The Bleak Retirement Outlook for Displaced Workers

If you thought that Americans as a whole were unprepared for a secure retirement, you should see the ones who have lost their job.

A report from the Transamerica Center for Retirement Studies finds many unemployed and underemployed workers have been dipping into their retirement accounts to fund their regular expenses. In addition, the retirement savings for many of those workers in their 40s and 50s is virtually non-existent.

A dire situation for displaced workers

The report, titled The Cracked Nest Egg, is part of the 13th Annual Transamerica Retirement Survey. Its findings paint a bleak picture for workers who lost their jobs during the recent recession.

"The Great Recession has led to a potentially devastating impact on the retirement outlook of American workers who have become unemployed or underemployed," said Catherine Collinson, president of the Transamerica Center for Retirement Studies, in a statement. "Many have raided retirement accounts to make ends meet -- and it will be difficult for them to overcome these savings setbacks once they regain employment."

Among the center's findings:

  • 35% of displaced workers have withdrawn money from retirement savings despite the taxes and penalties that may apply
  • 63% of unemployed workers and 34% of underemployed workers have withdrawn money from a 401(k) account
  • 51% have taken money from their savings accounts
  • 31% have used credit cards to pay bills
  • 24% have asked friends and family for loans

In addition, 30% report being without health insurance, placing their finances at risk should they have a medical emergency or serious illness.

Retirement savings: How low can they go?

Perhaps one of the most troubling aspects of the Transamerica report is just how little most displaced workers have in their retirement savings. The estimated median retirement savings for these households was $5,800. Among middle-age individuals, the amount was even lower.

As part of the study, median retirement savings were broken down by age:

  • Twenties/thirties: $10,000
  • Forties: $2,300
  • Fifties: $2,300
  • Sixties: $47,000

Not surprisingly, only 10% of displaced workers say they feel very confident they will be able to retire comfortably.

"Older workers have been hit hard by unemployment or underemployment and they are at greatest risk," said Collinson in the statement. "Many face challenges finding employment and, when they do, they will have much less time than younger workers to rebuild their savings before they reach retirement age."

While the situation for all displaced workers is less than ideal, the report notes underemployed workers fare significantly better than their unemployed counterparts. Those considered underemployed have triple the median retirement savings as those without jobs and are more likely to proactively work toward improving their financial situation.

To address the concerns of disappearing retirement funds among all displaced workers, the Transamerica Center for Retirement Studies advocates for several public policy changes. These include a longer 401(k) repayment period for terminated workers, expanded tax incentives to encourage retirement saving and tax incentives for job retraining.

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