Financial planners typically advise you to work as long as possible so you can leverage your retirement savings while you wait for a fatter Social Security check.
But such advice assumes you have the luxury of deciding when to stop working. Tens of millions of Americans do not.
Here’s the truth: Retiring early – or even at full retirement age – is nothing more than a joke to those tens of millions. Retire to what? Most people have a fraction of the assets they need. And pensions? Unless you work for the government – state, local or federal – chances are you don’t have one.
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It’s flaws like this—the refusal of more and more companies to shift retirement finances off their balance sheets and onto the backs of their employees—that keep millions of people working whether they want to or not. However, notes a comprehensive report from the Economic Policy Institute (EPI), a Washington, D.C.-based non-profit, nonpartisan think tank, “many face barriers to working longer and are unable to access decent jobs with decent wages. . Older workers who cannot afford to retire often face declining quality of work and diminishing income due to loss of bargaining power.”
It’s a painful Catch-22.
Here, too, there is a racial divide. The Federal Reserve said in a 2020 report that white families have the highest levels of both median and median 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 If half of white families have less than $188,000, that suggests about $7,500 could be withdrawn each year to live on, using the commonly recommended 4% withdrawal rule. That’s a paltry $625 a month, pre-tax.
Do you think that’s 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 paltry $24,100.
Hispanics and blacks “are particularly disadvantaged in the labor market and ill-served by a retirement system that relies on employers to voluntarily provide benefits,” said EPI president Heidi Shierholz.
This drawback 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 retirements.”
But then again, even a “bad retirement” isn’t an option 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 benefits at best. 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,” says EPI. “However, expecting employees to continue working into old age is not a viable or just solution to the pension crisis. On the one hand, the increase in life expectancy is concentrated among higher incomes with jobs that are less physically demanding. On the other hand, Americans have been working more and longer than workers in most comparable countries.”
The pandemic is yet another problem. The Brookings Institution claims “long Covid” is keeping millions from the workforce. Many employees at the bottom 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 meager job they currently have.
This painful reality underlines the great importance of the two benefits on which minority workers can rely: social security and health care.
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The financial protection provided by Social Security is especially important for black and Hispanic workers, and other workers of color, says Acting Social Security Commissioner Kilolo Kijakazi, noting that it makes up a “large portion of total retirement and disability income for people of color and for women.” She cites “structural barriers” that “contribute to inequalities of economic well-being” for these groups.
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There are numerous policy proposals that could erode these structural barriers. The EPI report suggests expanding the tax credit for earned income, which could help more adults without dependent children. Tax breaks could offset the cost of health insurance for older workers. And what about better enforcement of age discrimination laws? That is, if workers knew what their rights were and what they could do if they felt they were being discriminated against because of their age.
Could any of these things happen? Aside from better enforcement of the age discrimination laws already on the books, the political divide about to define Washington state — with Democrats holding the Senate but Republicans capturing the House — suggests a stalemate for the next few years. two years.