NewRetirement Retirement News Digest : Working in Retirement

The case against retirement

jberman — Tue, 17 Nov 2009 10:33:00 GMT

MSNBC, November 15th, 2009

Ah, retirement! Before the 1950s it was something only the wealthy could afford to do. Everyone else needed an income, and most folks struggled to get by in the industrial economy as their faculties deteriorated. Back in the days before 401(k)s—let alone Social Security—older people faced the kind of pressures portrayed by filmmaker D.W. Griffith in his melodramatic 1911 silent film What Shall We Do With Our Old? It's a sad tale of the setbacks endured by an elderly couple, the wife ailing, the husband tossed off the assembly line to make way for a younger worker.

Griffith was one of many social activists calling for a social insurance system to provide an income for the elderly. The social reformist dream became reality with the 1935 Social Security Act, the spread of the corporate defined benefit pension plan, and Medicare in 1965. For most workers the last stage of life became a time of leisure, recreation, and enjoyment.

The Age of Retirement was one of America's most successful social reforms ever. But that era is over. A new vision of old age is emerging from the trauma of the credit crunch and the Great Recession: Forget retirement. Keep working.

A long time coming
Surveys show that a majority of baby boomers say they want to work during their golden years. They're going to get their wish. The key question is no longer "How early can I retire?" It's "Why retire?"

Of course, like all tectonic social and economic shifts, the trend isn't new. It has been building for the past three decades with the move away from traditional pensions with their involuntary contributions and steady payout for 401(k)-type plans with their voluntary contributions and uncertain returns. We're also living longer. That's good news, but it does mean that to maintain their standard of living the elderly have to either earn a paycheck longer or save more—a lot more.

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Half of Laid-Off Workers Raid 401(k)s

jberman — Fri, 06 Nov 2009 10:27:00 GMT

US News & World Report, November 4th, 2009

Almost half of laid-off workers succumbed to the temptation of spending their retirement stash last year. Some 46 percent of retirement savers who left their job in 2008 cashed out their 401(k), according to a new Hewitt Associates study of 170,000 401(k) participants who terminated employment last year. The rest kept their savings in their prior employer’s 401(k) plan (29 percent) or rolled the money over into an IRA or a new employer’s 401(k) plan (25 percent).

[See 7 Things to Consider Before You Move Your Nest Egg into an IRA.]

Workers with small 401(k) balances were the most likely to raid their retirement account. Some 85 percent of retirement savers with balances under $1,000 cashed out or were forced out of the plan due to low balance provisions and 45 percent of employees with between $1,000 and $5,000 saved for retirement withdrew the cash. More diligent savers generally left their retirement stash to further accumulate, tax deferred. Just 17 percent of workers with between $20,000 and $99,999 in their retirement account requested a cash distribution and only 8 percent of those with 6 figures accumulated cashed out.

[See 5 Ways to Protect Your 401(k) if You're Laid Off.]

Younger employees also tended to withdraw the cash and pay the resulting penalties when they left a job. Some 60 percent of 20-something employees took a cash distribution from their 401(k) compared to 34 percent of those in their 50s. But 20-somethings give up a huge amount of compounding interest when they cash out even small balances. For example, an employee who cashes out $5,000 from a 401(k) at age 25 will receive just $3,500 after paying a 10 percent early withdrawal penalty and income tax, assuming the worker is in the 20 percent tax bracket. If the same worker simply left that $5,000 in a tax-deferred account and earned a 7 percent return annually, he would have $75,000 at age 65, according to Hewitt calculations.

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More Americans plan to delay retirement: surveys

jberman — Fri, 23 Oct 2009 09:24:00 GMT

Reuters, October 23rd, 2009

More Americans plan to delay retirement following steep drops in the value of their savings accounts, data from several new surveys show.

A study to be released on Thursday by Canadian insurer Sun Life Financial Inc found 65 percent of U.S. workers plan to stay on the job at least one more year than planned, an 11 percentage point increase from a similar survey in January.

"There is a huge drop in confidence that has taken place," because of the fall of stock markets since 2007, Wes Thompson, president of Sun Life's U.S. division, told Reuters in an interview. At the same time, longer life expectancies mean individuals need to build up more savings before they stop working.

"It's not retire at 65, get ready to die at 70," Thompson said.

The survey was conducted in September of 2009, when stock markets had already begun their recovery.

Also, a forthcoming study by Prudential Financial Inc found that 66 percent of respondents over the age of 45 said they may need to work longer than expected to afford retirement.

And a recent survey by mutual fund giant Vanguard Group Inc of Pennsylvania found that 45 percent of American investors said putting off retirement was "possible" and the figure was nine percent points higher among people in their fifties.

It was the first year Vanguard has done the survey and the results were a striking reminder of the psychological impact of market declines, said Steve Utkus, head of Vanguard's Center for Retirement Research.

"There's this idea that more work is a way to remedy market losses or lack of savings," he said.

An obvious follow-up question he plans to explore is whether investors who do not plan to work longer feel they still have enough for a comfortable retirement -- or whether they have simply lowered their expectations.

For a Healthy Retirement, Keep Working

jberman — Wed, 21 Oct 2009 01:27:00 GMT

The New York Times, October 19th, 2009

Many people view retirement as a time to stop working. But new research shows that people who take on full- or part-time jobs after retirement have better health.

The finding is based on data collected from 12,189 men and women over a 6-year period. The participants, who were from ages 51 to 61 at the start of the study, answered questions about their employment history, experiences after retirement and their physical and mental health.

Researchers from the University of Maryland found that men and women who kept working after retirement had fewer major diseases or disabilities than those who quit work, according to the study published this month in the Journal of Occupational Health Psychology. Retirees benefited whether the work was a full- or part-time job, self-employment or temporary.

Doctors have long known that staying active during the older years is associated with better health. But the question is whether working keeps older people healthy, or whether the people who continue working are able to do so because they were healthier to start with. But the new study controlled for health before retirement and found that post-retirement work had a distinct effect on health. Notably, the hours a person worked didn’t matter, showing that both part-time and full-time employment are beneficial after retirement.

While working after retirement is good for you, the data also suggest that retirees shouldn’t take on just any job. Among those who kept working, the retirees who found work related to their previous careers had the best mental health. The study authors speculated that working outside a person’s main area of expertise might lead to more stress, explaining the lower mental health for people who worked outside their main career field. Switching careers after retirement may also be a sign that the person had to find some form of work to cope with financial problems.

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Phased retirement could be for you

jberman — Wed, 12 Aug 2009 07:00:00 GMT

Montgomery Advertiser, August 11th, 2009

The mass baby boomer re tirement anticipated over the next 20-30 years is expected to create an overall U.S. labor shortage of 35 million workers.
That's potentially good news for future retirees who either want to work or need to work due to the recent investment downturn.

Employment related studies indicate that many employers will become more creative in structuring their jobs to meet the future labor shortage. One solution is called "phased retirement." With many retirement plan balances down significantly from our current recession, this may be an ideal answer for some middle age workers who have less assets going into retirement.

So what is phased retirement? Conventionally, it's the process of allowing employees who have reached 591/2 to cut their hours while voluntarily receiving a pro-rata portion of their pension payout. The company gets to keep its intellectual capital in place a little longer while the worker gets to transition into retirement gradually while accessing some of their retirement assets along the way.

Provisions in the Pension Protection Act of 2006 made it easier for companies to create phased retirement strategies. In addition to retaining current employees, some employers are reconsidering their policies toward rehiring existing retirees.

What kind of consideration process should you undertake if your employer offers this option? A good first step is to consult your CFP and CPA to talk through the possibilities.

Envision how a phased retirement or return to your workplace would affect your life: If you're reviewing your retirement planning at any age, it makes sense to ask yourself under what conditions you'd leave the workplace or return to it.

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Older workers hang on to jobs longer, often out of necessity

jberman — Tue, 11 Aug 2009 09:09:00 GMT

Miami Herald, August 9th, 2009

Americans have been losing their jobs in droves, yet one group has gained ground in employment during this recession: workers 55 and older.

The reason - economic necessity - says a lot about what aging baby boomers may face as retirement age approaches.

The nation's unemployment rate stood at 9.5 percent in June and is expected to top 10 percent before a sustainable growth cycle ends the recession. Americans of all working-age groups have lost a significant number of jobs in the downturn, but older workers have fared less poorly as a percentage of the work force.

"Everyone is seeing huge increases in unemployment - people dropping out of the labor force across the board - but older workers have seen a big increase in labor-force participation since the start of the recession. And I think it has a lot to do with declining retirement security," said Heidi Shierholz, an economist with the Economic Policy Institute, a liberal research group.

A close look at work force data reveals that when the recession began in December 2007, workers 55 and older constituted 18 percent of the labor market. Today, they make up more than 19 percent. That means more Americans are working well into what would have been retirement, by choice and, increasingly, by necessity. In addition, the jobless rate for that age group is rising more slowly than it is for younger groups.

The economic crisis has condemned many baby boomers - the roughly 75 million Americans born from 1946 to 1964 - to longer working lives.

"For older people right now, the crisis is not jobs, it is wealth," Shierholz said. "They thought they had money tied up in their homes, and that's gone or halved. If they have a 401(k), they've also seen a decline there ... they are simply not leaving the labor force. In fact, they are still coming in."

Older workers are hanging on longer, and the Employee Benefit Research Institute, a clearinghouse for information on all things related to pensions and benefits, put out a study Tuesday that helped explain why. It estimated that the median value of assets in 401(k) plans and individual retirement accounts fell by at least 15 percent from the end of 2007 through mid-June.

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Hired! Coming out of retirement at 65

jberman — Sat, 08 Aug 2009 07:40:00 GMT

CNN Money, August 7th, 2009

Forget lazy days rocking on a creaky porch swing, these days working is the new retirement.

Last year's severe market losses left many once-healthy retirement accounts depleted, forcing many seniors to put their retirement plans on hold and head back to work.

There were 450,000 people age 65 and over actively looking for work in July, a whopping 60% increase from a year ago, according to the Bureau of Labor Statistics.

Boyd Barger was one of them --until just recently when he found a job. After a long career in the Air Force, Barger climbed the corporate ladder to senior management at the Dept. of Labor's Job Corps program. He retired three years ago.

Barger opened a small arts and antiques business out of his home to supplement his retirement plans.

"The first year was OK," he said, "but then the economy turned."

Like many small businesses, sales grew sluggish as the recession took hold. That's when, in April, Barger, 65, decided he needed to go back to work.

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Senior workers delay retirement

jberman — Fri, 24 Jul 2009 09:11:00 GMT

CNN Money, July 23rd, 2009

Retirement dreams are quickly fading for thousands of older workers, as the severe market losses that ravaged once-healthy retirement accounts over the last year force many seniors to work longer.

There were 430,000 people age 65 and over actively looking for work in June, a whopping 46% increase from a year ago, according to the Bureau of Labor Statistics.

Many who once expected to retire at 62 now expect to work until at least 65, said Sara Rix, a policy analyst with AARP's Public Policy Institute. A need for money was the most common culprit cited by workers surveyed by the AARP.

"A lot of people who thought their funds would carry them into their golden years are being forced to work," said Ford Myers, president of Career Potential, LLC, a Pennsylvania-based career consulting firm, and author of the book, "Get the Job You Want, Even When No One's Hiring."

"If they already have a job, then it's a little bit easier," he added, but for those trying to find a job or get back into the work force after retiring, "it's a lot more challenging."

For seniors age 65 and older who are out of work and in need of a job, these are the worst times on record. The unemployment rate for people actively looking for work within that age group jumped to an all-time high of 6.8% in June, up from 6.1% in May.

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How much is enough for retirement? Consider what's important in your life

jberman — Fri, 26 Jun 2009 08:30:00 GMT

Boston Globe, June 24th, 2009

I have enough. I hope you find you do, too, when you consider what’s really important in your life.

I’ve pondered the question of how much is enough after receiving a perceptive e-mail from a reader and review copies of two thought-provoking books.

The e-mail, from a longtime reader in Wisconsin, embodies the philosophy guiding my own semiretirement.

“Many of my 50-something friends are wasting some invaluable time that they’ve been given on Earth,’’ this reader said. They are caught up in an “earning and spending cycle’’ (must keep working hard so they can keep buying things they don’t really need) while worrying they’ll need to save a lot of money to retire.

“I can’t believe the number of smart, talented friends I have who are not particularly happy doing what they are doing,’’ the reader said. But they believe “they must continue so they can stop working at (fill-in-the-blank age) to play golf or sit by the pool.’’

I must agree. What a waste, doing something you don’t like so eventually you can stop and do . . . nothing?

Why not pursue your passions even if the pay is less? (This reader did, returning to school for a degree in a different field.) If you love what you do, you may never feel the need to totally retire, or at least won’t mind working a few more years. Retirement, as this reader said, would be a time to work for joy and learn new things.

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Not Your Grandfather's Retirement

jberman — Tue, 19 May 2009 09:14:00 GMT

CBS News, May 17th, 2009

John Bauer was a high school teacher in Michigan before retiring to Asheville, and getting a part-time job as a tour guide at the Biltmore Estate.

"Why do I wanna keep on teaching when I can retire financially and I can try something completely different?" he asked.

Americans just aren't retiring the way they used to ...

"We don't want to just sit down and vegetate," said Jim Wyatt.

And you don't have to go very far from the Biltmore Estate to see how they're redesigning the whole notion.

Nancy Long spent her career writing for newspapers and magazines. Now she's a volunteer docent at the Asheville Art Museum.

Long and her husband, Al, were attracted to Asheville, N.C., because for a small city, it has a lot going on culturally.

But the big selling point was the fact that they could live right downtown and walk everywhere, a growing trend among retirees.

The Longs live in a compact loft in an old commercial building, but here's the kicker: When they retired, they actually lived in Florida … and moved away.

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Retirement Often Happens Unexpectedly

tsaleen — Mon, 06 Apr 2009 14:59:00 GMT

US News & World Report - March 31, 2009

We like to think that if we plan and save throughout our working lives, a secure retirement is within reach. But retirement often happens unexpectedly. A lay off, health problem, or the illness of a relative can derail retirement plans in an instant.

Few people make it to age 40 without a sudden event shocking their finances. A new survey of 1,200 adults between ages 40 and 79 found that 57 percent had already experienced a major life crisis such as a job loss (18 percent), divorce (29 percent), death of a spouse or life partner (10 percent), a serious illness or long-term disability for you or a spouse (24 percent), or the illness or disability of a child (7 percent). Only about 43 percent of those surveyed made it to middle age or older unscathed, AARP Financial Inc. and Boston Research Group found.

The emotional toll of any of these events can be devastating. So can the financial toll. “Life crises are the perfect storms of personal finance— where the need for consequential and frequently urgent financial decisions meets an emotional hurricane,” says Richard Hisey, president of AARP Financial Inc. Unexpected job loss or a serious illness took the most obvious financial toll in the survey. About half of those who experienced job loss said they were unprepared to deal with the financial consequences.

The number of seniors who need or want to work during the traditional retirement years is rapidly growing. About 433,000 unemployed Americans age 65 and older were actively seeking employment in February, more than twice as many as in November 2007, just before the recession began. Another 1.3 million adults age 55 to 64 were unemployed. “This is a daunting economy for older people. A lot of older people are coming to see us that are scared or bewildered,” says Cynthia Metzler, president and CEO of Experience Works, a nonprofit organization that helps older people retrain for new jobs. “We have people who are in their 80s who are taking on new jobs.”

Baby boomers need to find a way to take back control of their retirement plans by preparing for the current job situation and creating a back up plan while still employed in case one of these unforeseen events should threaten retirement plans. Last year the Planning to Retire blog told 7 personal stores of unplanned retirement including a telecommunications manager forced into early retirement, an occupational therapist who scaled back her work hours to help care for her mother, and a 57-year-old guest lecturer who became unable to work due to Alzheimer's disease. Also, check out these 4 tips for getting an unexpected retirement back on track.

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Skills to Learn, to Restart Earnings

tsaleen — Fri, 03 Apr 2009 21:51:00 GMT

The New York Times - April 1, 2009

Justin Williams worked as an engineer at Honeywell International for 31 years, and when he retired last April, he knew he could not afford to stop working. His home in suburban Maryland, on which he had spent his 401(k) savings, was losing value, and his pension did not replace enough of his former income.Mr. Williams, 65, took stock. He did not want another job in engineering. In past years he had volunteered in public schools, helping young children learn reading and math.

Then he did what increasing numbers of older Americans are doing, especially as the economy sours — he enrolled in community college.

“I realized there was a need for educators,” in large part because so many teachers are retiring, he said of his choice, an accelerated program in early education at Prince George’s Community College in Largo, Md. “I saw things I could do as well or better.”

The impact of the economic and stock market declines on retirees and workers about to retire has been especially pronounced. While younger workers have time to recover some of their losses, many older workers and retirees have to follow Mr. Williams’s example and remake themselves for the job market.

In many cases, they find that their skills, experience and contacts are not enough. So they send themselves off to community colleges or training programs, where they are often surrounded by people far younger, and they have no realistic expectation that whatever new job they might find will produce income comparable to their previous one. In all, it’s daunting.

“Major professionals we’re seeing are going back to work for lower salaries” and often downplaying their accomplishments on their résumés, said Margo Brewer, senior educational director at National Able Network, a nonprofit counseling, placement and training service based in Chicago that receives public and private financing. “The upper-income jobs just are not as available as they once were. And a lot of companies are hesitant to hire full-time staff,” so they are instead creating temporary jobs.

Many community colleges have started to cater to older people, offering incentives that include free tax preparation and valet parking, said Susan Porter Robinson, vice president of lifelong learning at the American Council on Education. Often employers in an area work with community colleges to develop curriculums geared toward actual job needs, sometimes providing scholarships or promises of jobs after graduation.

Coursework tends to be focused and practical, and tuition well below that of universities, Ms. Robinson said.

“Older adults tell us they’re interested in certificate training that will be quick,” she said. “They don’t have two years. What they may be missing are what I call skill-ettes. Right now there’s pressing needs for people in fields like teaching and the health sciences, so that’s where a lot of the classes are.”

The hot fields for older workers are the same as those for younger ones: health care, alternative energy and education, and the economic stimulus program is expected to create jobs with the federal government, said Charlene M. Dukes, president of Prince George’s Community College.

Both employers and schools are recognizing older workers as an untapped resource, said Laura A. Robbins, director of the program on aging in the United States for the Atlantic Philanthropies, which provides grant money to community colleges and other programs for retraining workers over age 50. “You can get community colleges, universities, volunteer networks and employment agencies all in a unified network like a wheel with spokes. But I can’t tell you that there’s a silver bullet right now.”

Like others interviewed for this article, Dr. Dukes said available job opportunities were clustered around the national median household income of $51,000. The school discourages six-figure expectations, she said.

“There’s not currently a lot of pathways to help older adults go to the next thing,” Ms. Robbins said. “It’s not just a short-term emergency problem.”

For Mr. Williams, the path began at a friend’s birthday party, where he learned that the community college provided nearly free tuition to students over age 60 and that it had a one-year program leading to an associate’s degree in early education. Now back in school, Mr. Williams and his wife, Cookie, are providing day care in their home, which they hope to expand to a day care center and eventually a private school.

“I enjoy going back to school more than I did in the early days,” he said. “It’s a pleasure, though I’m usually the oldest person in the class.”

He said he was happy to be active and building a business — one not at all related to his previous professional experience. “I never saw retirement as laying back on a beach,” he said. “It can’t replace the money I made at Honeywell, but my lifestyle is such that I don’t need to replace it all.”

For job-seekers of any age, the market is tight but not impossible, said Ms. Brewer of National Able Network. “It appears there are jobs everywhere but in limited numbers,” she said. “It’s a matter of matching skills.”

One retiree who came through Ms. Brewer’s program is Rae Lynn Schneider, 61, of Chicago.

Ms. Schneider taught in Chicago’s public schools for 34 years and retired in 2003 with full benefits. She thought her pension and savings would provide enough for her to live comfortably, including travel overseas. But now her annuity no longer looks certain because it’s invested in the stock market.

She did not want another teaching job, in part because she wanted to work close to her home, so she took an eight-week class in basic computer skills and earned a certificate in customer service.

With that in hand, Ms. Schneider found a seasonal job at an American Girl store near her home, and she discovered that her skills as a teacher transferred well to retail: she was used to being on her feet, she was a good communicator and comfortable speaking in public, and she was punctual and orderly.

“In this job market, I said, ‘How am I going to get in?’ ” she said. On the advice of friends and job counselors, she dyed her gray hair blond.

She said the training she got at National Able Network gave her self-confidence, as well as contacts.

“The group I was in really bonded, just in studying the material, which was not easy,” she said. “It was mostly women in their late 50s and early 60s. We have similar problems.”

Ms. Schneider’s job ended in January, but she is hoping to be rehired this summer. Though the income is below what she earned as a teacher, it is a welcome supplement to her pension, she said. And when the economy recovers, she may be in a good position to earn more, she said.

Peter Cappelli, director of the Center for Human Resources at the Wharton School of the University of Pennsylvania, said he did not recommend retraining for workers who had successful careers. Instead, he suggested that they consider part-time or contract work in their fields, where they can use their experience and skills to their advantage.

“If someone has I.T. experience but they haven’t programmed in a while, it might make sense to take a couple classes,” he said. “Or if a C.P.A. has mainly been in management, he could go back and get his accounting skills up to date. But if you’re an accounting guy and you want to go to school to learn marketing, then you’re not making use of the skills you acquired over the years. You’re going to be competing in the job market without a competitive advantage.”

The good news for older workers, he said, is that they may be more flexible about taking part-time or seasonal work, unless they have to replace a large income. In surveys, older workers and retirees say they want jobs without the time demands or pressures of their old career tracks.

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Recessions and Older Workers

tsaleen — Wed, 21 Jan 2009 22:57:00 GMT

Center for Retirement Research at Boston College - January 20, 2009

With the economy sliding ever deeper into recession, questions arise about how older workers are faring and how their fate relative to younger workers compares to the past. The answer to these questions turns out to be a little complicated. Two forces are at work. On the one hand, labor force participation among older workers has been rising since the early 1990s, a reversal of the long-standing trend toward ever-earlier retirement. Participation rates among older workers have even continued to rise during both of the recessions in this decade – a dramatic change from previous experience. On the other hand, the edge that older workers used to have relative to younger workers when it comes to layoffs seems to have disappeared, so the rise in the unemployment rate for older workers in recessions now looks similar to that for younger workers. Of the two forces, the trend growth in labor force participation appears to dominate, which has helped keep the employment rate of older workers from falling during the current recession. This pattern contrasts sharply with the far more typical decline in employment rates for workers under age 55...

This brief is organized as follows. The first section discusses the upward trend in the labor force participation of older men. The second section explores why older men may have lost some of their edge with regard to job security. The third section looks at how these two developments – the secular upward trend in labor force participation and the heightened vulnerability to layoffs relative to younger workers – have affected the employment rates of older men in this recession compared to earlier ones. The fourth section concludes.

More Older Men Are Working

Since the early 1990s, the labor force participation rate of men 55 and over has steadily increased, reversing a long-standing trend toward earlier retirements (see Figure 1 on the next page).1 Important explanations for this reversal include changes in Social Security and employer-sponsored pensions. But a number of other factors may also have played a significant role.

Changes in the Social Security Program

Changes in the Social Security program have made work more attractive vis-à-vis retirement. First, Congress liberalized and, for some, eliminated the earnings test, which withholds some or all benefits of workers who earn more than specified amounts. The government originally imposed an earnings test because Social Security was conceived as insurance against a loss of earnings due to disability, death or old age. Because most beneficiaries were unaware that the reduction in benefits while working triggered an increase in benefits later, the earnings test seemed like a tax and encouraged large numbers of people to retire early.2 In recent years, Congress increased the exempt amount for all beneficiaries subject to the earnings test. And, for beneficiaries between the Full Retirement Age and 70, it eliminated the test altogether beginning in 2000.3 Most studies suggest that the earnings test has a substantial impact on the work effort of older people.4

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Survey finds older Americans cutting spending

tsaleen — Sun, 11 Jan 2009 17:29:00 GMT

Reuters - January 6, 2009

Older Americans are spending less on entertainment and restaurant meals as the recession forces them to focus on paying for essentials such as food, gas and medicine, a survey released on Tuesday said.

A survey of Americans aged 45 and older conducted for the AARP, an influential advocacy group for people over 50, found many had suffered savings and investment losses and planned to postpone retirement.

About 57 percent of people aged 45-54 and about 63 percent aged 55 to 64 who suffered investment setbacks said they expected to work longer because of their losses.

The survey of 1,097 people aged 45 and older was conducted in December by Woelfel Research. About 91 percent of those surveyed said the U.S. economy was in bad shape, compared to 81 percent the previous April. The recession officially began in December 2007.

About 68 percent of those surveyed last month had cut entertainment spending and 64 percent were eating out less.

About 52 percent had difficulty covering basic expenses like food, gas and medicine last year.

"However, reports of such challenges were less common in December than in April, which most likely reflects the recent slowdown in inflation, including declining energy prices, during the second half of 2008," AARP said.

Thirty six percent of those surveyed stopped putting money into a 401K or other retirement saving account while 17 percent prematurely withdrew retirement funds.

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Plan B for retirees who counted on home equity

tsaleen — Tue, 06 Jan 2009 23:04:00 GMT

Google News - Jan 2, 2009.

The safety net is almost gone, the nest egg is cracking.

Many Americans have recently found themselves changing retirement plans after losing a substantial amount of home equity as the housing market and the overall U.S. economy struggle. These folks face years of living on fixed incomes from pensions, 401Ks or IRAs, and Social Security, but don't have the time to recover their losses.

Homeowners who've tapped their home equity, then spent it like yellow-and-blue Monopoly money, find themselves with no more funds to extract. Some have been laid off, relinquished their home in a foreclosure, or lost pensions after their employers' business failed. Ideas of a comfy retirement full of relaxation and travel have been abandoned.

The good news is about 30 percent of homeowners have no mortgage at all. So even though their properties are probably worth less now than a few years ago, these people can tap into that equity cushion if necessary.

The bad news, however, is that about one in six with a mortgage now owe the bank more than their homes are worth, according to Moody's economy.com. Most of these are property owners who purchased their homes within the past few years, or refinanced their properties and siphoned off too much equity.

Knowing that, it's time for Americans to explore other options other than relying on home equity as a fail-safe, especially if they have no other retirement investments or savings. Options include downsizing their home, selling assets, postponing retirement by working longer, and signing up for a reverse mortgage. These decisions require heavy thought because each has its challenges and risks.

Choices have been difficult for Ken King, 61, who once planned to retire in his early to mid-60s. The value of his home has dropped $70,000, so he's scrapped plans to sell the five-bedroom house and downsize, because the savings won't be substantial enough to make it a smart move. He's also seen his 401k lose value.

So, King, a credit counselor in Sheboygan, Wis., says he will likely work into his early 70s to compensate.

"This is something I wouldn't have considered even thinking about 1 1/2 years ago," said King, adding that priorities have changed this year among those he counsels.

"A year ago, we were talking to people about what they need to do just to make it," King said. "Now we're talking to people about what they have to do to survive."

King's own strategy of working longer is actually a growing trend. AARP reported in April that almost one in four people from age 45 to 54 planned to delay retirement, with one in five people ages 55 to 64 thinking the same.

Staying on the job has benefits besides a paycheck. Employment is often a requisite in qualifying for mortgage refinancing, a good option for those with equity and good credit because rates have fallen to historic lows. But refinancing becomes almost impossible for seniors on fixed incomes with no job or equity.

The scenario becomes more serious if the senior has stopped working and wants to return to the work force, especially as health issues crop up and competition for jobs increases, said George Moschis, director of the Center for Mature Consumer Studies at Georgia State University.

By working later in life, pre-retirees also can consider putting off collecting Social Security, a strategy that could lead higher monthly payouts once they do start collecting.

Finding a smaller and less expensive home has long been relied upon to bolster retirement budgets. Ideally, profits from the sale of a larger home can be used to buy the smaller home with cash, with no mortgage, and the homeowner can pocket the rest. But the current environment of falling home values and tight credit has made home buying a selling a more difficult proposition in many markets.

Another way to shore up retirement accounts is selling off assets, including cars, second homes, stocks and expensive jewelry. They often have emotional attachments that don't match their resale values.

"Spending was really the norm for (baby boomers), buying and having, becoming more materialistic than previous generations," Moschis said of the more than 75 million baby boomers who are approaching or have reached retirement age. "What that really led to primarily was debt."

Options such as working longer and selling assets are not as risky as reverse mortgages or selling life insurance policies, two instruments marketed as ways to free up retirement cash.

A reverse mortgage allows homeowners to borrow from the home's equity in a lump sum, line of credit or regular payments, while not having to pay a monthly mortgage. The homeowner retains title and must pay insurance and property taxes while living there.

The loan and fees are due once all parties listed on the deed die, or the home is vacated for 12 straight months. The home is usually sold, and the proceeds from the sale are used to pay off the loan, plus interest and fees that can be up to 4 to 8 percent of the loan.

Reverse mortgages have become more attractive because the government raised lending limits to $417,000 last year, noted Eric Bachman, chief executive of Golden Gateway Financial in Oakland, Calif. But as equity drops, so does the amount one can borrow in a reverse mortgage, so timing is key.

However, experts such as AARP financial "ambassador" Jonathan Pond say reverse mortgages should be something of a last resort, because of high fees and the complicated nature of the loans. Reverse mortgages also mean the home will probably be sold at the end of the loan, mainly because the homeowner, or an heir, will want cash to pay off the mortgage. Seniors who want to leave their homestead to their children may not want to get a reverse mortgage.

Education is key, because of fears that reverse mortgage complexities could be used to trick seniors. To wit, the American Association of Residential Mortgage Regulators and the Conference of State Bank Supervisors established guidelines to be used starting early 2009 to review lenders and brokers selling reverse mortgages to seniors.

The guidelines are meant to guard consumers against fraud and abuse, "such as the simultaneous sale of unsuitable investments or deceptive sales practices," according to a December news release from the groups.

Finally, desperate seniors can sell their life insurance policy, either back to their insurer or on the private market. Bachman says insurers typically return 3 to 5 percent of the face value of the loan if it is bought back, but selling it on the private market could earn several times more.

This move, called a "life settlement," is risky because it leaves seniors without life insurance and financial security they had once desired to leave behind for loved ones.

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