As people prepare for retirement, even the best-laid plans can go awry. Health fails. Spouses or other family members become ill. Marriages end in widowhood or divorce. Investments sour. People lose their jobs. Health, employment, and marital shocks can have serious financial consequences -- out-of-pocket health bills, reduced earnings, disrupted retirement saving -- forcing people as young as 50 or 60 to dip into their nest eggs

Cori E. Uccello

Gordon Mermin

Richard W. Johnson

English

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Older Americans’Economic SecurityNumber 8, January 2006Health Problems andJob Layoffs CrackRetirement Nest EggsRichard W. Johnson, Gordon B.T.Mermin, and Cori E. UccelloAs people prepare for retirement, even the best-laidplans can go awry. Health fails. Spouses or other familymembers become ill. Marriages end in widowhood ordivorce. Investments sour. People lose their jobs.Health, employment, and marital shocks can haveserious financial consequences—out-of-pocket healthbills, reduced earnings, disrupted retirement saving—forcing people as young as 50 or 60 to dip into their nest eggs.Health Problems, Job Loss Can StrikeBefore RetirementAbout 7 in 10 adults who were age 51 to 61 in 1992developed health problems, lost spouses to death ordivorce, or became unemployed during the 10-yearperiod ending in 2002. More than 4 in 10 were diag-nosed with major new medical conditions, includingheart problems, cancer, serious lung problems, diabetes,strokes, and psychiatric problems. About one-thirddeveloped work disabilities through health problemsthat curtailed employment. Nearly one-fifth were laidoff between 1992 and 2002. About 10 percent of marriedadults became widowed; another 3 percent divorced.These estimates are based on data from the Health andRetirement Study (HRS), a large nationally representa-tive survey of older Americans funded by the NationalInstitute on Aging.Negative shocks at older ages are especially com-mon among people with limited education, who gen-erally have fewer financial resources to help themweather adversity. For example, at ages 51 to 61, abouthalf of those without high school degrees developednew medical conditions over a 10-year period, com-pared with only about one-third of college graduates.High school dropouts are also more than twice as likelyto become widowed as college graduates, and nearlyfour times as likely to become seriously disabled.Married people are less likely to develop healthproblems than single people. Yet, they face the addedrisk of divorce and the risk that their spouses could die, become ill, or lose their jobs. When things go wrongfor spouses, the financial consequences can be just asserious as when one’s own health fails or other mis-fortune strikes. With spousal health problems and jobloss factored in, the share of married people age 51 to 61 experiencing negative events over a 10-year periodjumps to 87 percent, compared with 69 percent forsingle people.Financial RamificationsThese shocks have serious financial implications.Health problems can trigger out-of-pocket medicalspending, forcing people to dip prematurely into retire-ment nest eggs or to tap money earmarked for saving.Deteriorated health forces people to curtail work or toretire early, reducing earnings and ability to save. The second paycheck, along with at least some of thespouses’ benefits, disappears when people becomewidowed or divorced. Job layoffs at older ages oftenhave long-lasting consequences, as older adults tend tohave more trouble finding work than younger people(Chan and Stevens 2001). Further, unemployed peopleforego credits toward future Social Security and em-ployer pension benefits, which otherwise tend to accu-mulate rapidly as retirement approaches.HRS estimates show that the onset of work dis-abilities among people in their 50s and 60s reduceshousehold wealth by 30 percent for single people and14 percent for married people, holding constant suchother personal characteristics as education, race, gender,age, and baseline health status (figure 1).1 The onset ofmedical conditions that do not necessarily limit workhas smaller but still significant effects, reducing house-hold wealth by 18 percent for single people and 13 per-cent for married people. Job layoffs shrink wealth by 23 percent for single people and 19 percent for marriedpeople. Health problems and job loss are especiallyserious for single people not financially bolstered by aspouse.Widowhood and divorce in late midlife signifi-cantly reduce wealth, even factoring in reduced livingexpenses resulting from the loss of a spouse. Financialimpacts are greater for women than men and for thosewho become widowed at relatively young ages.T H E  R E T I R E M E N T  P R O J E C TUrban Institute • 2100 M Street, NW • Washington, DC 20037 • Phone: 202-833-7200 • http://www.urban.org ConclusionsHealth problems and job layoffs are common as peopleapproach retirement, though most Americans lack ade-quate protection when such disaster strikes. Inadequatehealth insurance exposes people to high out-of-pocketcosts when serious medical conditions develop. Thesafety net is meager for people who lose their jobs orare forced to retire early because of declining health.Unemployment benefits generally last no more than 26 weeks, and only those who satisfy Social Security’sstrict eligibility requirements receive disability benefits.Health problems, job losses, widowhood, and divorcein the years immediately prior to retirement can robpeople of financial security later. Workers need to con-sider these risks as they develop their retirement plans.Those who wait until their 50s to begin saving seri-ously, as many do, may find it too late to protect them-selves against unexpected setbacks and the financialconsequences.Note1. Household wealth includes financial assets (such as bank ac-counts, Individual Retirement Accounts, stocks, and bonds) andthe value of housing (net of outstanding mortgage debt), otherproperty, and businesses. It excludes the value of future benefitsfrom Social Security and traditional employer pension plans.ReferencesChan, Sewin, and Ann Huff Stevens. 2001. “Job Loss and Employ-ment Patterns of Older Workers.” Journal of Labor Economics 19(2):484–521.Johnson, Richard W., Gordon B.T. Mermin, and Cori E. Uccello. 2006.“When the Nest Egg Cracks: Financial Consequences of HealthProblems, Marital Status Changes, and Job Layoffs at OlderAges.” Washington, DC: The Urban Institute. http://www.urban.org/url.cfm?ID=411265.THE URBAN INSTITUTEFIGURE 1.  Estimated Impact of Health Problems, Job Layoffs, and Marital Dissolution on Real Household Wealth, by Baseline Marital Statusn.a. = not applicableNotes: Estimates are based on median regressions of real household wealth in 2002 or at death for those who do not survive until 2002. The analysis measures shocksbetween 1992 and 2002 or death. The sample consists of adults age 51 to 61 in 1992, and models were estimated separately by 1992 marital status. Regressions controlfor education, race, age, and the presence of medical conditions, work disabilities, and frail parents or in-laws in 1992. Regressions for married people also control forspousal health in 1992 and spousal shocks after 1992. Wealth includes financial assets and the net value of housing, other property, and businesses, and is expressed inconstant 2002 dollars. The analysis adjusts for household size by dividing household wealth for married people by 1.62. For more information, see Johnson, Mermin,and Uccello (2006).–40%–35%–30%–25%–20%–15%–10%–5%0%ChangeinrealhouseholdwealthMarried SingleWidowhoodJob LayoffOnset of Work DisabilityOnset of New Medical Condition Divorce–19%–23%20%18%–14%–30%36%33%–13%–18%44%40%Share experiencingshock–38%3% n.a.n.a.–11%10% n.a.n.a.

Health Problems and Job Layoffs Crack Retirement Nest Eggs

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Health Problems and Job Layoffs Crack Retirement Nest Eggs

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