If you are laid off at 55, your retirement planning has probably been replaced by crisis planning. The Government Accounting Office released a report this morning pointing out that the seasonally unadjusted unemployment rate for older workers increased from 3.1 percent in December 2007 to a high of 7.6 percent in February 2010, before decreasing to 6 percent in April.
While this rate is low compared to other segments of the population, the impact can be severe for a couple of reasons. By 2011, one-third of all unemployed people older than 55 had been out of work for more than a year -- much longer than other segments of the population. When older workers do find another job, on average, they earn 15 percent less than they did previously. Younger people either match or improve their wages when they are rehired.
Time out of work and a lower salary after being rehired has a serious impact on savings. For a former employee with a 401(k) retirement plan, joblessness -- even if the worker doesn't dip into the plan -- can mean fewer years to save and a lower overall contribution. In the case of workers with a traditional pension, losing a job can prevent them from vesting.
The GAO also pointed out that joblessness pushes people into claiming Social Security at 62, which not only lowers their benefit, but also can reduce the benefit overall because, had the person stayed on the job, their benefit would have reflected higher earnings.
The author of the report, economist Charles Jeszeck, who is GAO's director of education, workforce, and income security, says one of the things driving up the government unemployment rate for older workers is the number of people who left the workforce when the economy soured who are now hunting for jobs as things appear to improve.
Availability of health care is a big factor, Jeszeck says. People who are not eligible for Medicare and who have exhausted their right to buy health care through the Consolidated Omnibus Budget Reconciliation Act, or COBRA, are eager to find positions that provide coverage. That may be a pipe dream. Jeszeck's report offers anecdotal evidence that employers are very reluctant to fill that need because it drives up their insurance costs.
Jeszeck concludes that there is an enormous need to create more jobs, but as a federal employee, he doesn't endorse any of the plans on the table. He is critical of the situation. "To some extent, this is the result of the gridlock in Washington," he says. "There are so many things that need to be done, but most of them won't happen until the gridlock is addressed."