Fed Study Finds 2 million in "Forced Retirement", 52% Cannot Afford an Unexpected $400 Expense

I have talked about "forced retirement" 174 times over the course of the past few years.

I defined the term as those who retired because they had to, not because they wanted to.

Why might they have to? Easy. If someone of retirement age wants a job and needs a job and needs income, but does not have a job, the choice (after unemployment benefits expire) is to retire.

These people should be considered unemployed, but they are not. Instead they dropped out of the labor force.

We can now put some numbers on "forced retirement" thanks to a Fed study that shows 40% of households show signs of financial stress

Four out of 10 American households were straining financially five years after the Great Recession -- many struggling with tight credit, education debt and retirement issues, according to a new Federal Reserve survey of consumers.

This latest snapshot, which the Fed said was aimed at monitoring the recovery and risks to financial stability, adds to the understanding of the severity of the Great Recession's effect on households and individuals.

The survey found, for example, that 15% of those who had retired since 2008 had retired earlier than planned because of the downturn. Only 4% said they had retired later than expected. Based on demographics, that translates into roughly 2 million more people retiring since 2008 than if the recession had not occurred.

"This suggests that some of the folks who dropped out of the labor force during the recession will not be returning," said Scott Hoyt, an economist at Moody's Analytics.

Study Results

The above is from the LA Times which (as typical of mainstream media) did not bother linking to the study.

Inquiring minds may wish to see the actual study results.

The Fed report on the Economic Well-Being of U.S. Households in 2013, released today, is 200 pages long, but that is no excuse for failing to link to it.

Items in red below are things I found particularly noteworthy.

Key Findings

• Over 60 percent of respondents reported that their families are either “doing okay” or “living comfortably” financially; another one-fourth, however, said that they were “just getting by” financially and another 13 percent said they were struggling to do so
• The effects of the recession continued to be felt by many: 34 percent reported that they were somewhat worse off or much worse off financially than they had been five years earlier, 34 percent reported that they were about the same, and 30 percent reported that they were somewhat or much better off
• 42 percent reported that they had delayed a major purchase or expense directly due to the recession, and 18 percent put off what they considered to be a major life decision as a result of the recession
• Just over half of respondents were putting some portion of their income away in savings, although about one-fifth were spending more than they earned
• 61 percent reported that they expected their income to stay the same in the next 12 months, while 21 percent expected it to increase and 16 percent expected it to decline

Renters

• The most common reasons cited by renters for renting rather than owning a home were an inability to afford the necessary down payment (45 percent) and an inability to qualify for a mortgage (29 percent)
• 10 percent of renters reported that they were currently looking to buy a home

Credit experiences and expectations

• 31 percent of respondents had applied for some type of credit in the prior 12 months
• One-third of those who applied for credit were turned down or given less credit than they applied for
• 19 percent of respondents put off applying for some type of credit because they thought they would be turned down
• Just over half of respondents were confident in their ability to obtain a mortgage, were they to apply
• Experience with credit appears to vary by race and ethnicity, with non-Hispanic blacks and Hispanics disproportionately likely to report being denied credit, to put off applying for credit, and to express a lack of confidence about successfully applying for a mortgage, though these effects are partially explained by other factors correlated with race/ethnicity and credit, such as education

Financing of education

• 24 percent reported having education debt of some kind, with 16 percent having acquired debt for their own education, 7 percent for their spouse/partner’s education, and 6 percent for their child’s education
• Among those with debt for their own education, those who failed to complete the program they borrowed money for were far more likely to report having to cut back on spending to make their student loan payments (54 percent versus 39 percent for those who completed) and to believe that the costs of the education outweighed any financial benefits they received from the education (56 percent versus 38 percent for those who completed)

Savings

• Among those who had savings prior to 2008, 57 percent reported using up some or all of their savings in the Great Recession and its aftermath
• Only 48 percent of respondents said that they would completely cover a hypothetical emergency expense costing $400 without selling something or borrowing money

Retirement

• Almost half of respondents had not planned financially for retirement, with 24 percent saying they had given only a little thought to financial planning for their retirement and another 25 percent saying they had done no planning at all
• 31 percent of respondents reported having no retirement savings or pension, including 19 percent of those ages 55 to 64, and 25 percent didn’t know how they will pay their expenses in retirement
• Among those ages 55 to 64 who had not yet retired, only 18 percent planned to follow the traditional retirement model of working full time until a set date and then stop working altogether, while 24 percent expected to keep working as long as possible, 18 percent expected to retire and then work a part-time job, and 9 percent expected to retire and then become self-employed
• The Great Recession pushed back the planned date of retirement for two-fifths of those ages 45 and over who had not yet retired
• 15 percent of those who had retired since 2008 reported that they retired earlier than planned due to the recession, while only 4 percent had retired later than expected

Medical expenses

• 34 percent of respondents reported going without some form of medical care in the prior 12 months because they could not afford it
• 43 percent of respondents reported that they could not afford to pay for a major medical expense out of pocket, and 34 percent reported that it is only somewhat likely that they could afford to pay
• 24 percent of respondents experienced what they described as a major unexpected medical expense that they had to pay out of pocket in the prior 12 months

Interestingly, 60% say they are doing OK or better , yet 52% cannot find a mere $400 for an unexpected emergency.

That suggests to me that over half the county is on a paycheck-to-paycheck struggle.

Here's another curiosity: The above report is clearly deflationary, as is "McCashier" Your $15.00 Per Hour McDonald's Worker Replacement, yet people manage to get hyperinflation out of this mix.

Correction:
I originally stated "48% Cannot Afford an Unexpected $400 Expense". A reader correctly pointed out that is only 48% who can afford an unexpected $400 expense. Thus it is 52% who cannot.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com