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The coronavirus-fueled recession will force 3.1 million older workers into poverty when they retire, and all ranges of earners — even those on the high end — will be affected, according to a new report issued by an economics policy research group.
Middle-income older American workers will be "hardest hit" by COVID-19 of those from different earnings-range groups, says the report from The New School Retirement Equity Lab. This is because "middle earners" are being "hit from both sides," meaning they're suffering both substantial job losses and stock market losses all at once, according to The New School's website summary of its Retirement Equity Lab report.
Still, high-income older workers, defined as those with earnings above the Social Security cap of $137,700, a group that the report says relies the most on retirement savings, are expected to see their average retirement account balances fall by $79,000 at age 65 because of recession, according to the report and summary.
And as the report makes clear, lower-income older workers will be most severely impacted by the recession. For one, explains the economics policy group, lower-income workers are the most likely to be laid off during the recession and, if that happens, many are likely to withdraw "what little they have saved for retirement" or fall into debt.
The report, which was released earlier this month and which appears to define older workers as those ages 55 and up, outlines the breadth and severity of what it calls "the COVID-19 recession." Among other key findings and highlights in the report:
- The unemployment rate for workers ages 55 and up was 13.6% for April.
- The recession affects all 67 million Americans in households close to retirement, by decreasing their financial preparedness for retirement, as measured by the share of pre-retirement earnings replaced with retirement income. While a replacement rate of about 70% is recommended, the median replacement rate for older workers will drop 7 to 9 percentage points because of the recession.
- While a large majority of lower-earning older workers were likely to be poor in retirement before the recession hit, the COVID-19 fallout will push an additional one million people from the group into poverty.
- Poverty rates for middle-income workers will increase from 38% to 42%, representing an additional 1.1 million people experiencing "downward mobility" in retirement—meaning going from middle class to poverty—because of the recession
- The COVID-19 recession will double the number of high earners expected to suffer "downward mobility" into poverty when retired, jumping from 360,000 to 720,000 people.
The Retirement Equity Lab, which seeks to focus "the public economics debate on the role government can and should play," according to The New School website, also gave policy recommendations in its report. They included increasing the Social Security minimum benefit to reduce older-age poverty and discouraging early retirement account withdrawals. The latter would come from the U.S. Congress reinstating the 10% penalty fee for early withdrawals from tax-advantaged accounts, the group said.
Jason Grant is a staff writer covering legal stories and cases for the New York Law Journal, the National Law Journal and Law.com, and a former practicing attorney. He's written and reported previously for the New York Times, the Star-Ledger, the L.A. Times and other publications. Contact him at [email protected]. On Twitter, pls find him @JasonBarrGrant
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Jason Grant
Jason Grant is a staff writer covering legal stories and cases for the New York Law Journal, the National Law Journal and Law.com, and a former practicing attorney. He's written and reported previously for the New York Times, the Star-Ledger, the L.A. Times and other publications. Contact him at [email protected]. On Twitter, pls find him @JasonBarrGrant
