Guiding Members in Post-Recession Retirement

The economy is setting records for the length of its recovery since the Great Recession began in 2017. Unemployment is setting record lows and the stock market is setting record highs.

But some measures are falling short, including retirement savings. The Federal Reserve Board’s Survey of Consumer Finances showed that from 2007 to 2016, the net worth of half of America’s families fell 30.6% to $97,290, even as it rose 26.4% to $1.6 million for the wealthiest 10%.

The surveys show savings – after adjusting for inflation – have fallen especially for the young, the poor and minorities.

Sebastian Devlin-Foltz, who has researched the Fed surveys, said the surveys don’t include Social Security. Adding them back into the retirement equation bumps up savings significantly for those earning less than the national median.

“That is a key source of retirement security for that population,” Devlin-Foltz said. “Social Security is and has been the key program to keep people out of poverty.”

“Maintaining it is crucial,” he said. “One should not forget the importance of Social Security for the majority of Americans.”

A brighter picture emerges from surveys by the Transamerica Center for Retirement Studies in Los Angeles, Calif., a nonprofit foundation funded by contributions from Transamerica Life Insurance Company. Its surveys from 2007 to 2017 showed large savings gains by age cohorts. One reason for the difference is that it targets people working at companies with at least 10 employees.

“Obviously workers who have a job are in a much better situation than those who are unemployed,” Catherine Collinson, president/CEO of Transamerica Center for Retirement Studies, said.

The Fed surveys families every three years about income and savings. Some of the questions are broken down by age groups providing a rough measure of the experience of cohorts over time, including those who were at or near retirement age in the latest survey.

The latest survey was conducted in 2016, so the 55-to-64 age group consists of those born from 1952 to 1961. The closest matches to that group in earlier surveys were the age 35-to-44 group of 1995 (born 1951 to 1960) and the 45-to-54 group of 2007 (born 1953 to 1962).

For example, for those born from 1952 to 1961 were turning 45 to 54 in 2007, often the best-earning years for families. Their median family income rose 24.4% to $73,800 from 1995 to 2007. Their median net worth rose 163% to $214,200 over those 12 years preceding the Great Recession.

Timing can be everything. The group of people born between 1962 and 1971 fared worse than its older group as they turned 45 to 54 in 2016. Their median income from 2007 rose only 6.7% to $69,900; their median net worth rose only 20.8% to $124,000.

People who were 10 to 15 years from retirement when the recession hit had an especially hard time getting back into the labor force, Devlin-Foltz said.

From 2007 to 2016, as the 1952-to-1961 cohort turned ages 55 to 64, and their median net worth fell 12.6% to $187,300 while their median annual income fell 17.7% to $60,800.

Those nine years older (born 1943 to 1952) had a much more lucrative transition into their last decade of work. From 1995 to 2007, this group turned ages 55 to 64 as their median net worth more than doubled to $293,800, while their median annual income rose 1% to $63,100.

Race also played a factor. White non-Hispanic respondents experienced a 13.9% drop in median family income from 2007 to 2016, while black non-Hispanic families saw a 29.5% drop. Hispanic family net worth fell 15.2%.

Fed researchers Devlin-Foltz, Alice Henriques and John Sabelhaus found “a troubling picture of below-trend participation in the employer-sponsored pension system for younger households and lower-income households.” The biggest declines in participation over the past decade have occurred for pre-retirement families whose usual income is below the median.

The Social Security actuaries estimated that the present value of benefits for people aged 15 and older in 2013 was about $52 trillion, roughly double in real terms relative to the comparable estimates from two decades earlier because of an aging population, higher lifetime earnings and longer life expectancy.

The present value of future Social Security benefits is also now roughly double the size of all defined benefits and defined contribution claims combined.

Among individuals who are employed by companies with more than 10 workers, retirement savings increased from 2007 to 2017, according to online surveys conducted by The Harris Poll on behalf of the Transamerica Center for Retirement Studies. Among its findings were:

• Median household savings in retirement accounts rose from their pre-recession levels. Savings rose from $9,000 in 2007 to $36,000 in 2017 among millennials, $32,000 to $71,000 among Generation X, and $75,000 to $157,000 for baby boomers.
• 401(k) plan participation rates remained strong. About 80% of workers who were offered a plan participated in both 2007 and 2017.
• About half of workers guessed their retirement savings needs in both 2007 and 2017. The median guesstimate fell from $650,000 in 2007 to $500,000 in 2017.
• The recession took a bite out of retirement savings. By 2017, 30% of workers had taken some form of loan or early withdrawal.

“Account balances would have been even higher if fewer workers had dipped into their savings to take an early withdrawal or hardship withdrawal,” Collinson said.

Respondents said they took out the money for financially urgent situations. Loans were most often taken to pay off credit card debt, or to cover the cost of some kind of major financial shock or unexpected expense, such as a major car repair, a home repair or medical expenses.

“We did not see people dip into their savings for frivolous reasons,” she said. “It was truly an urgent financial situation.”

Some cashed out when they lost their jobs in the recession. “When they did find work again, they had to start all over, which is a really scary proposition if you’re in your 40s or 50s or older. For people over 50 trying to find work, it is very difficult.”

Collinson said credit unions can help members through concrete steps, such as refinancing for debt that gets in the way of saving. “Credit unions can help people refinance their credit card debt so it’s a much lower interest rate to help them dig out of that hole,” she said.

Credit unions may also provide realistic guidance that can be a source of hope and inspire action.

“People of all ages can easily get overwhelmed,” she said. “Especially as we get older, we need to be as productive and proactive as we can to take advantage of the time that we have before we retire to improve our outlook.”