A 'Kinder, Gentler' Recession for Seniors

by Mark Miller

Is the Great Recession bypassing seniors?

That's the conclusion drawn by a new study looking at the downturn's impact on different age groups. But I'm not buying it.

The Pew Research Center poll reports that Americans over age 65 are less likely to have been forced to cut their spending by the downturn than middle-aged people. Fewer seniors report sharp declines in retirement portfolios than other age groups and are more likely to express overall satisfaction with their financial situations.

I can't argue with the facts Pew reports, since the findings simply reflect what people are telling pollsters. But polls only answer the questions that you ask.

In this case, the questions generated headlines claiming the recession has been "kinder and gentler" for seniors -- and that misses a bigger emerging picture that's much less positive.

No doubt, people on the cusp of retirement are in bad shape.

Pew notes that Americans age 50-64 are near their peak earning power and net worth, and will need to tap their retirement funds soon -- in many cases, before the market fully bounces back.

The poll shows this group has been most likely to lose money in stocks or retirement accounts, and has suffered big losses. They're also the most likely to say they won't have sufficient funds to live on in retirement; nearly half of those who are still working say they're considering delaying retirement.

Meanwhile young adults are least likely to say they've been crushed by the stock market, mainly since they don't have as much money invested.

About 70 percent of 18-29 year- olds report that they haven't lost money on investments, and 45 percent of 30-49-year-olds say the same. But they're four times more likely than older people to say they have had trouble securing affordable medical care. And they're far more likely to have experienced a job layoff.

Still -- a recession that has been "kinder and gentler" to people over 65?

Dig into Pew's data and a more complex picture emerges. Yes, Americans over 65 were least likely to lose money in the market; that's because some have pulled their money out of stocks as they entered the de-cumulation phase of their financial lives.

But beyond the markets, even Pew's own data shows:

-- More than a third of seniors have cut their household spending in the past year.

-- Nearly 40 percent say the recession has caused stress in their families.

-- A majority (56 percent) say the recession "probably will make it harder for them to take care of their financial needs in retirement."

And that's just the information contained in the poll. Widen the lens a bit beyond Pew's questions and other troubling indicators come into view.

Even with Medicare and Medicaid, the health care security net for older Americans is fraying.

Out-of-pocket retiree health costs have jumped 50 percent since 2002, mainly reflecting higher Medicare premiums, over-the-counter medications, dental care and long-term care expenses. Meanwhile, millions of retirees are losing employer-paid health benefits as corporations retrench (see: bankrupt Detroit automakers).

Many experts believe pension funds will be the next shoe to drop. Defined benefit pensions provide income to about 23 percent of seniors; the recession has increased the risk that more plans will be terminated due to business failures. When that happens to private sector employers, the Pension Benefit Guarantee Corporation (PBGC) usually takes over the plan liabilities, but pension recipients almost always take a haircut on benefits. How serious is the trend? Over the past six months, the PBGC's deficit from guaranteeing pensions tripled to $33.5 billion, a record high.

The picture is just as gruesome -- and perhaps worse -- for public pension plans sponsored by many state and local governments; for years, sponsors have starved these plans for cash and now face multi-billion dollar holes.

Then there's the frozen market for real estate -- the most important financial asset for most seniors after Social Security.

Many have built up substantial equity in their homes that they expected to tap in retirement; others will just want to sell and move to retirement housing.

In many parts of the country, the current market has made it very difficult for seniors to sell when the time comes to move for health or lifestyle reasons.

Reverse mortgages offer a solution for extracting equity in some cases, although the fees on these loans can be prohibitively high.

A "kinder and gentler" recession for seniors?

Maybe, compared with other age groups -- but it's certainly no picnic.

Millions of Americans are reinventing retirement, and Mark Miller is helping write the playbook for new career and personal pursuits of a generation. Contact him with questions and comments at mark@retirementrevised.com)

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