Why “Working Longer” Isn’t Good Retirement Advice

Financial planners generally advise you to work as long as you can, so you can increase your retirement savings while waiting for a larger Social Security check.

But such advice assumes you have the luxury of deciding when to stop working. Tens of millions of Americans do not.

Here’s the truth: retiring early, even at full retirement age, is little more than a joke to these tens of millions of people. Retreat on what? Most people have a fraction of the assets they will need. And pensions? Unless you work for government – state, local, or federal – chances are you won’t.

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It’s things like this – the decades-long trend of companies moving retirement finances off their balance sheets onto the backs of their workers – that mean millions of people have to keep working, whether they want to. or not. However, notes a comprehensive report by the Economic Policy Institute (EPI), a Washington, D.C.-based, nonpartisan nonprofit think tank, “many face barriers to working longer and lack access to decent jobs with decent pay Older workers who cannot afford to retire often face declining job quality and earnings due to loss of bargaining power.

It’s a painful catch-22.

There is also a racial divide here. The Federal Reserve, in a 2020 report, said white families have the highest level of median and average family wealth: $188,200 and $983,400, respectively. The median – meaning half have more and half have less – is the key figure here. If half of white families have less than $188,000, that suggests that about $7,500 can be withdrawn each year to live on, using the often-recommended 4% withdrawal rule. That’s a measly $625 per month, before taxes.

You think that’s bad? Now consider the Fed’s data on Hispanic and Black and Hispanic families. The median wealth of Hispanics is $36,100, while that of black families is $24,100.

Hispanics and blacks “are particularly disadvantaged in the labor market and underserved by a retirement system that relies on employers to voluntarily provide benefits,” says Heidi Shierholz, president of EPI.

This disadvantage is a deep-rooted structural problem, the report notes, In that blacks and Hispanics generally work at the lower rungs of the economic ladder and that their “bad jobs lead to bad pensions”.

But again, even a “bad retirement” is not an option, given the savings rates mentioned above. Thus, many workers are forced by economic necessity to continue working, usually in the same type of lower-paying jobs with minimal benefits, at best. In other words, there is no way out.

“Some workers may benefit from postponing retirement to increase their savings and accrued benefits while shortening their retirement,” says EPI. “But expecting workers to work into old age is neither a feasible nor a fair solution to the pension crisis. On the one hand, the increase in life expectancy has been concentrated on high earners in less physically demanding jobs. On the other hand, Americans are already working more and longer than workers in most peer countries.

The pandemic is another issue. The Brookings Institution says the ‘long Covid’ is keeping millions out of the workforce. Many workers on the lower rungs of the ladder may not have the luxury of working from home and may have to choose between risking their health or giving up the meager work they currently hold.

This painful reality underscores the absolute importance of the two benefits on which minority workers can rely: social security and health insurance.

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The financial protection offered by Social Security is especially important for black and Hispanic workers, as well as other workers of color, says Acting Social Security Commissioner Kilolo Kijakazi, who notes that it represents a “significant portion total retirement and disability income for people of color. and for women. She denounces “structural barriers” which “contribute to the disparity of economic well-being” for these groups.

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Many policy proposals could erode these structural barriers. The EPI report suggests expanding the working income tax credit, which could help more adults without dependent children. Tax breaks could offset the cost of providing health insurance to older workers. And how about better enforcement of age discrimination laws? In other words, if workers knew their rights and what they could do if they felt discriminated against because of their age.

Can any of these things happen? Along with better enforcement of age discrimination laws that are already in place, the political divide that’s about to define Washington — with Democrats continuing to hold the Senate, but Republicans seizing the House — suggests a stalemate. for the next two years.

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