the workforce involuntarily are at risk of being downwardly mobile and falling into poverty.

To ensure people can retire when they need to without experiencing deprivation, we need to strengthen Social Security and create Guaranteed Retirements Accounts (GRAs). GRAs are universal, secure retirement accounts funded by employer and employee contributions throughout a worker’s career paired with a refundable tax credit. Together, these proposals would allow all Americans access to dignified retirements after a lifetime of work.


For Older Workers, the Fastest Growing Occupations Leave 14% Claiming Food Stamps

August 2018 Unemployment Report for Workers Over 55

August2018 Jobs ReportThe Bureau of Labor Statistics (BLS) today reported a 3.1% unemployment rate for workers age 55 and older in August, which represents no change from July. Although the economy is still expanding, the fastest-growing job sectors for older workers pay wages so low they claim food stamps.click

Most of the job growth for older workers is in unstable or low-paid jobs, including jobs in the home health and personal care aid sectors. From 2016 to 2026, the economy is expected to add 11 million jobs, an increase of 7.4%. In contrast, the home health and personal care aid sectors will add almost 1.2 million jobs, an increase of 43%. In 2008, workers 55 and older made up approximately 25% of home health and personal care aides. Today, they represent a third.*

At just $23,200, the median wage for health and personal care aides is below the national average of $31,100. Their wages are low enough that 14% of older workers employed as health and personal care aides claim food stamps, compared with 4% of all older workers.

Aiming to curtail public subsidies to employers who pay low wages, U.S. Senator Bernie Sanders and U.S. Representative Ro Khanna introduced legislation to recapture from companies every dollar their workers receive in public assistance.

In the meantime, the growth of low-wage work for older workers leaves many near-retirees unable to afford food, let alone save for retirement. Expanding Social Security and creating Guaranteed Retirement Accounts (GRAs) will ensure older workers are not stuck in low-wage jobs because they can’t afford to retire. GRAs allow workers to save in safe, efficient investment vehicles over their lifetime.

*Authors' calculations using Bureau of Labor Statistics (BLS) and Current Population Survey (CPS).


How Being The Bank Of Mom And Dad Can Ruin Your Retirement Finances

This is a repost from Forbes.

A single mother holds her son while she waits to receive her diploma during her graduation ceremony from college. (Getty Images)

We love our kids, but they can ruin retirement. As we face the consequences of a systemic failure of our retirement savings system, near-retirees have an average savings of only $15,000. When you couple parents’ inadequate savings with their children’s increasing costs for tuition and housing, you have a dangerous cocktail. [tweet_quote display="Raiding your retirement funds for adult children can leave you dependent on them in old age.

Housing is one area where older people are likely to provide their children with help financially. If you have millions saved, it may not matter. But if you are like most people with less than $2-3 million saved for retirement, taking money out of these funds to help an adult child may be bad for you both down the line. Adult children’s financial dependency on elderly parents can even come with the fault lines of regret and tension.

The Bank of Mom and Dad study by the for-profit online rental company Apartment List found in a  nonscientific sample that 8% of non-student millennials (the 70 million+ American adults born between 1982 – 2000) have family members pay for their monthly rent. In addition, 17% expect financial help from family towards a down payment. Those numbers aren't large, and the poll isn't scientific, but I worry from other research that retirement accounts are tapped for family needs to the peril of the retiree. But, I stress it is the system at fault here, not the saver. Prices of homes where the jobs for young people are out of sight. Facing high housing costs is not the fault of the victim.

High housing costs is not the fault of the victim who can't afford to buy a house like some argue. For example, a millionaire Australian started a meme in May 2017 excoriating millennial adults for their profligacy. Avocado toast was the stand-in product, implying an entire generation sacrifices home investment for short-term luxuries. The meme was quickly disabused a few days later. The BBC calculated the avocado toast index, counting the avocado toasts equal to a down payment for a starter house located outside various city centers. In Johannesburg, it was 3,700 avocado toasts. 11,000 in San Franciso. You get the picture.

Most observers do not blame the low rate of home purchases on millennial spending. Rather, they point the finger at a combo of the current state of home ownership with the state of the labor market for millennials. For example, since 2000, home and rent prices increased by an average of 67%, while millennial’s income increased only 31%.

Nicole, an employee of Apartment List, told me she works hard and is a cautious spender. But recently, she asked her parents for the first time for the deposit and down payment she needed for a small room in a big house in San Francisco. Economists advise young people to move to find a better job but moving is tough. Nicole said her move from Boston required upfront expenses she couldn’t afford: first month’s rent ($1,200), the deposit ($1,250 each), the broker fee ($1,250), on top of the $3,000 for the move itself. And a door for the room, since it wasn’t really a room. Her parents gave her $5,000, which came out of their savings for a trip to Hawaii for their 25th wedding anniversary. Nicole’s parents were lucky. They just delayed their trip. But some parents are sacrificing their finances in old age by giving money to their adult kids.

Nerd Wallet, a for-profit personal finance website, found parent’s retirement savings could be $227,000 higher if they chose to save the money that would otherwise go to their child’s living expenses and tuition. Given the median retirement balance for older (age 55-64), upper-middle-class Americans (in the 60 – 90% of the income distribution) only have $100,000 in their retirement accounts, $227,000 makes up a big chunk. Nerd Wallet also found 28% of parents of children 18+ are paying or have paid for their adult children’s tuition or student loans. “The average parent takes out $21,000 in loans for their child’s college education.” The hit to their retirement savings is almost $80,000. Many parents of children 18 and older are paying or have paid for their adult children’s basic living costs, including groceries (56%), health insurance (40%), and rent or housing outside the family home (21%). About 39% cover or have covered their adult child’s cell phone bill and 34% of their car insurance.

The rise of individual retirement accounts makes it easy to spend retirement money on adult kids. You can’t drain your defined benefit, Social Security, or Medicare accruals for your adult child’s cell phone bill. But you can take out money – after paying a penalty – from a 401(k) or IRA. And there are hardship withdrawals as large as a remodeled kitchen after the popcorn burns in the microwave. Sometimes hardships are for home repair, which allows people to use retirement accounts like any another checking account.

Kids and parents should know they will both pay high costs over time if retirement accounts are drained now to pay for expenses like college tuition. Parents who give to adult children often expect a payback in old age. Sometimes the expectation is said in jest, as in, “if I send my kid to an expensive college then she will be a doctor; I can live in the back bedroom.” The imagined deal covers up the anxiety of an uncertain future.

Not many people become doctors. In fact, only 68% percent of college freshman finish with a college degree. A program that lends money to parents for college tuition, called PLUS loans, can trigger the garnishment of parent’s Social Security checks, tax refunds, and wages if they experience a financial shock. Even some college graduates regret taking out so many loans for an expensive college.

The increasing costs of housing and college, changes in pension plan design from accrued annuities to lump sums, and easy loans play a big part in draining on older parent’s finances. But parents also financially provide for their adult children as an act of love. Please do help your children with college expenses and supplement a rent check or coinsurance payment. But rob your vacation and your red quinoa or steak dinner budget instead of taking from your future livelihood. One of the best things you can do for your kids is take care of yourself.

Bipartisan Carbon Tax Is Good News In A Month Of Political Ugliness

This is a repost from Forbes.

Some economic laws are not political: markets won’t work if prices are distorted. A group of farsighted Republicans is making the case that carbon prices are artificially low, and a big carbon tax would set them right. No, it is not April Fools Day (it’s July, after all).

In 2017, the bipartisan Climate Leadership Council endorsed a carbon tax that would collect over $200 billion annually, with increasing rates and revenue over time. The group includes older Republican leaders who served Ronald Reagan in high-level positions: James Baker, as Secretary of the Treasury; George Shultz, as Secretary of State; and Martin Feldstein, as Chairman of the Council of Economic Advisers; as well as Janet Yellen and other Democrats. And last week active Republicans, led by Florida Congressman Carlos Curbelo, Republican co-chair of the bipartisan House Climate Solutions Caucus, outlined a significant carbon tax that hasn’t been costed out yet. The tax would likely generate billions in annual federal revenue.

A carbon tax adds a fee to carbon-based fuels such as coal, oil, and gas. Every economist predicts a carbon tax would reduce the use of fossil fuels by raising its price. The market price of carbon is lower than the full price of carbon because other people and future generations who do not enjoy the immediate benefit of using carbon fuel nonetheless pay the cost of released carbon dioxide (CO2) into the atmosphere. Paying the full price of carbon motivates consumers to switch to non-carbon fuels and, most importantly, to reduce energy use.

The chemistry is straightforward. The amount of CO2 released when fossil fuels are burned is proportional to the fuel’s carbon content, which means the carbon tax can be levied on the fuel when extracted or imported.

Bipartisan movement on carbon tax proposals has moved away from the divisive goals of raising revenue toward its core efficiency: to correct market failures. The bipartisan Climate Leadership Council’s proposal aims to be revenue neutral by rebating the tax revenue to households.

Curbelo's proposal may be revenue-positive when it is eventually scored by Congress’s Joint Tax Committee, but he may want the revenue used to replace the federal gasoline tax. The form of the carbon tax is irrelevant; raising the price will correct the market failure of underpriced carbon.

While long-term efficiency matters, so do short-term politics. Curbelo is under electoral pressure in his south Florida district in part because rising sea levels and the Trump Administration’s anti-climate change actions have caused his 2018 poll numbers to fall. Democrats are targeting Curbelo’s district as one of their “red to blue” opportunities.

But House Republicans are divided. The House Republican Party leadership opposed Curbelo on July 19 by voting on a non-binding resolution rejecting carbon taxes. Six Republicans, including conservatives like Curbelo’s Florida colleague Rep. Francis Rooney, bucked their leadership and voted against the resolution.

On the deep blue side of the aisle, progressive Democratic carbon tax proposals go for the gold and would raise revenues to pay for projects and job creation. The progressives aim to boost economic growth, job creation and training for workers who might lose their carbon-based jobs. But although Democratic proposals might use carbon tax revenue in different ways, the news here is not the differences between Republicans and Democrats but the startling similarities. Both the red and blue carbon tax proposals recognize that carbon is underpriced for the environmental and economic damage it causes.

A bedrock principle of economics is that prices should reflect total costs as closely as possible, and carbon pricing totally fails that basic standard. Whether it’s burning petroleum in transportation or coal for electricity, or carbon emissions from chemicals and cement industries, underpricing carbon hurts the economy in the long run.

Burning underpriced carbon steers investment away from market-priced alternative energy, absorbs tax revenue through large federal and state carbon subsidies (over $20 billion annually in the US), and creates long-term costs paid by the public. Experts associate burning carbon with problems such as rising sea levels and increasing wildfires that will require more taxes and private resources to fix and mitigate.

Republican and Democratic carbon tax proposals differ and there is not much chance the Trump administration will advance the carbon tax. But the bottom line is bipartisan recognition of the problem, and a broad spectrum of economists who encourage passing the tax to reduce the economic costs of human-caused climate change.

That Republican politicians are brave enough to start recognizing the true costs of carbon and propose serious solutions is the best political news of July 2018.

How to Save 8.1 Million Seniors from Poverty by 2045

July 2018 Unemployment Report for Workers Over 55

The Bureau of Labor Statistics reported an unemployment rate of 3.1% for workers age 55 and older for the month of July, which represents no change from June.

While the headline unemployment rate for older workers is at an historic low, an increasing share of older workers are in bad jobs with low and stagnant wages. Without access to jobs that allow older workers to save, inadequate savings will condemn many to poverty in retirement.
We have a choice to make. If we do nothing, the number of poor* people over the age of 62 will increase by 25% between 2018 and 2045, from 17.5 million people to 21.8 million. If we implement Guaranteed Retirement Accounts (GRAs), the number of poor elderly will decrease by 22% between 2018 and 2045. 8.1 million seniors would be saved from poverty by 2045.click

GRAs (proposed in the book, Rescuing Retirement) are universal, individual accounts funded throughout a worker’s career by matching 1.5% contributions from employers and employees and a revenue-neutral $600 refundable tax credit. Contributions would be professionally managed and guaranteed against loss of principal.

Since 1935, Social Security has safeguarded those who worked all their lives from old-age poverty. To fulfill that commitment, Congress and the President need to act quickly to expand Social Security and enact Guaranteed Retirement Accounts.

*Poverty is defined as incomes below 200% of the 2018 Federal Poverty Level, or $24,280 for individuals and $32,960 for couples.

**Arrows next to "Older Workers at a Glance" statistics reflect the change from the previous month's data for the U-3 and U-7 unemployment rate and the last quarter's data for the median real weekly earnings and low-paying jobs.