Cash from Kids Slows After Parents Retire

Cash from Kids Slows After Parents Retire

Family laughingIt’s not unusual for workers who grew up in lower-income households to help their parents out financially.

But a new study uncovers a twist in this familiar story: once the parents are old enough to collect Social Security, the money flowing from adult child to parent slows down. And when this occurs, the offspring are able to start saving money.

Social Security, by reducing disadvantaged parents’ reliance on their children, “may be able to interrupt the cycle of poverty between generations,” Howard University researcher Andria Smythe concluded from her analysis.

To chart changes over time in cash transfers within families, Smythe followed U.S. households’ finances between 1999 and 2017 using survey data from the Panel Study of Income Dynamics.

She found that the financial support going to parents in the bottom half of the U.S. income distribution was substantial. These parents received about $8,000 from their offspring over time. In contrast, among the higher-income families, money consistently flowed in the opposite direction – from parent to child.

After the lower-income parents turned 62 and started their Social Security, the likelihood the adult children would continue to support them declined, according to the study, which was conducted for the Retirement and Disability Research Consortium.

This, in turn, had a positive effect on the adult children’s wealth. People who grew up in lower-income families saw the biggest bump in wealth, adding about $13,000 in the years after their parents turned 62.

Social Security benefits, Smythe concludes, “may contribute to wealth-building among the adult children’s generation.”

To read this study, authored by Andria Smythe, see “The Impact of Social Security Eligibility on Transfers to Elderly Parents and Wealth-building among Adult Children.”Learn More


Rewriting Retirement

A Laid-off Boomer’s Retirement Plan 2.0

Jennifer Lee quoteJennifer Lee wanted to work until 70 to max out her monthly Social Security checks – at least that was the plan before she was laid off three years ago from a Washington D.C. church.

The church’s newly hired pastor “decided he wanted a whole new staff,” she said. “I felt to a degree he was entitled to do that,” she said – except that “he was only eliminating people on the staff who were over 60.”

She wasn’t having any luck finding a new job and felt that her only choice was to sign up for Social Security at 63½ to pay her bills. Eventually, Lee, a one-time nurse and medical administrator, landed a nice part-time job as a Jack-of-all-trades in an oral surgeon’s office. Post-pandemic, her duties have expanded to include overseeing the COVID-19 safety protocols.

The recession is putting many baby boomers in a predicament similar to Lee’s: a layoff has derailed their plans to work full-time to build up their retirement savings. Since March, the unemployment rate for Americans who are at least 55 years old has more than tripled, to 9.7 percent in June.

“Most older people, when they’re laid off, will take Social Security right away,” but “that’s not their best short-term solution,” said Wendy Weiss, a Cambridge, Mass., financial adviser. She urges them to find other ways to generate income or reduce expenses, because delaying Social Security increases the monthly check by 7 percent to 8 percent for each additional year the benefits are postponed.

But, Weiss acknowledges, the recession is putting growing numbers of unemployed boomers in situations that aren’t easily solved. “It’s not going to be pretty,” she said about the next few years.

Lee, who is 65, was fully aware she should have postponed her Social Security. But it took her more than six months to find her current job, and she didn’t have any unemployment benefits to tide her over, because church employers don’t usually pay into state unemployment insurance funds. She wasn’t old enough for Medicare at the time of her 2017 layoff either.

“I waited five months to apply for Social Security. I waited as long as I could,” she said.

She sees a problem not in the difficult decisions she’s had to make but in a shortage of policies for older workers like herself, who may be more vulnerable to layoffs and also can have a tougher time finding a new job even in an expanding economy. …Learn More


A sign that says what's your plan for retirement

Workers Lacking 401ks Need a Solution

Although COVID-19 has exposed alarming gaps in a health insurance system that revolves around the employer, the Affordable Care Act is one potential solution for workers who lack the employer coverage.

There is nothing equivalent on the retirement side, however.

Many workers between ages 50 and 64 are in jobs that provide neither health insurance nor a retirement savings plan. But, in contrast to the health insurance options available to them, “no retirement sav­ing vehicle appears effective in helping older workers in nontraditional jobs set aside money for retirement,” concluded a new analysis of workers in these nontraditional jobs.

Nontraditional workers who want to save for retirement are left with two options: their spouse’s 401(k) savings plan or an IRA operated by a bank, broker or financial firm.

A spouse’s 401(k) hasn’t been an effective fallback for a couple of reasons. First, a substantial number of the workers who lack their own 401(k)s are not married. And second, if they are married to someone with a 401(k), they’re not any better off. The researcher found that married people currently contributing to 401(k)s do not save more to compensate for the spouse without a 401(k), reinforcing other research showing these couples don’t save enough for two.

The other option – an IRA – is open to everyone. But only a small fraction of Americans currently are saving money in IRAs, and most of them already have a 401(k). So IRAs, in practice, aren’t doing much for the people who need the help: workers who lack employer benefits. … Learn More

Retirement Research Presented Virtually

A video call

Like much in life under a pandemic, the research presentations for the Retirement and Disability Research Consortium’s annual meeting are going virtual.

This year’s online meeting will also be scaled down from the traditional two days to one: Thursday, Aug. 6.

The purpose of the meeting, which is usually held in Washington, D.C., is for academics from universities and think tanks to describe their latest research to colleagues, policy experts, financial professionals, and the press. Topics this year will include taxes in retirement, federal disability insurance, housing, health, and labor markets. The U.S. Social Security Administration has funded the research and is sponsoring the meeting.

The agenda and information about registration are available online, and participants can register anytime. Questions for the researchers can be submitted during the presentations via a moderator.

One fresh idea being explored this year is taxes in retirement. Taxes are central to whether retirees have enough money to cover their essential expenses, but households that are approaching retirement age may not factor the need to pay federal and state taxes into their planning. Despite the importance of this issue, only a handful of existing studies have tried to estimate the tax burden. This paper fills the gap.

One session will feature a pair of papers looking at whether cognitive decline has a detrimental effect on older Americans’ finances. One will explore whether dementia leads to financial problems overall, and the other will focus exclusively on debt.

Researchers will also try to resolve a conundrum in the disability field: why are applications for federal benefits declining at the same time that Americans’ health is deteriorating? One hypothesis is that jobs are becoming less physically demanding. A second disability study will produce a publicly available database for researchers who want to examine the local factors affecting applications.

The agenda lists all of the papers that will be presented. Learn More

A Downwardly Mobile Boomer Survives

The unemployment rate has rocketed to double digits. But older workers’ struggles in the job market are not new.

An Urban Institute study, reported here, estimated that about half of workers over age 50 left a job involuntarily at some point between 1992 and 2016 – a period that included strong economic growth and two recessions. After the workers found new employment, their households were earning just over half of what they earned in their previous jobs, researcher Richard Johnson told PBS’ NewsHour.

The baby boomers being laid off now might relate to Jaye Crist, who was featured in this NewsHour video last February when unemployment was still at record lows. He had been a manager at a national printing company for three decades – until his 2016 layoff. Through sheer determination, he found a full-time job packing and delivering printed materials to customers for a print shop in Lancaster County, Pennsylvania. But his income dropped sharply.

“It’s frustrating that, in my mind, somebody who has done the things you were told as a kid you need to do – stay at a job, work, learn, be helpful, get promotions – and then you find yourself, at this point, that your career doesn’t mean [anything],” Crist said in the pre-pandemic video.

“You just do whatever you have to do to keep everything else afloat,” he said.

With the country now in a recession, I checked in with Crist to see how he’s doing. His financial situation deteriorated further after Pennsylvania shut down the economy to contain the virus. He briefly lost his three jobs – at the printing company and two part-time jobs, at a local brewery and a workout gym.

He was relieved when the printer brought him back in April from a three-week furlough after the company received a stimulus loan under the federal Paycheck Protection Program. But business is slow, and Crist worries he might lose the job again. “Knowing that you’re almost 60 years old,” he asked, “now what do you do?”

The gym is also reopening, but it’s unclear how much he can work since he used to be on the night shift and the gym will no longer be open 24 hours a day. He also returned to the brewery to handle takeout orders but it, like many eating establishments, is struggling to make it at a time of social distancing.

Prior to the pandemic, Crist had already gone through many of the financial struggles boomers are facing today. With his wife unable to work, he said he depleted his 401(k) after his 2016 layoff.  He was having difficulty keeping up his mortgage payments and paying part of his daughter’s college loans, and now it’s even harder.

He said he can’t imagine being able to retire. “I’ll be working and paying for stuff until I can’t.”Learn More


A teacher and student

COVID: The Challenge for Older Workers

In anticipation of rambunctious children returning to the classroom in the fall, older teachers are sounding alarms about how challenging it will be to make the schools safe for themselves, as well as the children and families.

Their fears about going back to work in a pandemic are shared by older workers around the country with chronic conditions, which increase the mortality rate for people who contract COVID-19.

Workers who cannot work remotleyMore than half of U.S. workers who are between ages 55 and 64 are in jobs that can’t be done remotely, a new study estimates. Their flexibility to work at home isn’t much different than younger adults.

But older Americans who are weighing whether to return to work face a dilemma that is of less concern to young, healthy workers.

The older workers must choose between “health risks – returning to work before the virus is under control – or economic risks – delaying work until the environment is safe, which may exhaust their resources,” concluded researchers at the Center for Retirement Research, which sponsors this blog.

Jobs that can’t be performed at home were identified in the study by 14 specific tasks, ranging from interacting with the public and handling machinery to rarely using email and standing or walking for most of the workday.

By linking information about jobs to individuals in a national survey, the researchers reported on the ability to work remotely based on the characteristics of the workers themselves. They found that women, who often gravitate to jobs that give them more flexibility or the ability to work part-time, are more likely to be in jobs they can do at home – think about travel agents (85 percent are women) and freelance writers (67 percent).

The analysis also confirmed something the media have reported anecdotally: working remotely is a perk of being a well-paid professional. About six in 10 workers in the highest earnings bracket can do their jobs at home, compared with just over three out of 10 workers in the lowest two earnings brackets. …Learn More


Art of people at a job interview

Virus Complicates Boomers’ Job Searches

As laid-off baby boomers venture into the job market in the midst of the COVID-19 pandemic, they may sense it will be tough to find a position because, well, they’re too old.

New research indicates this suspicion is spot-on.

Discrimination is notoriously difficult to corroborate in academic studies. But researchers in Belgium, using a well-designed experiment conducted prior to the pandemic, found that company hiring managers working in 30 developed countries, including the United States, were much less likely to ask older job applicants to even come in for an interview.

The reason? They were perceived as having “lower technological skill, flexibility, and trainability levels,” the study concluded.

But there’s a big disconnect between this evidence of discrimination and a different report, based on a 2019 telephone survey, that employers view workers over age 55 as being at least – and sometimes more – productive than their younger colleagues. This survey also found that older workers are perceived more positively if the hiring manager is older. The findings provide some hope that, as the population ages, baby boomers who want to continue their careers may be able to do so.

However, even the authors of this study acknowledge two issues facing boomers. First, even when employers say they have positive perceptions of older workers, this posture “does not necessarily correspond with employer behavior.”

Second, given older workers’ underlying health conditions, COVID-19 is a wild card that could “adversely affect” their job prospects.

In any case, older job hunters will inevitably encounter some recruiters who will hold age against them. To overcome preconceived notions about older workers, the study of discriminatory recruiters provided some practical tips, based on the findings. …Learn More

 


Originally posted at https://squaredawayblog.bc.edu/tag/baby-boomer/

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