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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.

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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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‘I could live on my Social Security and still save money’: This 66-year-old left Chicago for ‘calming’ Costa Rica — where he now plans to live indefinitely

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Editor’s note: This article was first published in September 2019.

A school break changed 66-year-old Martin Farber’s life forever.

In 2007, his daughter — who at the time was attending Illinois State University — decided she wanted to spend a college holiday volunteering in Costa Rica and staying with a local family, he explains. She came home raving about the experience, so, in 2008, Farber — who at the time was living in Evanston, Ill., just outside Chicago, and selling cars — took his first trip there.

“It was a big surprise to me — bumpy roads, dogs barking in the streets,” he says. “I wasn’t enamored at first.”

But as his daughter began traveling there more and eventually moved there for a year, he took additional trips to Costa Rica. It quickly grew on him — in particular, the people. “The Costa Rican people are warm, open and friendly. I felt less invisible in a strange country in a strange town where I didn’t speak the language than I did in Evanston.”

And the more time he spent there, the more it impacted him: “On one of my trips there, I thought: My daughter’s life makes more sense than mine,” he says. “There was nothing wrong with my life, but I felt that my life was out of context with who I’d become. … I would have bills and make money to pay them, but that had ceased to be satisfying,” he recalls. “I knew I needed to change my life — there was no more joy in what I was doing.”

What’s more, when he’d return from his Costa Rica trips, people noticed. “I would come back, and my friends and therapist would say: You seem better after you go,” he says with a laugh.

A view from the hot springs near Martin Farber’s home in Costa Rica.


Martin Farber

So in 2014, he packed up and moved to Orosi — a picturesque, lush small town with waterfalls and hot springs a little over an hour’s drive from San Jose — promising himself he’d stay for two years. It’s been five, and he now plans to stay in Costa Rica indefinitely. (Though Farber notes that, to him, “it’s not a retirement; it’s a chance to lead a new and different life.”)

Here’s what his life is like, from costs to health care to residency to everyday life:

The cost: While many expats spend way more living in Costa Rica, Farber says: “I could live on my Social Security and still save money.” He says “a person can live on $1,200 per month, two people on $2,000.” The key, he says, is to live more like he does and as the Costa Ricans do — in a modest home, eating local food and purchasing local goods.

Indeed, Farber himself spends just $300 a month for rent (he rents a home from a friend who moved recently and gave him a good deal), roughly $225 a month on groceries and just $50 a month total on water and electricity (the temperate climate in Orosi means you rarely need heat or air conditioning). The veteran Volkswagen
VOW,
+0.96%

 
VLKAF,
+0.98%

salesman saves money by not owning a car (those over 65 ride municipal buses for free), which can be a significant expense in Costa Rica; for his cellphone, “I pay as I go … roughly $10 may last me a couple weeks or more,” he says, adding that “many people handle there their cellphones this way. You can get them recharged anywhere.”

His major expense is travel: He goes back to the U.S. to visit his mother in Florida several times a year and lately has spent part of the summer in Chicago helping out a friend with a dealership there. He also spends a good amount of money on health care. He says that while flights can be had for as little as $350 roundtrip during offseasons, the cost can be much higher the rest of the year.

In the saddle.


Martin Farber

Health care: Farber, who has permanent resident status in Costa Rica, says he pays about $90 per month to participate in the country’s health-care system — adding that the health care he’s received has been very good. (A 2018 study of health-care quality and access in more than 190 nations ranked Costa Rica No. 62.)

When he developed a detached retina, though, he paid for the procedure out of pocket so that he didn’t have to wait for the required surgery, he says — adding that the entire procedure cost him about $5,000. “I would have had to have waited four days,” he says, if he had not paid to expedite matters. “That might have been fine, but it might not.” And he adds that the quality of care depends on where you get it in the country.

Lifestyle: Though Farber says that he “moved here with no goals and no agenda,” he’s found plenty to do. “I take Spanish lessons two days a week for two hours a day. It’s been great. I never thought I would acquire a usable language in my 60s,” he says. He also rides his bike all around the area, does some writing and belongs to a community group that undertakes projects to improve the area.

And he often simply takes in nature, which he says has been an essential part of why he feels calmer and more relaxed in Costa Rica than in the U.S. “I live at 3,000 feet but in a valley surrounded by coffee fields and lime trees and water. At night, if I open the windows, I can hear the river rushing by,” he says. “It is very calming … hundreds of trees everywhere … you know the Earth is alive.”

The historic Iglesia de San José de Orosi.


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Cons: “I don’t want to overglorify. It’s not without its problems,” Farber says of Costa Rica. “There are social problems and downsides.” He notes that crime and petty theft can be a problem (“I am cautious,” he says of his approach) and seem to have increased since he moved there, and adds that he misses out on some cultural things because of where he lives. And, he says with a laugh, “I can’t order Thai food at 9 at night.” But, he adds: “These are trade-offs — in the afternoon, I get to walk in the coffee fields and see flocks of parrots.”

Residency: To qualify for Costa Rica’s pensionado visa, expats must prove that they have a pension of at least $1,000 coming in each month. (Here are the details of that program.) Once you have lived in Costa Rica for three years, you can apply for permanent residency. Farber used a lawyer to help him figure out the ins and outs of residency options; his entire path to permanent residency took about a year, he says.

The bottom line: “After five years I am still amazed and surprised that I made the decision to lead a life I never thought I would,” he says. And while he may not stay in Orosi forever — “the town doesn’t have an ambulance, [and] I don’t know what it will be like to be 80 there,” he says — he does plan to stay in Costa Rica in no small part because of the people and sense of community. “I have the feeling that life is good here,” he says. “It’s hard sometimes, but we are all in it together.”



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