I am always amazed about the dire perspective many professionals take concerning Americans’ retirement resources. They sternly warn that Americans are truly unprepared when it comes to retirement and retirement savings. I have been tracking retirement and retirement preparedness since my days in law school over 40 years ago. During these decades, according to the “Experts,” Americans have never been sufficiently prepared. Yet, according to the US Bureau of Labor Statistics (BLN), very few retired Seniors collecting Social Security are impoverished. More importantly, the data shows that retirees have an exceptional ability to adapt their lifestyles to fit their means.
The biggest determinant from all the studies I have read, is that prior to Medicare and Medicaid, health care costs appeared to impoverish a significant portion of seniors. Today, Medicare and Medicaid act as a true safety net, minimizing the percentage of Americans receiving Social Security who are living below the poverty line. Per the latest statistics, about 9.7% of people who collect Social Security are impoverished, as the BLN defines poverty. The percentage of the general population living in poverty is 11.8% and seniors (65 and older) living in poverty is significantly lower, at 9.7%.
Per a 2021 Statista report, the number of workers receiving Social Security in 2020 was about 1.25 million greater than in 2019, which was 1.35 million greater than in 2018, which was 1.27 million greater than in 2017. Basically, the 2020 Pandemic did not greatly change the number of seniors who received Social Security and continued working.
The trend of more people working (Baby Boomers) past age 65 continues despite the pandemic. We believe this trend of working later is a combination of three factors: Social Security rewards seniors for working past age 65, most seniors are not working in physically demanding positions and health factors are not so overwhelming by age 65 to force workers to retire.
According to the Employee Benefit Research Institute (EBRI) Retirement Confidence Survey 31st annual report, half of the people who retire cease working earlier than expected. It is interesting to note that the most common reason this happens is because they can afford to. The next most common reasons are health or disability, then changes in organization (retirees no longer liking their work situation).
“Half of workers expect to gradually transition to retirement,” states the EBRI report. The reality is that only 19% of retirees report a stepped-down transition (working fewer hours or days a week to gradual retirement.) 73% of retirees experienced their retirement as an abrupt full-time cessation of employment.
In 2020, age 62 continues to be the median age for workers to retire, generating a reduced Social Security distribution. Although 68% of workers expect to earn some money during retirement, only 23% of retirees continue to work part-time during retirement.
Obviously, something occurs that causes fewer people to work after retiring who expected to do so. As mentioned above, there are basically three reasons people cease working once they retire: Don’t need the money; health does not allow them; and working is too stressful.
In 2020, 67% of all workers had access to a retirement account. The breakout is this: 52% had a defined contribution plan (401k, SEP, SIMPLE or 403b), 12% had access to a defined benefit plan (pension or annuity) plus a defined contribution plan, 3% only had a defined benefit plan, and 33% had no retirement plan at all. 21% of all workers (65% of workers without any retirement plan at all) had $10,000 or less in savings for retirement. This group is the one at greatest risk of running out of money in retirement.
The EBRI 2021 study also shows that 8 in 10 retirees feel comfortable that they have enough income from Social Security and retirement savings to live comfortably. Although the study sponsors found that to be ludicrous, it shows that most people adjust their lifestyle to their resources during retirement. The findings I have seen from the 1970s onward seem to agree with my assessment.
Another interesting factor from the study is that 1 in 3 workers rely on family or friends for their retirement planning advice, with another 1 in 3 workers hiring a professional for such advice. The remaining 1 in 3 are lone wolves winging it!
An area of concern for all is that the pandemic has hit women harder than men. Traditionally in the US, women have been the family caretakers. As such, more older women have left the workforce to either provide child care or care for elderly family members.
Jen Schramm, senior strategic policy advisor of the AARP Public Policy Institute, said:
“The pandemic drove up levels of unemployment among older women while also reducing their labor force participation rates. Though the job market has been improving in recent months, older jobseekers tend to be unemployed for longer periods than younger jobseekers.”
“… the longer older women are unemployed or out of the labor force, the more challenging it becomes to find reemployment. This loss of employment could make it harder for many women to save for retirement.”
Nancy LeaMond, AARP’s executive vice president and chief advocacy and engagement officer added this:
“Longstanding unfair practices mean women often reach retirement age with significantly less savings than men. They have been penalized by earning less due to a gender pay gap. They get less in Social Security if they’ve taken time off from the workforce. They often spend more of their money on caregiving and family expenses relative to men. This is a harsh reality.”
The reports show that although the retirement picture is not as dire for most Americans, the Pandemic has possibly worsened the situation for older women, a group that historically has been more vulnerable.