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Half of Americans over 55 may retire poor

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How badly is COVID-19 hurting Americans on the cusp of retirement? Maybe worse than we thought.

In an interview, economist Teresa Ghilarducci, a professor at The New School in New York City and one of the nation’s leading experts on retirement, told me that half—that’s right, half—of Americans aged 55 and up will retire in poverty or near poverty.

Read: Should you change your investments because it’s an election year?

“Our data is showing that, because of the COVID recession, about 50% of workers over the age of 55 will be poor or near-poor adults when they reach 65,” she said.

80% of older Americans can’t afford to retire – COVID-19 isn’t helping

How poor is that? “A person who’s 65 will be near-poor or poor if they’re living on less than $20,000 a year,” she told me. “I think we could all agree that means chronic deprivation for the rest of your life.”

This is shocking and although I’ve viewed the retirement situation in the United States as more of a chronic illness than a crisis, this would make it a crisis for millions of Americans. It also would reverse decades of progress toward eliminating poverty among the elderly, from the Social Security Act of 1935 through Medicare in 1965 and beyond. As more people turn 65 and face poverty-stricken retirements, the fiscal and political implications could be enormous.

Read: Social Security missteps could push millions of Americans into poverty

What’s behind this? People losing their jobs and health insurance because of COVID-19? Or losing the employer match on their 401(k) contributions? Or having to tap into retirement savings to cover daily expenses? “All of the above,” said Ghilarducci.

But it starts with job losses. “Older workers are losing their jobs at a faster rate, relative to younger people and relative to where they had been before than they were in the Great Recession,” she told me.

Read: Hope to retire someday? See if you can answer these 6 simple questions

Unfortunately, many of those job losses will be permanent, she fears. A report done by the New School Retirement Equity Lab found that over half of older unemployed workers may be forced into involuntary retirement. Nearly three million older workers have left the labor force since March and if the economic disruptions caused by COVID-19 continue, another million could join them soon.

“A total of four million people potentially pushed into retirement before they are ready will increase old-age poverty and exacerbate the recession,” Ghilarducci and her colleagues wrote.

Read: Today’s older workers may see the first cuts to Social Security

For older workers, job losses can have cascading effects on their personal finances.

“When older workers lose their jobs, they lose access to savings. They lose their employer’s contribution, and they face the temptation of drawing down their retirement assets,” she told me.

And while we’re on the subject of employer contributions, guess what? “Employers have changed their behavior,” she said. “In 2009, 20% of employers stopped contributing to the 401(k). But now over 50% of employers have stopped contributing to the 401(k). They learned they could get away with it.”

Read: Employers start to suspend the 401(k) match

That’s a big blow to employees who count on those contributions to help them build their retirement nest eggs. Some studies have shown employer matches induced more employees to contribute to their 401(k) plans. Without those matches, they might not contribute at all. “We’re inferring from these practices and past behavior that people have stopped saving for their retirement,” Ghilarducci told me.

Even worse, they may feel compelled to tap into their retirement savings to pay the bills. Until now that number has been pretty small—2% of people with retirement accounts at Vanguard and 3% at Fidelity withdrew money from those accounts through June. And the CARES Act removed the 10% penalty on withdrawals up to $100,000 from those accounts for people under 59½. It also allows them to pay back the money over a three-year period without having their withdrawals recognized as income for tax purposes.

Read: The simplest way to cut your tax bill — even if your name isn’t Trump

But if a new wave of COVID-19 prompts a new wave of layoffs, more people may draw down those savings, meeting their present needs at the expense, perhaps, of their future retirement security. Most vulnerable now: people in their late 50s suffering permanent job losses but too young to collect Social Security or Medicare. Millions of people could fall between the cracks.

Ghilarducci recommends if you’re working now, to build up a six-month emergency fund—pronto. “Make sure that the money piling up in your checking account isn’t there for pent-up demand for your car or your clothes,” she said. If an employer dropped its 401(k) match, she recommends you cover it anyway, if you can. And “don’t quit your job. If you’re older and you’re afraid of the virus, get a hazmat suit,” she said.

Has it really come to this—people being forced to choose between their physical and financial health? That’s what the virus and the reaction to it have wrought, and millions of people may have to live with the financial aftershocks for years to come.



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My husband doesn’t get along with my son. I brought most of the wealth into our marriage. How do I split my estate?

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Dear Quentin,

How do couples typically handle their estates in a second marriage? My husband and I have been married for seven years, and it is the second marriage for both of us. I have one adult child from my previous marriage; he has no children.

I brought the majority of our wealth to our marriage, including almost $1 million in my 401(k) and a nice home that is almost paid off; otherwise, we have no debt. My husband and I bought a second home together. We work hard to fund our new 401(k)s, and own a successful business together.

I am turning 65 this year, so estate planning is long overdue. My husband is five years younger than me, and we are both in very good health. We have two issues facing us: I see our retirement as living very comfortably on the monthly income generated by our 401(k)s, pension, Social Security, etc., and leaving whatever may be left to my son.


‘The other issue is that my husband no longer gets along with my dear son at all, and feels no obligation to get along with him.’

I am not interested in scrimping, but I want to be able to have enough money to last us until age 90 (or beyond) by not touching the principal. My husband is more interested in dipping deep into our savings, and living it up in retirement while we are young enough to enjoy it.

The other issue is that my husband no longer gets along with my dear son at all, and feels no obligation to get along with him, to the point that neither one wants anything to do with the other. As far as he is concerned, my son doesn’t meet his expectations, and so deserves nothing from me and certainly nothing from him.

I want my estate planning to be fair to both my new husband and my son. How do people typically handle this type of quandary? I think that I need to create some type of trust to pass on my share of our estate to my son. My pre-marriage assets involved my son as I pursued my graduate degree through night school and worked long hours throughout his childhood.

Second Wife

You can email The Moneyist with any financial and ethical questions related to coronavirus at qfottrell@marketwatch.com.

Dear Second Wife,

Don’t allow your husband’s feelings toward your son to influence your estate planning.

Your relationships with your husband and your son and your own plans for retirement are all fair game when making decisions about your estate, but your husband and son’s fractured relationship is their business, not yours. You worked hard for this money, and your son is your legal heir. Any effort by your husband to spend all of your savings and fritter away any inheritance that you intended to leave to your son should be resisted at all costs.

You have worked too hard your entire life to compromise your plans for a comfortable retirement where you have money set aside for long-term medical care insurance, unforeseen emergencies and/or your son. If you jointly own your home, you can leave your half to your son in your will, and specify it can only be sold after your husband passes away.

If you own the home, you can give your husband a life estate. Your son would pay capital-gains tax on the value of your home when he sells it, and not when you bought it. You could also make your son the beneficiary on your life-insurance policy, and/or gift him a certain amount of money per year to see how he manages and spends that money.

Figure out what is fair to yourself first before moving on to what is fair to your husband and your son. It’s OK to put your needs first. I caution against your dipping into savings at a rate that is beyond your own risk tolerance.

Ultimately, you are entitled to leave all other separate property to your son when you die — and, along with a financial adviser, set up a trust with that in mind for you, your husband and your son. Not necessarily in that order.

The Moneyist: ‘I cut his hair because he won’t pay for a haircut’: My multimillionaire husband is 90. I’ve looked after him for 41 years, but he won’t help my son

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These money and investing tips can help you make a place for crypto in your portfolio

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Don’t miss these top money and investing features:

These money and investing stories, popular with MarketWatch readers over the past week, can give you a better understanding of bitcoin and other cyrptocurrency, and help you figure out if digital currency has a place in your portfolio alongside stocks, bonds and other traditional assets.

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I’m 30. My wife is 34. We saved $350K and I have $325K saved for retirement. Should we pay cash for a home — or take out a mortgage and invest it?

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Dear Quentin,

After finishing graduate school, my wife and I decided to pay off all our debt before buying a home, or anything for that matter.

We have been cheaply renting for the last three years, and living as if I were still a very poor graduate student. During this time, we paid off all of our debts, and even went as far as to save around $350,000 in cash.

My wife is 30, I am 34, and we are ready to take the next step. We now have two children under two who have over $20,000 and growing in each of their 529s. We are both covered by ample term life insurance, and I have an own occupation disability policy. I make about $250,000 per year.

I am very fortunate in that my employer contributes about $40,000 into my 401(k) while I contribute up to the remaining Internal Revenue Service maximum of approximately $57,000 per year. Our family HSA contribution is maxed out and grows every year.

My spouse stays home with the children now. We have a combined retirement portfolio of around $325,000. At this point, should we put a cash offer on a home, or take out a loan and invest the difference? Not having a mortgage in our 30s seems awfully nice.

Conversely, investing could bring greater long-term returns.

Sincerely,

At A Crossroads

You can email The Moneyist with any financial and ethical questions related to coronavirus at qfottrell@marketwatch.com.

Dear Crossroads,

Congratulations, paying off that debt and saving so aggressively is quite an achievement, and it’s something that few people your age get to do.

The clue is often in the question. You are already edging closer to the house. As a rule, it’s never recommended to put all of your money in one place. So if I was to suggest anything — and it’s only a suggestion, NOT a recommendation — you could also split the difference and pay 25% to 50% down on a new home, and keep the remainder for investing, saving and a rainy day. Everything in moderation, even spending your hard-earned savings.

Of course, you get to live in a home of your choice in the neighborhood of your choice, and you get to enjoy that every day, as do your children. Having kids may also influence how much you are willing to spend on a home and where you are prepared to live based on the schools and the amenities in that district. It’s not just an investment, it’s a qualify-of-life choice, perhaps one of the most important choice outside of choosing a life partner.

MarketWatch Retirement columnist and CPA Riley Adams recently dealt with your very question, breaking down the pros/cons of both. The upside of stocks: “Stocks are liquid. Proven track record of success. Earn dividends. Easy to diversify your portfolio.” The downsides of stocks: “An emotional roller coaster. Short-term volatility. Capital-gains taxes.” That depends on your and your wife’s risk tolerance, and how much time you are willing and able to devote to investing.

The upside of real estate, per Adams’ advice: “A hedge against market volatility. Tax advantages. Cash flow.” And, like I said, you enjoy it every day. The downsides: “Real estate requires time and money. Your money is tied up. Tons of fees. Not easy to diversify.” And, if you are paying a mortgage, you also have to pay interest on top of the principal, which is tax deductible. Ditto property taxes. But paying that interest allows you to free up that extra cash.

Indeed, a recent study from the Federal Reserve Bank of New York looked at consumer preferences toward being a homeowner and how their attitudes have changed over the course of the COVID-19 pandemic. Survey participants were asked to rate which was the better investment — a home or financial assets such as a stocks — and what factors contributed to their choice. Some 90% of those polled said they preferred owning their primary residence to investing in the market.

Sit down with your wife, and a financial adviser and look at your options. The adviser, like a good therapist, should ask you questions — and you should hold all the answers.

The Moneyist:My multimillionaire husband is 90. I’ve looked after him for 41 years, but he won’t help my son

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 group, where we look for answers to life’s thorniest money issues. Readers write in to me with all sorts of dilemmas. Post your questions, tell me what you want to know more about, or weigh in on the latest Moneyist columns.

By submitting your story to Dow Jones & Company, the publisher of MarketWatch, you understand and agree that we may use your story, or versions of it, in all media and platforms, including via third parties.



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