Why Many Baby Boomers May Not Likely Retire When They Hit 65
Expected wave of retirements from clinical laboratories might be deferred for several more years
Popular wisdom has been that, as they hit retirement age, baby boomers will leave the workforce in large numbers. Now a news report says that many baby boomers may defer retirement because of poor finances and too much debt. If true, that may be good news for clinical laboratories and pathology groups across the United States.
After all, baby boomers make up a considerable proportion of the laboratory workforce. Often with decades of experience at a single medical laboratory, they are highly-skilled and have extensive experience in laboratory operations and lab test interpretation. Thus, were the large majority of baby boomers to decide to retire as they reach 65 years of age, it could leave big gaps in staffing at many medical laboratory organizations throughout the country.
Thus, it will be with great interest that clinical laboratory managers and pathologists learn about the financial issues that may prevent significant numbers of baby boomers from taking retirement as they turn 65 years old. In simplest terms, many baby boomers cannot afford to retire, because of high personal debt, accompanied by the fact that both personal savings and home equity are down significantly.
These factors may mean that baby boomers won’t be flocking out of the workforce. This was recently reported by The Wall Street Journal. In a story titled “Debt Hobbles Older Americans,” the WSJ wrote that that increasing numbers of older Americans are postponing retirement, cutting living standards, or both, as they struggle to pay off debt.
The 60-something age group has experienced an increase in all categories of debt. But mortgages top the problem list. According to the MacroMonitor published by research group Strategic Business Insights, in 2010, 39% of households headed by 60-64 year olds had primary mortgages. This is almost the double the rate in 1994, when only 22% of 60-64 year olds had a first mortgage. Similarly, currently 20% of 60-64 year olds have second mortgages, including home-equity lines. By comparison, in 1994, that number was just 12% for the same 60-64 year old age demographic.
Debt of Older Americans Rose Steadily over Past Two Decades
“We have gotten into this ‘debt’s OK’ mentality and it is going to be very hard to get out of it,” stated Greg Heller, Financial Planner, Heller Capital Resources, Los Angeles, in the article.
For over two decades, older Americans have increased their debt levels, the Journal reporter wrote. The median mortgage debt of households headed by Americans aged 62 through 69 hit $71,000 in 2007. That’s five times the 1987 inflation-adjusted median, according to a study by William Apgar, Senior Scholar at the Joint Center for Housing Studies (JCHS) at Harvard University.
“Relative to the value of their homes, the amount of indebtedness—if anything—has gone up because house prices have fallen faster than mortgages have been reduced,” commented Christopher Herbert, Director of Research at the Joint Center for Housing Studies at Harvard University.
Baby Boomer Retirement Contributions Declining
In the first quarter of last year, participants aged 55 to 60 contributed a median 8% of salary, according to Fidelity Investments, one of the largest managers of 401(k) retirement accounts. This was down from 10% in the same quarter of 2006. Some ceased contributions altogether, Fidelity noted.
Another WSJ article reported that the 401(k) of the typical American household nearing retirement contains less than 25% of the capital needed to maintain standard of living during retirement.
In 2008, 80% of households headed by people in their early 60s who had mortgages had too little savings to pay off debts without using retirement funds, Anthony Webb, Ph.D., Research Economist, Center for Retirement Research, Boston College, stated in the Journal.
Historically, most people make their biggest salaries in their 50s and 60s. Theoretically, this is when they make their biggest retirement-savings contributions. But partly because of debt payments, many are unable to boost their retirement savings.
Since 2005, the average level of credit card debt for lower and middle class Americans over 65 has rapidly increased, up 26% to $10,235. This is according to the public policy group Demos. The increase is the largest of any age group.
Rising healthcare and insurance costs compound the dilemma. “A great deal of senior spending is health care, and health-care costs have been outpacing inflation for a long time,” noted David Certner, Legislative Policy Director for AARP, in the Washington Post.
Americans over 65 have on average about $4,000 in credit card debt from medical expenses such as doctor visits and prescription drug costs, according to the article. Those between 50 and 64 have, on average, about $2,000 in medical debt.
The prospect of Medicare insolvency by 2017, coupled with the baby boomer retirement swell, poses additional challenges for this population and for the federal government, the Post article noted. “Currently most retirees age 65 and over rely on Medicare for health-care coverage, but would-be retirees may not feel comfortable counting on it being there,” observed Angela J. Rabatin, Adjunct Professor of Finance and Contract Law at University of Maryland University College and Prince George’s Community College.
According to a recent survey reported at AdvisorOne.com on “boomer” retirement, there is a positive note on the issue. Thanks to American-style optimism, it stated, U.S. boomers in 2012 will feel good about getting older, even if they can’t afford to retire.
Probably the most useful fact in this analysis is that fewer 60-64 year olds of the current decade own a house that is mortgage-free, compared with the 60-64 year olds of the early 1990s. Add to this the higher levels of personal debt and reduced home equity of baby boomers today (also compared to this age group in the 1990s), and it is not surprising that a substantial number of these individuals may need to continue working for some years after they reach 65 years old.
This is probably mixed news for clinical laboratory managers and pathologists. On one hand, it may mean that the expected retirements of long-serving staff in their laboratory may be deferred for several years. On the other hand, it may also mean that, for similar reasons, many lab managers and pathologists might defer their retirement for a period of time.
—Pamela Scherer McLeod