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How Unemployment is Devastating Retiree Well-Being

Philip Moeller

Congress is likely to accomplish as much out on an extended summer break as it did when in session, and this includes continuing to look the other way at the continuing effects of the Great Recession.

Evidence is mounting that the nation's slow recovery is continuing to take an enormous toll on people who lost their jobs. In the case of older Americans, this toll includes ruined retirement dreams and, more dramatically, shortened life spans.

Last week, the Transamerica Center for Retirement Studies, a nonprofit funded by the Transamerica Life Insurance Company, issued an annual retirement survey that looked at the impact on retirement of continued unemployment and underemployment.

The study conducted by Harris Interactive, "Repairing the Damaged Nest Egg: How to Improve the Retirement Outlook of the Unemployed & Underemployed," was on online surveys of 610 U.S. residents at least 18 years of age who had been full-time employees of a for-profit company but were either unemployed or underemployed when the survey was taken in March.

Over time, it's all too easy to become numb to the truly disturbing jobless numbers. As of July, the study said:

"The U.S. Bureau of Labor Statistics reported that 22.1 million Americans or 14.2 percent of the workforce are unemployed or underemployed including:

--11.5 million who were unemployed

--8.2 million who were working part-time for economic reasons (hours cut, unable to find full-time work)

--2.4 million who were marginally attached to the labor force (not in the labor force but wanted and were available for work and had looked for a job sometime in the prior 12 months)."

Losing a job or working part-time for reduced earnings saps confidence as well as household income, the survey found. Further, it forces many people to tap existing retirement accounts and sacrifice their future well-being so they can pay today's bills. Roughly 40 percent of unemployed and underemployed people in the survey said they had tapped retirement accounts.

"This leakage from retirement accounts was more likely out of necessity versus a lack of awareness of the consequences," the study said. "Eighty percent of those with a retirement account said they were familiar with the taxes and penalties associated with taking an early withdrawal."

The Transamerica research echoed other studies in documenting the paltry size of many retirement nest eggs. The median amount of household savings in retirement accounts among all age groups was only $7,500, broken down by age groups as follows:

--$5,800 among those in their 20s and 30s

--$1,900 among those in their 40s (people in their 40s reported the largest retirement-account withdrawals)

--$16,400 among those in their 50s

--$93,000 among those in their 60s

Another recent study by academics at Wellesley College looked at the impact of the recession on the health of older workers approaching retirement age. Earlier research has shown that mortality rates actually decline during a recession. People take better care of themselves, perhaps out of necessity, by boosting their exercise, cutting back on smoking and losing weight.

The Wellesley research, however, looked at mortality over a longer time period and found a distressing impact on older workers who were unemployed. "For those who experience a weaker labor market at age 55, the positive impact on survival quickly fades," the research said. These negative impacts don't appear to apply to people ages 62 to 65 - a fact the authors speculate is due to the availability of taking early Social Security benefits at age 62 and the beginning of Medicare benefits at age 65.

"For those who experience a weak labor market at ages 58 or 60, however, an increase in the unemployment rate has long-term deleterious effects on survival," the report said. "Within five or so years after the labor market shock, these cohorts have lower survival rates than others who did not experience a shock, and those lower survival rates are statistically significant and continue throughout most, if not all, of their 70s."

"A worker who lost his job at age 58 could be expected to live three fewer years," the researchers concluded. They cautioned that there can be other explanations for earlier mortality than just unemployment, but said they "believe these magnitudes are plausible."

What's not so plausible is that four years of enormous unemployment rates have not produced much in the way of public or private efforts to either cushion the impact of job losses or speed the recovery. In fact, Washington's gridlock over budget deficits has produced fiscal policies that are more austere, not more stimulative.

Transamerica offered a range of considerations for policymakers, including:

--Expanding retirement plan coverage for all workers, including part-time workers

--Expanding the tax credits for employers to start a plan, so that the limit on the credit is increased from $500 to as much as $5,000

--Helping employers participate in existing plans by implementing reforms to multiple-employer plans

--Increasing automatic retirement plan participation and contribution rates by employees

--Eliminating the existing 10 percent limit on auto escalation of retirement-plan contributions

--Creating a new safe harbor under which employees are automatically enrolled at 6 percent of pay in the first year, and escalated to 8 percent in the second year and 10 percent in subsequent years

--Extending repayment periods for 401(k) loans taken out by employees who have lost their jobs

--Creating incentives to deter people from withdrawing funds from their retirement plans

--Offering tax incentives to employers for job training and retraining

Twitter: @PhilMoeller

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