The Pandemic Recession Is Also A Retirement Crisis Recession
The recession of 2020 is a retirement crisis recession. Millions of older workers quickly lost their jobs, while the pandemic also sharply increased risks to their health. Older workers often confronted the unenviable choice of retiring without enough money or working longer and facing massive financial and physical risks.
In the end, the pandemic proved a fork in the road for many near retirement. Some left the labor market into comfortable retirement while many others struggled in a rapidly declining labor market. The pandemic illustrated widespread economic inequities. It also showed how working longer was simply not a meaningful retirement plan.
Data from the Social Security administration suggest that higher-income earners left the labor market and started to collect Social Security benefits in this recession. The growth of the number of new retirement beneficiaries from March to May relative to one year earlier was higher than in prior recessions, when people often waited to collect benefits (see figure below).
Yet the average benefit amount of new retirees also grew faster relative to a year earlier than was the case at the start of previous recessions (see figure below). The combination of more people leaving and stronger benefits growth in this recession indicates that on average those with higher lifetime incomes and thus higher Social Security benefits chose to retire at the beginning of the recession. Those, who likely had faced a comfortable retirement because they had enough wealth, were more likely to stop working in the pandemic.
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The picture is grimmer at the other end of the economic spectrum. Unemployment for older workers quickly exceeded that of some younger groups of workers, when the recession started. For example, the average unemployment rate for workers 65 years old and older was 10.8% from March to June of this year. The unemployment rate for workers 55 to 64 years old was 9.5% and that for workers 45 to 54 years old was 8.5%. The job prospects were especially dim for older workers who stayed in the labor market after losing their jobs.
Unemployment was even higher among groups that typically earn lower wages and have less wealth to fall back on. The unemployment rate for Black workers from 55 to 64 years old was 10.8%, that for Latinx workers was 11.8% and that of Asian workers in this age group was 13.3%. In particular, Black, Latina and Asian women saw larger increases and higher unemployment rates than men. Those groups that already struggled the most to build a meaningful financial security in the labor were the first to lose their jobs and stayed in the labor force to look for a new job. They often did not have a choice to working longer because their financial situation was precarious to begin with.
Retirement prospects are always highly unevenly distributed. After all, a secure retirement depends on having sufficient wealth to supplement basic Social Security benefits. Yet many households, especially large shares of Black, Latinx and Asian households as well as single women and those with less than a college degree have a lot less wealth than their White, single male and college educated counterparts. And that wealth inequality had grown in the decades before the recession leaving many households woefully unprepared for job and health care emergencies as well as a prolonged retirement.
The recession then predictably showed two separate paths for older workers. Some could glide towards a comfortable retirement after working at good wages and saving enough during the preceding years. Others were left to fend for themselves as jobs became scarce and health risks became widespread since they had too little in wealth to weather the multitude of emergencies and start retiring earlier than planned. The pandemic starkly illustrates the massive retirement gulf that epitomizes the U.S.’ aging society.
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