Why “working longer” isn’t good retirement advice

Financial planners usually advise you to work as long as possible so you can top up your retirement savings while waiting for a fatter Social Security check.

But such advice requires that you have the luxury of deciding when to stop working. Millions of Americans don’t.

Here’s the truth: Retire early — or even around full retirement age– is little more than a joke to these tens of millions. Retire to what? Most people only have a fraction of the wealth they will need. And pensions? Unless you work for government—state, local, or federal—you probably don’t have one.

Read: Social Security recipients lose $182,000 if they file too early, a study finds

It’s things like this — the decade-long trend of companies shifting the finances for retirement off their balance sheets and onto the shoulders of their workers — that keep millions going, whether they want to or not. However, notes a comprehensive report by the Economic Policy Institute (EPI), a Washington, DC-based nonprofit, nonpartisan think tank, “many struggle to work longer hours and don’t have access to decent jobs with decent pay. Older workers who cannot afford to retire often face declining job quality and income due to loss of bargaining power.”

It’s a painful catch-22.

There is racial segregation here too. The Federal Reserve said in a 2020 report that white families have the highest level of the two middle and middle family wealth: $188,200 and $983,400, respectively. The median—that is, half have more and half less—is the key number here. If half of white families have less than $188,000, that means about $7,500 a year can be withdrawn to make a living using the often-recommended 4 percent withdrawal rule. That’s a meager $625 a month before taxes.

Do you think this is bad? Now look at the Fed’s data on Hispanic and Black and Hispanic families. The median wealth for Hispanics is $36,100, while for black families it’s a meager $24,100.

Hispanics and blacks “are particularly disadvantaged in the labor market and are poorly served by a pension system that relies on voluntary contributions from employers,” said Heidi Shierholz, president of the EPI.

This disadvantage is a deep-seated, structural problem, the report notes, In that Blacks and Hispanics typically work on the lower rungs of the economic ladder and that their “bad jobs lead to bad pensions.”

But even a “bad retirement” is not an option given the savings rates mentioned above. As a result, many workers are forced by economic necessity to continue working, usually in the same type of lower-paying jobs with minimal – at best – welfare benefits. In other words, there is no way out.

“Some workers may benefit from deferring retirement to increase their savings and accrued benefits while reducing their retirement time,” says EPI. “But expecting workers to work into old age is neither a practical nor a fair solution to the pension crisis. On the one hand, the increase in life expectancy is concentrated on higher earners with less physically demanding jobs. On the other hand, Americans already work more and longer than employees in most of the comparison countries.”

The pandemic is another problem. The Brookings Institution claims that “long covid” is keeping millions out of the labor force. Many workers on the lower rungs of the ladder may not have the luxury of working from home and may have to choose between putting their health on the line or leaving the meager job they currently have.

This painful reality underscores the absolute importance of the two benefits that minority workers can count on: Social Security and Medicare.

Read: Don’t make these 5 mistakes during open Medicare enrollment

The financial protection that Social Security provides is especially important for black and Hispanic workers and other workers of color, says Acting Social Security Commissioner Kilolo Kijakazi, who notes that he accounts for a “large portion of total retirement and disability income for people of color and for women.” She cites “structural barriers” that “contribute to inequality in economic well-being” for these groups.

Read: Are you fit for your age or are you frail? Here’s how to find out.

There are numerous policy proposals that could remove these structural barriers. The EPI report suggests expanding the earned income tax credit, which could help more adults without dependent children. Tax breaks could offset the cost of providing health insurance for older workers. And how about better enforcement of age discrimination laws? That is, when workers know their rights and what to do if they feel discriminated against because of their age.

Can any of these things happen? Aside from better enforcement of age discrimination laws already on the books, the political divide that will define Washington — with Democrats continuing to hold the Senate but Republicans taking over the House — points to a stalemate for the next two years there.

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