Nothing throws a financial plan off course like unplanned unemployment in the years leading up to retirement. Plenty of plans have been derailed in the aftermath of the Great Recession.
Near-retirement clients who are out of work or underemployed have probably reduced, or eliminated, retirement plan contributions. Perhaps they've tapped savings accounts to meet living expenses.
From a planner’s standpoint, it’s worth noting that 49 percent of workers leave their jobs earlier than expected, according to the Employee Benefit Research Institute's annual Retirement Confidence Survey. The reasons include health problems or disability (61 percent); downsizing or closure (18 percent); and the need to care for a spouse or another family member (18 percent).
What's next? Is it reasonable to expect older clients will be able to get back into the labor force? Or are they really retired for good, and just don’t know it yet?
Government employment data and other research paint a mixed picture.
In May, 4.7 percent of men, and 4.6 percent of women over age 55 were out of work, compared with the 6.3 percent national rate, according to the U.S. Bureau of Labor Statistics (BLS). But joblessness is more chronic for older people - 51 weeks for those ages 55 to 64, compared to an average 35.9 weeks for all workers, according to BLS data. Keep in mind, those are averages: many workers over age 55 have been out of a job far more than a year.
A survey of unemployed and underemployed workers by the Transamerica Center for Retirement Studies offers additional insight into the nature of joblessness among workers over age 40. Here's how it looks by age group:
The desire to work is there. A recent Merrill Lynch survey of more than 7,000 Americans found that 72 percent of respondents older than 50 say their ideal retirement includes some type of work. Just over half said they expect to work because they will need the money.
The BLS projects that labor force participation rates for workers age 65-74 will rise to 32 percent by 2022, up from 26 percent in 2012. “That tells you about the number of people who need to work, or choose to work,” notes Elizabeth Fideler, a research fellow at the Sloan Center on Aging & Work at Boston College, and the author of Men Still at Work: Professionals Over Sixty and On the Job (2014, Rowman & Littlefield).
Fideler thinks many long-term unemployed older workers will get back into the work world as the economy continues to mend. “But they won't find things comparable to what they had before,” she adds. “Many of them will be under-employed, doing temp jobs or working part time, for lower pay and without benefits. It’s not really a very rosy picture.”
The upside, from a planning standpoint: continued work of any kind can work long-range magic on client financial plans. It can relieve pressure to file early for Social Security, and it means fewer net years living on savings alone. A recent Vanguard study examining income sources of affluent households aged 60-79 found that 29 percent are receiving a median income of $24,600 from work.
(Of course, if you have clients working long past traditional retirement age, you’ll also need to navigate issues such as Social Security timing, Medicare enrollment and strategies for required minimum distributions.)
At the end of the day, unplanned early retirement can play havoc with financial plans, and finding some kind of work later in life, if possible, may be the only way to get back on track. Catherine Collinson, president of the Transamerica Center for Retirement Studies, is an optimist: “I don’t like to think of it as retirement,” she says. “People plan to work longer, retire later and transition into retirement, not just stop working.”