Working Longer as Jobs Contract

In recent years, many retirement experts have been giving the same unwelcome advice: American workers who are not as rich as Warren E. Buffett should retire three or so years later than they had planned — to ensure that they have a large enough nest egg.

But now, in these extraordinarily turbulent times, with the stock market declining sharply and millions of 401(k) plans plunging in value, many workers are suddenly facing a starker situation — they worry that they might have to work 5, 7, even 10 years later than planned, perhaps well into their 70s.

Investor Concerns
Investor Concerns

But that’s not the only problem. Even as workers in their 40s, 50s and 60s accept having to work years longer than anticipated, many companies are laying off employees amid the economic downturn. This often means that older workers are pushed out first, because they are usually the highest-paid employees.

“You have 401(k) plans going into the tank and the cost of health insurance rising, so many people see they need to work longer,” said Karen Ferguson, director of the Pension Rights Center, an advocacy group for retirees in Washington. “At the same time, many employers don’t have money to hire people, and they’re getting rid of their more expensive employees, so it’s kind of a perfect storm.”

A recent AARP survey found that the economic slump has been badly squeezing the nation’s 78 million baby boomers, those born between 1946 and 1964. In the survey, 20 percent of boomers said they had stopped contributing to retirement plans, 34 percent said they were thinking of delaying retirement and 27 percent acknowledged problems paying rent and mortgages.

The Congressional Budget Office reported two weeks ago that the nation’s pensions and 401(k) plans had lost around $2 trillion over the last 15 months, with many 401(k)’s dropping by 20 percent or more. And a survey done last year, well before the market turmoil, found that two in five retirees expected to outlive their savings.

Financial planners, economists and retirement experts offer little comfort for older workers, along with blunt advice.

With regard to investments, Teresa Ghilarducci, an economics professor at the New School in New York, said, “Right now the practical thing for older workers to do is to not sell their assets in their 401(k) plans at rock-bottom prices.”

She said workers in general should not let Wall Street’s sharp drop persuade them to stop saving for retirement, especially because many 60-somethings have nest eggs that are disconcertingly small. Professor Ghilarducci said that if workers were alarmed by sagging stock prices, they should steer their future 401(k) contributions into bonds or money market funds.

Jack L. VanDerhei, research director of the Employee Benefit Research Institute, said workers would be making a big mistake if they became so frightened of 401(k)’s that they did not take full advantage of their employer’s 401(k) match. “That,” he said, “would be leaving money on the table.”

As for advice on jobs, Cecil Hemingway, the United States retirement practice leader with Aon Consulting, said: “Your best defense, whether you’re ready for retirement or not, is you have to be sure that you have valuable, usable skills. That probably applies to everybody, even if you’re a college graduate. If you don’t have valuable skills, you’re going to have a problem.”

At age 57, Nicolette Toussaint, associate vice president for communications at Alliant International University in San Francisco, is taking this advice to heart. She acknowledges that she is too frightened to open her I.R.A. and 401(k) statements, but she knows she is not going to sell off her stocks.

“It’s a roller-coaster ride, and it might come back,” she said. “I can’t pull it out now. It would be stupid to do that.”

Ms. Toussaint reckons that the $250,000 she had in savings in January has shrunk to $200,000. “My financial planner keeps telling me that $250,000 is not enough, and you don’t know how long you’re going to live,” she said.

Figuring that she might retire from her university job in 10 years, Ms. Toussaint is preparing for a second, part-time career. She is taking courses in interior design at the extension school at the University of California, Berkeley.

“I sort of assumed that I would probably retire around 68, but with what’s happened recently, I’m thinking I might work until 75 or 77, so long as I’m healthy,” she said. “I’ve tried to figure out what can I do as I get older that I wouldn’t be dependent on someone else to hire me. I figure I could start my own little business.”

Americans who heed the advice to work several years beyond the current average retirement of 63 could face some resistance from employers reluctant to keep them. Not only do companies typically pay higher salaries to older workers, but they also frequently pay more for their health insurance than for younger employees.

“The way many companies see it, older workers’ productivity is steady to down and their compensation is steady to up,” said Alicia H. Munnell, director of the Center for Retirement Research at Boston College. “That doesn’t make older workers attractive.”

Younger workers rethinking retirement plans

Robert M. Hutchens, professor of labor economics at Cornell University, said, “The aggressive pushing out of older workers is a selective process.” He said employers favored keeping older employees who did not need supervision and worked extra to get the job done.

Some companies are eager to hire such workers. Tim Driver, chief executive of, a Web site for job seekers over 50, said H&R Block, Safeway and Travelers were among them. “Because we’re in a service economy, not a manufacturing economy,” he said, “80 percent of jobs can be performed by people well into their years.”

Deborah Russell, director of work force issues for AARP, pointed to several factors that make older workers less attractive to retain or hire — many resist training, dislike answering to younger bosses or have poor computer skills.

Regina White, 68, of Geneva, Ill., a former special assistant to the vice president of taxes at Sears, Roebuck & Company, is searching for a position for the first time since she was downsized out of a job and retired in 1995. Her retirement portfolio has dropped 35 percent in value, and food and fuel prices have climbed. “I’ve had to change my lifestyle,” she said, noting that she quit her $70-a-month gym. She lives mainly on her annual $17,000 in Social Security payments and withdrawals from her retirement account.

“It’s degrading to look for work after you’ve stayed away from the work force as long as I have,” she said. “You’ve lost your skills. I’m not up to date on computers.”

When she applied recently for a mail-sorting job with United Parcel Service, she was mystified when the company hired several far younger applicants instead of her.

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“I’m being interviewed by kids who could be my grandchildren and competing with them,” she said.

Millions of workers are in Ms. White’s predicament because 401(k)’s have supplanted traditional pensions as the main retirement vehicle for America’s work force, even though many experts say there are huge problems with the 401(k) system. With traditional pensions, employers contribute the money and shoulder the risks; with 401(k)’s, workers are responsible for most or all of the contributions and all the investment risk.

More than one in five workers at companies that offer 401(k)’s do not even sign up. A study by the Congressional Research Service found that the median amount that workers age 55 to 64 have in their 401(k)’s is just $61,000; another study by the Employee Benefit Research Institute found that 43 percent of workers age 55 and over have less than $50,000 in their 401(k)’s and other savings and investments. Moreover, the institute found that 27 percent of workers in that age group invest more than 90 percent of their 401(k)’s in stocks, a comparatively volatile investment.

The law that established 401(k)’s was not designed to help the typical worker, but rather to help top executives shield part of their high income from taxes. But over the last two decades, companies have aggressively shifted from traditional pensions, which guarantee a particular amount each month, to 401(k)’s, largely because this shifts retirement costs from companies to employees.

When they lay off older workers, many employers insist they are focusing not on the workers’ age but on their lack of up-to-date skills or their lagging motivation. As the number of age discrimination lawsuits has swelled, there has been an increase in monetary judgments and settlements, and some employment experts predict bigger severance packages as a way to nudge out more older workers voluntarily.

Mr. VanDerhei, of the Employee Benefit Research Institute, said, “For the vast majority of people, if they think they have enough to get out of the work force at age 65, they’re fooling themselves.” More and more workers apparently agree, because the percentage of workers age 65 and over in the labor force has climbed to 17.3 percent in 2008, from 12 percent in 1999.

Debra Villacis, owner of an Internet company in St. Louis that handles documents for hospitals, appears to have reached that conclusion. Ms. Villacis, 59, said she had invested in growth stocks when she was younger and switched to stable, blue-chip holdings as she aged.

“Everything was pretty much on track,” she said. “But now everything’s been hit.”

She figures that her retirement portfolio has shrunk by $150,000, or 25 percent. Before the market sank, she was thinking of retiring in her 60s, but now, she said, “I’ll probably retire at 72 or so. It’s going to take a long time for the market to recover. After the Depression, it took 25 years for the stock market to get back.”

Even many younger workers are rethinking their retirement plans.

Postponing retirement is the key

Tim Shull, 45, of Cuero, Tex., is executive director of business development for a pharmaceutical company, and until recently had planned to retire in a decade or so. He and his wife, Kathryn Weber, had more than $500,000 in retirement investments early this year, but he said they had taken a 20 percent hit, while some of his friends had lost 40 percent.

“I’m not panicked,” he said, adding that he and his wife say: “ ‘We’d love to retire between 55 and 58.’ But now do the math. We’re probably looking at the early 60s.”

Each year Mr. Shull puts 13 percent of his pay into his 401(k). “I’ve done all the right things you’re supposed to do,” he said. “But then you hear the horror stories about people who are in their 50s and haven’t saved a penny. I feel for those people.”

Professor Munnell of Boston College said that staying in the labor force longer is the key to retirement security.

“The reason is you will not get reduced benefits under Social Security,” she said. “Two, you allow your 401(k) assets a chance to bounce back, and you can contribute more. Three, it reduces the period during which you have to support yourself.”

Retirees receive reduced Social Security benefits if they retire at 62, but benefits rise by 8 percent a year for every year a worker delays retirement until age 70. To maintain living standards after they retire, workers need post-retirement income of 70 to 80 percent of their income before retiring, many experts say.

Mr. Hemingway of Aon Consulting estimated that someone earning $75,000 a year would need $40,000 a year on top of Social Security. He recommended annuities and said that at age 70, $500,000 could be converted into a lifetime annuity of $40,000 a year.

Professor Munnell advised aging workers to make clear to their supervisors that they plan to remain on the job. “If you’re a 55-year-old worker, you want to tell your company that you intend to be there at least 10 more years, that you want to be considered for training and promotion and that you’re actively involved in your job.”

She said too many older workers suddenly and capriciously quit their jobs, leaving themselves with little saved for retirement, because they became frustrated by a new boss or another issue.

“It basically comes down to sucking it up,” she said.