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How Is the Economic Turmoil Affecting Older Americans?

  • October 10th, 2008

The slumping stock market, falling housing prices, and weakening economy have serious repercussions for older Americans who are approaching retirement or already retired. A new fact sheet from the Urban Institute suggests the impact the ongoing economic turmoil will have on retirement savings, home values, and retirement decisions.

Forty-nine percent of households ages 50 and older own retirement accounts, and 79 percent of these accounts include stock holdings, the fact sheet reveals. Half of the typical retirement account assets of households ages 50 are invested in stocks. However, households ages 70 and older hold much less in stocks -- only about 25 percent -- thus reducing their exposure to market fluctuations.

As of September 30, retirement accounts had lost $1.6 trillion, or 18.3 percent of their value, since September 30, 2007, according to the fact sheet. (Of course, given the recent stock plunges, September 30 now seems like the good old days. As of October 10, the Dow Jones Industrials Average had fallen about 40 percent from its historic high of one year ago.)

The Impact of Dropping Home Values

The drop in housing prices since 2007 could hurt older adults who count on home equity as an important part of their retirement nest eggs, the Urban Institute notes. Home equity (home value less mortgage debt) made up 29 percent of private wealth of adults age 57 to 61 in 2004. But despite big recent declines in home values, older adults have enjoyed a huge boom in housing values. Between 1998 and 2006, the inflation-adjusted median home equity for adults ages 55 and older increased by 41.5 percent.

Historically, says the fact sheet, most retirees do not use housing wealth to finance living expenses in retirement, but recent declines in retirement accounts may force more older adults to do so. Seniors have also not been immune to the subprime mortgage crisis; adults age 50 and older were 28 percent of all delinquencies and foreclosures by the end of 2007.

Will Older Adults Find New Jobs?

The plummeting value of retirement assets could force more older adults to delay retirement and remain at work, and could encourage some retirees to return to work. The share of older adults working has risen about 10 percent in the past decade. But a continuing credit crunch will limit businesses' and consumers' ability to borrow, slowing economic growth and increasing unemployment. The contraction of the retail sector will hit older workers particularly hard because retail sales is the largest occupation for workers age 65 and older. Historically, many workers become self-employed in their sixties, the Urban Institute notes, but the credit crunch could make it difficult for people to start and sustain small businesses

To read the entire Urban Institute fact sheet, go to: http://www.urban.org/publications/411765.html

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Last Modified: 10/10/2008

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