September 27, 2018 / 10:01 AM / a year ago

REFILE-COLUMN-Ten years after onset of Great Recession, how are U.S. retirees doing?

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    By Mark Miller
    CHICAGO, Sept 27 (Reuters) - This month marks 10 years since
one of the most dramatic events of the financial crisis - the
collapse of the Lehman Brothers investment bank. In the
financial crash and Great Recession that followed, millions of
Americans lost their homes and jobs and saw their prospects for
a secure retirement damaged. 
    A decade later, the economy has recovered by most standard
measures - the stock market is making record highs, unemployment
is at a 50-year low point, gross domestic product is rising
sharply and consumer confidence is at an 18-year high. 
    But how are we doing on retirement security? The picture is
very mixed, as you can see from a comparison of key numbers
before the crash and today for retirees - and workers close to
    The bubble in housing markets preceding the financial crisis
was the main cause of the economic downturn. Housing remains a
critical component of retirement security, since home equity is
a more important component of net worth than financial assets
for older households. The Joint Center for Housing Studies of
Harvard University (JCHS) reports that 59 percent of households
aged 55-64 owned retirement accounts in 2016, but 74 percent
owned their primary homes. Among households aged 65-74, some 50
percent owned retirement accounts, and 79 percent owned their
primary homes. 
    In August, real housing prices (adjusted for non-housing
inflation) were 9 percent below where they were in 2006,
according to Jonathan Spader, senior research associate at the
JCHS. “Real prices are the most relevant for retirement
security,” he noted, “since it reflects how much housing a
dollar actually buys, and what you have available to tap as home
    You might well expect housing values to remain lower than
when the bubble burst - and some parts of the country have seen
prices recover much more strongly than others. But home
ownership data for pre-retirees points to a more worrisome
    The foreclosure crisis following the bubble’s collapse had a
relatively small impact on retired households (aged 65 or older)
- home ownership fell at the smallest rate for any age group -
down from 81 percent in 2004 to 79 percent in 2017, JCHS data
shows. But among households aged 55 to 64, the homeownership
rate fell from 82 percent in 2004 to 75 percent in 2017. “That’s
a troubling figure, because it suggests a much larger group of
people will hit retirement age without home equity,” Spader
    Seniors who do not own homes also will be subject to the
volatility of rental costs, which have spiked in recent years
and show no signs of slowing down. Nearly one-third of all
households were cost-burdened in 2016, JCHS reports, meaning
they paid more than 30 percent of their incomes for housing;
among renters, 47 percent were cost-burdened.
    The share of households over age 65 carrying mortgage debt
into retirement also has been rising - 41 percent in 2016,
compared with 35 percent in 2007, and up from 22 percent in
    The stock market has rocketed ahead more than fourfold since
March 9, 2009, when the S&P 500        bottomed out at 676.53.
The dramatic gains are reflected in aggregate retirement account
holdings - traditional IRA accounts held $6.9 trillion at the
end of 2016, according to the Investment Company Institute
(ICI), up from $4.2 trillion at the end of 2007.
    But the gains are concentrated in the top third of earners
in the country, who held roughly 87 percent of all equities in
2016, according to the Center for Retirement Research at Boston
    Among the top 10 percent of U.S. households, the median
value of their retirement holdings jumped 70 percent from 2007,
to $403,000 in 2016, according to the most recent Federal
Reserve Survey of Consumer Finance (SCF). For middle-income
groups, account values were stagnant or slightly down - a
staggering finding considering the strong market gains. 
    A key culprit is unemployment during the downturn, when
workers not only were unable to save for retirement but may have
tapped savings to meet living expenses, noted Teresa
Ghilarducci, an economist and director of the Schwartz Center
for Economic Policy Analysis at the New School for Social
Research. “People in the bottom half of income had a lot more
shocks and they were much more prone to tap their retirement
    Very little progress has been made in making retirement
accounts more available to workers since the recession.
Fifty-two percent of families had access to retirement accounts
in 2016 - down from 53 percent in 2007, according to the SCF. 
    And the coverage story is worse among single people,
minorities and less educated workers. For example, 35 percent of
single workers without children had access to retirement
accounts in 2016, unchanged from 2007. And 92 percent of
families in the top 10 percent of income had access in 2016,
compared with just 11 percent of the lowest-income families, SCF
data shows.
    “When you disaggregate the data, you see that households who
had more invested to start with have rebounded, but others are
just trying to claw their way back,” said Monique Morrissey, an
economist with the Economic Policy Institute.
    And surprisingly few retired households are relying on
retirement savings for a significant portion of their income.
    The Employee Benefit Research Institute (EBRI) reported
earlier this year that within the first 18 years of retirement,
individuals who accumulated less than $200,000 in non-housing
assets before retirement had spent down (at the median) about
one-quarter of their assets. The drawdown pattern was similar
for retirees with assets between $200,000 and $500,000, and only
12 percent for those with $500,000 or more. 
    The study pointed to annuity income from pensions and Social
Security as key reasons for this - people simply adjust their
spending where they can to match what is coming in, and hang on
to savings to meet emergency needs.
    Social Security is especially critical for lower- and
middle-income households, since the program’s design replaces a
higher percentage of pre-retirement income. “Social Security
provides a great foundation," said Sarah Holden, senior
director, retirement and investor research, at the Investment
Company Institute.
    But that approach faces threats. Defined-benefit pensions
are disappearing rapidly in the private sector and Social
Security is becoming less valuable over time due to the gradual
increase in the age when full retirement benefits are available,
which was set in motion by reforms enacted in 1983.
    The big picture: ten years after the collapse of Lehman
Brothers, retirement security in the United States is a tale of
two realities. The affluent have recovered just fine, while
lower- and middle-class households face a very uncertain

 (Reporting and writing by Mark Miller in Chicago; editing by
Matthew Lewis)
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