The financial repercussions of the Great Recession will last into retirement for many people because their retirement incomes are inextricably linked to the amount of money they earn in their working years. Everything from old-fashioned defined benefit pensions to balances in 401(k) plans as well as Social Security is tied to pay.
The Urban Institute, a nonprofit think tank, attempted to measure just how much impact the Great Recession and its lingering after effects will have on people's retirement planning. Its conclusions are discouraging:
- For adults ages 25 to 64 in 2008, the recession will reduce average incomes at age 70 by 4 percent, or about $2,300 in 2007 dollars.
- Incomes will fall 5 percent, or $2,500, for adults who were ages 55 to 59 when the economic decline began. The amount they will have to live on at age 70 will drop 9 percent.
- Because Social Security is indexed to the economy-wide average wage in the year beneficiaries turn 60, wage stagnation lowers the index factor for anyone who turns 60 after 2008, resulting in permanently lower Social Security benefits.
The analysts found that stagnant wages will have less impact on the retirement incomes for people in their 60s in 2008, but they don't escape altogether. If you were ages 60 to 64 in 2008 and still working, your post-70 retirement income is likely to be 3 percent less.
The Urban Institute acknowledges that these forecasts are at best a good guess, but with the stock market declining and housing values continuing to be low, the institute believes it isn't too far wrong.
It's a beautiful end-of-the-summer day here in Michigan, where fall comes early, but staring at these numbers is depressing. Almost none of us have escaped economic pain in the last few years, and calculations like these suggest that no matter what we do, many of us will never fully recover.