Why “work longer” isn’t great retirement advice

Financial planners typically advise you to work as long as possible so you can boost your retirement savings while holding out for a fatter Social Security check.

But that advice assumes you have the luxury of deciding when to stop working. Tens of millions of Americans don’t.

Here’s the truth: Retiring early, or even at full retirement age, is little more than a joke for those tens of millions. Retire for what? Most people have a fraction of the resources they will need. What about pensions? Unless you work for the government, state, local or federal, chances are you don’t have one.

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It’s things like this – the decades-long trend of companies shifting retirement finances off their balance sheets to the backs of their workers – that mean millions of people have to keep working, whether they want to or not. However, notes a large report by the Economic Policy Institute (EPI), a non-profit, non-partisan think tank based in Washington, DC, “many face barriers to working longer hours and lack access to decent jobs with good pay. dignified. Older workers who cannot afford to retire often face a decrease in job quality and earnings due to a loss of bargaining power.

It’s a painful Catch-22.

There is also a racial divide here. The Federal Reserve, in a 2020 report, said that white households have the highest level of both median and average household wealth: $188,200 and $983,400, respectively. The median, meaning half has more and half has less, is the key figure here. If half of white households have less than $188,000, this suggests that about $7,500 can be withdrawn each year to live on, using the oft-recommended 4% withdrawal rule. That’s a measly $625 a month, before tax.

Do you think it’s bad? Now consider the Fed’s data on Hispanic and Black and Hispanic households. The median wealth for Hispanics is $36,100, while for black households it’s a paltry $24,100.

Hispanics and blacks “are particularly disadvantaged in the labor market and underserved by a pension system that relies on employers to voluntarily provide benefits,” says Heidi Shierholz, EPI president.

This disadvantage is a deeply rooted structural problem, the report notes, In that blacks and Hispanics typically work at the bottom rungs of the economic ladder and that their “bad jobs lead to bad retirements.”

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

“Some workers may benefit from delaying retirement to increase their savings and accrued benefits while shortening their retirement,” EPI says. “But expecting workers to work into old age is neither a viable nor a fair solution to the retirement crisis. For one thing, the increase in life expectancy has been concentrated among the highest income earners with less physically demanding jobs. On the other hand, Americans already work more, and longer, than workers in most countries of their age.

The pandemic is another problem. The Brookings Institution says ‘long Covid’ is keeping millions out of the workforce. Many workers at the lower rungs of the ladder may not have the luxury of working from home and may have to choose between risking their health or giving up the measly job they currently have.

This painful reality underscores the sheer importance of the two benefits that minority workers can count on: social security and health care.

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The financial protection afforded by Social Security is especially important for black and Hispanic workers and other workers of color, says Acting Social Welfare Commissioner Kilolo Kijakazi, who notes that it makes up a “large share of total retirement income and of disability for people of color and for women.” She calls “structural barriers” that “contribute to economic well-being inequality” for these groups.

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There are a number of policy proposals that could erode 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 to older workers. And what about better enforcement of age discrimination laws? That is, if workers knew their rights and what they could do if they felt discriminated against because of their age.

Can any of these things happen? Aside from better enforcement of age discrimination laws that are already in the books, the political divide that is about to define Washington – with Democrats still holding the Senate, but Republicans grabbing the House – suggests a block for the next two years.

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