Retirees ‘going through hell’ with declining markets, housing crisis

WASHINGTON — At the end of working lives where deprivation rarely dwelled, older Americans now worry that they’re teetering at the edge of their own Great Depression.

“Right now, older Americans — those retired or about to retire — are going through hell,” said Alicia H. Munnell, director of the Center for Retirement Research at Boston College. “They’re seeing the value of their 401(k) assets decline and facing risks that assets will go down even more in the future.”

No demographic group faces greater financial danger as Congress debates President Bush’s proposed $700 billion bailout of the financial services industry.

People over 60 own nearly half of all equities, and have seen this wealth — and their sense of security — plummet in recent months. Likewise, after paying mortgages for decades and counting on rising home values to help fund their retirements, they’ve been blind-sided by the fall in real-estate prices. And those with fixed incomes from pensions see inflation returning to gobble up their nest eggs.

This age group has matured mostly amid prosperity and knows of the historic hardships of the 1930s only from their parents’ stories. Now, ready to enjoy retirement, they may be asked to help pay higher taxes because of the blunders of financiers.

The fear and resentment of older Americans is evident on the Web site of AARP, the nation’s largest organization for those over 50.

“I’m tired of being treated like sheeple. I don’t trust anybody in authority any more,” complained one writer. “People who were careful, didn’t go into debt, saved and scrimped, are going to be the ones who have to pay for this bailout. They will see the value of their dollars go down and their taxes go up to pay for the recklessness of those we trusted to keep our country strong.”

“I feel AARP needs to urgently address the issue of the proposed bailout!” wrote another. “I feel it will result in massive inflation, and an erosion of all retirees’ standard of living.”

But some economists say older Americans especially need the bailout to succeed — and succeed quickly.

“They need stability in the market,” Munnell explained. “For most, it doesn’t make sense to sell now. The $700 billion so-called bailout seems like the best chance for them to enjoy some security. It certainly seems better than not doing anything.”

Massive wealth held by those over 60

At the end of the third quarter of 2007, U.S. households and nonprofit organizations had almost $10.5 trillion in equities, the Center for Retirement Research calculated from federal data. It estimated that almost half of this was held by people over the age of 60.

Since the broad stock market has fallen by 23 percent since its peak in October 2007, the Center said, Americans over the age of 60 have seen their equity wealth fall by nearly a fourth.

“The bailout could help retirees if it boosts the stock market,” acknowledged Richard Johnson, a principal research associate at the Urban Institute in Washington. “But there are potential down sides. What is unknown is how we’re going to pay for the bailout. Big tax increases in the future would hurt retirees. Paying for the bailout could siphon money from Social Security and Medicare.”

If the massive infusion of federal money sparks more inflation, the rising prices would also land hard on retirees, Johnson said. “There are cost-of-living adjustments for Social Security, but savings are not protected and traditional defined pensions usually don’t have inflation escalators built in.”

In addition to their savings and financial investments, the economic crisis has hit older Americans where they felt most secure — in their home equity.

“It’s one thing for people to be watching on the Internet on an hour-by-hour basis and see equity prices decline. At least they can quantify how much was lost,” said Jack VanDerhei, research director for the Employee Benefit Research Institute. “It’s quite another thing to hear that the house you thought you were going to sell for half a million dollars to help pay for your retirement is now worth much less — but you don’t know how much less.”

Many people planned on using the appreciation in their paid-for houses to provide up to 50 percent of their retirement funds, he said.

And, especially in an era where many took equity out of their homes to pay children’s college costs and other expenses of middle age, older Americans are not immune to other aspects of the housing crisis.

Many in foreclosure or behind on mortgage payments

The AARP’s Public Policy Institute reported last week that 684,000 Americans older than 50 were either in foreclosure or delinquent in mortgage payments.

“The public perception is that older Americans are financially secure in their homes,” said Susan Reinhard, the institute’s director. “But the reality is that … hundreds of thousands of others are not and face unsettling uncertainty over their futures as homeowners.

“Older Americans depend on their homes both for shelter and as a retirement asset,” she pointed out. “Losing a home jeopardizes long-term financial security. For older Americans it also leaves them with limited time to recover.”

This particular crisis has another insidious aspect — older workers losing their jobs and retirement investments in one swoop, said John Laitner, an economics professor at the University of Michigan and director of the Michigan Retirement Research Center. Despite warnings to diversity their 401(k) investments, many workers — especially at financial firms — put too much of their money into their own companies, he said.

“If something goes wrong with the company, you can lose your shirt. You can lose the value of your retirement account at the same moment you lose your job. It can really leave those people high and dry,” he said.