Only 50% of people stay in the workforce past the age of 50. How to prepare.

When Eric Schauer was laid off last July at the age of 55, he wasn't overly concerned about getting a new position.

Schauer, a senior manager in Albany, NY, figured the generous severance pay he received from his chemical company would tide him over until he found a job in a tight job market. Almost a year later, he was a finalist for a handful of positions but has not yet been hired. Schauer suspects that his age could be to blame.

“Once they meet me in person,” he says, “it's the end.”

His experience is hardly unique. Only about half of Americans are working continuously by the age of 50, according to an analysis of Health and Retirement Study data by researchers Beth Truesdale, Lisa Berkman and Alexandra Mitukiewicz in the recent book. Overtime: America's Aging Workforce and the Future of Working Longer. According to the authors, the main reasons include dismissal or displacement, health concerns and care responsibilities. While lower-income workers are most likely to be affected, the problem extends to demographics as well.

The financial consequences are serious. Common advice is that you can increase your retirement savings at age 50, when you can presumably afford to make the additional contributions that the Internal Revenue Service allows for workers aged 50 and over. But for those unemployed, not only can it become impossible to save, but some are forced to do the opposite — raid their retirement accounts to support themselves.

If you're not employed by the time you're 50, you're less likely to work beyond that. Eighty percent of those who worked continuously in their fifties worked well into their next decade, compared to just 35 percent of those who worked part-time Over time.

The popular notion is that you work until you decide to retire. But for many, the reality is less linear.

It is not up to individuals to solve the structural problems that can prevent older workers from staying in work, such as age discrimination and the lack of paid family leave. But there are some steps you can take to prepare for a decade that may be bumpier than expected. Here's what to do:

Don't wait to save

Employees from the age of 50 are allowed to pay so-called “catch-up contributions” into their pension accounts. For 2023, the amounts are an additional $7,500 for 401(k) and similar plans and an additional $1,000 for individual retirement accounts. According to Vanguard's How America Saves 2023 report, only about 16% of eligible workers made these contributions in 2022.

Ideally, employees have been making contributions to their retirement accounts all along so that they don't have to catch up when they turn 50. “I view catch-up posts as panic posts,” says Teresa Ghilarducci, a professor of economics at the New School. “That's what Congress should have called her.”

The importance of starting pension contributions early is usually expressed in terms of compound interest. If you start paying $475 a month into a retirement account at age 22, you'll have $2.4 million by age 67, compared to just $1.1 million if you were up to wait to age 32, and only $450,040 if you wait another 10 years to age 42, assuming an 8% annualized return, according to an illustration by MassMutual.

As important as compound interest is, it's also worth thinking about early on to help manage risk. You may not be able to catch up at 50, so don't wait. Now save what you can, even if it's just enough to keep up with your business. And view catch-up contributions as an opportunity to replenish your savings after decades of consistent contributions.

While Schauer's unemployment wasn't financially ruinous, his progress in retirement has stalled. He and his wife have no children and his wife's work in project management has helped them stay afloat. But he no longer contributes to his 401(k), and she only contributes a minimum amount. “When it comes to retirement, we kind of stagnate,” he says.

Reduce your expenses

Rand Spero, president of Street Smart Financial in Lexington, Massachusetts, often speaks to clients about their job security and how they would pay their bills if they lost their jobs. “I get a range of answers, from ‘I could get ten jobs tomorrow,' to ‘That's pretty scary,'” he says.

He advises customers to keep spending in a liquid emergency fund for at least six months. If you assume that unemployment will make it more difficult to find a job, you might want to save even more. If that goes too far, homeowners who qualify for a home equity loan could open one while still employed so it can function like an emergency fund if they lose their job, Spero says.

In addition to replenishing an emergency fund, older workers who feel their jobs are precarious may want to cut back on spending. “When you're 50, you have a certain lifestyle,” says Spero. “The question is what is fixed and what is discretionary?” Taking a more modest vacation — or deciding not to splurge on a new car — can help you build a buffer to withstand future financial shocks.

Check your expectations

Hugh Taylor saw the signs of the times in 2009 when he was released

IBM

at the age of 44 in a mass layoff that affected thousands of employees. Not wanting to find himself in this situation again, he decided to become his own boss. After working as a marketing director for a startup for a few years, he has been working continuously as a freelance content writer for the past twelve years.

Now 58, Taylor has seen some of his peers struggle. As a 1992 graduate of Harvard Business School, he saw former classmates sidelined due to health concerns or an inability to adapt to changing circumstances.

Taylor says he saw some of his Harvard Business School classmates struggle with their careers in their 50s.

Photo by Peter Larson

People who are laid off in their fifties often try to carry their previous positions and salaries into their new positions. As understandable as it is, this impulse often holds her back. “The idea of ​​just moving from one Fortune 500 company to another in the same role — it happens, but it's not easy,” Taylor said.

David Wiczer, an associate advisor at the Federal Reserve Bank of Atlanta and a research fellow at the IZA Institute of Labor Economics, says it's normal for people in their 50s to be offered a lower salary after a period of unemployment than the one they left . In fact, his research found that workers aged 56 and over earn, on average, about a quarter less in their new job after being unemployed for at least a month.

His advice? Take the lower offer. Once you're on the job, you can try to maneuver yourself into something better. “The best way to get back to where you were is through employment,” says Wiczer.

For his part, Schauer has recognized that his salary expectations could deter potential employers. “Maybe I can't be too picky,” he says.

He reads a lot and keeps up to date with developments in his field. In interviews, he tries to use his emotional intelligence as an advantage. Although his job search has become demoralizing, he doesn't give up.

“I still have the feeling that I can contribute something,” says Schauer.

Write to Elizabeth O'Brien at [email protected]

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