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Why ‘work longer’ isn’t great retirement advice

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

But such advice presumes that 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 on what? Most folks have a fraction of the assets they’ll need. And pensions? Unless you work for the government—state, local or federal—chances are you don’t have one. 

Read: Social Security recipients are missing out on $182,000 by claiming too early, study finds

It’s flaws like this—the refusal of increasingly more companies to shift the finances of retirement off their balance sheets and onto the backs of their workers—that mean millions have to keep working whether they’d like to or not. However, notes a sweeping report by the Economic Policy Institute (EPI), a Washington, D.C.-based nonprofit, nonpartisan think tank, “many face barriers to working longer and lack access to decent jobs with decent pay. Older workers who cannot afford to retire often face diminishing job quality and earnings as a result of loss of bargaining power.”

It’s a painful Catch-22. 

There’s a racial divide here, too. The Federal Reserve, in a 2020 report, said that white families have the highest level of both median and mean family wealth: $188,200 and $983,400, respectively. Median—which means half have more and half have less—is the key figure here. If half of white families have less than $188,000, that suggests about $7,500 can be withdrawn each year to live on, using the often-recommended 4% withdrawal rule. That’s a paltry $625 per month, before taxes.  

Think that’s bad? Now consider the Fed’s data on Hispanic and Black and Hispanic families. The median wealth for Hispanics is $36,100, while for Black families it is a meager $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,” says Heidi Shierholz, EPI’s president.

This disadvantage is a deeply-rooted, structural problem, the report notes, in that Blacks and Hispanics typically work on lower rungs of the economic ladder, and that their “bad jobs lead to bad retirements.” 

But again, even a “bad retirement” isn’t an option, given the savings rates mentioned above. Thus, many workers are forced by economic necessity to keep on working, usually in the same kind of lower-paying jobs with minimal—at best—benefits. In other words, there’s 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 feasible nor an equitable solution to the retirement crisis. For one thing, the increase in life expectancy has been concentrated among higher earners with jobs that are less physically demanding. For another, Americans already work more, and longer, than workers in most peer countries.”

The pandemic is yet another problem. The Brookings Institution claims that “long Covid” is keeping millions out of the labor force. Many workers on 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 meager job they currently have.    

This painful reality underscores the utter importance of the two benefits that minority workers can rely on: Social Security and Medicare.  

Read: Don’t make these 5 mistakes during Medicare open enrollment

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

Read: Are you fit for your age, or are you frail? Here’s how to find out.

There are numerous 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 how about better enforcement of age discrimination laws? That is, if workers knew their rights and what they could do if they felt they were being discriminated against because of their age. 

Can any of these things happen? Aside from better enforcement of age discrimination laws that are already on the books, the political divide that is about to define Washington—with Democrats continuing to hold the Senate, but Republicans seizing the House—suggests gridlock for the next two years.

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