Recession stalls some retirement plans

People currently aged 45 to 60 years old

People currently aged 45 to 60 years old really took a shellacking during the recession and, as a result, have been forced to make big changes to their retirement plans. (Credit: iStock.com)

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The Great Recession wreaked havoc on financial lives across the country, but some age groups suffered especially deep losses.

For many who were older than 65 when the bad times began, portfolios were already positioned defensively in cash and bonds, which helped shield them from steep losses. Those under 40 may have seen retirement accounts erode, but at least they could count time as a friend in recovering lost ground.

But it is those people in between -- those currently aged 45 to 60 years old -- who really took a shellacking and, as a result, have been forced to make big changes to their retirement plans. I like to think of this group as the "retirement tweeners," who, like their much younger counterparts, are trying to navigate an awkward, often precarious phase of their lives.

Retirement tweeners were the focus of a recent Conference Board report (conference board.org), "Trapped on the Worker Treadmill?" which found that 62 percent of those surveyed are planning to work longer. That's a significant increase from just two years earlier, when the group found that 42 percent of respondents expected to put off retirement.

The results surprised the report's co-author Gad Levanon, who had assumed that improving stock and housing markets would at least keep the numbers close to where they were in 2012. "It's disconcerting that the two years in which the U.S. economy seemed to finally, if fitfully, turn the corner also left so many more workers compelled to change their retirement plans late in their careers."

The report found that a toxic mix of job loss or salary reduction, investment account declines and home equity erosion led to the increase. These factors have caused Americans in all age categories to rethink when they might retire. According to the Employee Benefit Research Institute, the confidence of Americans in their ability to retire comfortably remains at historically low levels.

If everyone lost ground during the recession and has emerged from it wounded either financially or emotionally, why is this particular age group so affected? Looking at the numbers, the unemployment rate for those aged 45-60 remains about two percentage points below the current national rate of 7.9 percent, but if someone in this age group loses his or her job, the chances of securing another one within a year is much lower than for younger job applicants.

Meanwhile, as job searches linger on, many in the group have been forced to deplete savings and raid retirement accounts. As always, the timing on a fire-sale is rarely good, so many panic-stricken near-retirees simply sold out of their stock positions, regardless of whether the market was high or low.

Even if personal situations improved, many were reluctant to jump back in to the markets. As a result, 62 percent of 45- to 60-year-olds reported at least a 20 percent decline in the value of their financial assets since the start of the crisis, despite the stock market rising 120 percent from the March 2009 lows. "The cumulative effect of drawing down assets in hard times -- including the loss of future gains during the recovery -- helps explain the current plight of older workers," said Ben Cheng, the other author of The Conference Board report. "Even as economic conditions improve, many are still relying on assets to get by. And even those who've made it through the worst find themselves needing to work past retirement age to rebuild savings."

Another factor in the trend toward delaying retirement was found in the expectations for savings and investments. The report notes that low interest rates on savings accounts, certificates of deposit and government bonds has forced many pre-retirees to recalculate their future potential retirement income stream. Where many once thought 5 percent interest was "safe," the current interest rate environment has pushed that number down to 2 percent. Instead of assuming more risk with higher yielding bonds, stocks or alternative investments, many would much prefer to work longer.

And while their path back to secure retirement is a long and winding one, retirement tweeners can still reach their goals through research, careful planning and, most importantly, patience.

Jill Schlesinger is the editor at large for CBSMoneyWatch.com and writes this column for Tribune Media Services.

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