America's New Retirement Reality?

Shannon Pettypiece of Bloomberg reports, Americans Living Longer as Fewer Die From Heart Disease, Cancer:

A baby born in 2012 will live to a record 78.8 years old on average, as U.S. life expectancy grew and fewer Americans are dying from heart disease, cancer and other chronic illnesses.

That’s a gain of about one month compared to 2011, according to a report released today by the Centers for Disease Control and Prevention. Average life expectancy for women was 81.2 years. Men will live an average of 76.4 years.

The life expectancy in the U.S has increased 1.9 years since the start of the century, though it was unchanged from 2010 to 2011, the last time the agency released figures.

“We continue to follow the pattern that we have been seeing for a few decades, where life expectancy is gradually increasing and death rates from the leading causes of death are decreasing,” said Elizabeth Arias, a demographer at the CDC and an author of the paper.

Eight of the 10 main causes of death fell, including a 1.8 percent reduction in heart disease-related deaths and a 1.5 percent drop in cancer deaths. The rate of suicides, however, rose by 2.4 percent. Heart disease and cancer account for about half of all deaths, Arias said.

The infant mortality rate, which counts the ratio of infant deaths to births, has also improved, with 8.9 fewer infant deaths per 100,000 live births in 2012 compared to 2011.

While most groups saw gains, the death rate among Hispanic males and females was unchanged. The biggest decline in mortality was among black women, according to the data, which is collected by the National Center for Health Statistics and based of nearly every U.S. death certificate.

The life expectancy for an infant is based on the assumption that the death rate remains the same for the entire life of the child, though that is unlikely since the death rate has been on the decline for decades, Arias said.

The good news is Americans are living longer. And if they change the laws to lower the astronomical cost of cancer drugs, even more people will live longer (American households are getting wrecked by medical debt).

But longer lifespans also means more people are retiring in poverty, a topic I discussed in America's new pension poverty back in February 2013. Ted Siedle also discussed the greatest retirement crisis in American history around the same time but we haven't heard much since then.

A new report by Harvard and the AARP discusses how older Americans are being squeezed out of the housing market in retirement:

America’s older population is in the midst of unprecedented growth, but the country is not prepared to meet the housing needs of this aging group, concludes a new report released today by the Harvard Joint Center for Housing Studies and AARP Foundation.

According to Housing America’s Older Adults—Meeting the Needs of An Aging Population, the number of adults in the U.S. aged 50 and over is expected to grow to 133 million by 2030, an increase of more than 70 percent since 2000 (see interactive map). But housing that is affordable, physically accessible, well-located, and coordinated with supports and services is in too short supply.

Housing is critical to quality of life for people of all ages, but especially for older adults. High housing costs currently force a third of adults 50 and over - including 37 percent of those 80 and over - to pay more than 30 percent of their income for homes that may or may not fit their needs, forcing them to cut back on food, health care, and, for those 50-64, retirement savings.

Much of the nation’s housing inventory also lacks basic accessibility features (such as no-step entries, extra-wide doorways, and lever-style door and faucet handles), preventing older persons with disabilities from living safely and comfortably in their homes.

Additionally, with a majority of older adults aging in car-dependent suburban and rural locations, transportation and pedestrian infrastructure is generally ill-suited to those who aren’t able to drive, which can isolate them from friends and family. Finally, disconnects between housing programs and the health care system put many older adults with disabilities or long-term care needs at risk of premature institutionalization.

“Recognizing the implications of this profound demographic shift and taking immediate steps to address these issues is vital to our national standard of living,” says Chris Herbert, acting managing director of the Harvard Joint Center for Housing Studies.

“While it is ultimately up to individuals and their families to plan for future housing needs, it is also incumbent upon policy makers at all levels of government to see that affordable, appropriate housing, as well as supports for long-term aging in the community, are available for older adults across the income spectrum.”

Of special concern as the older population in the U.S. continues to swell are the younger baby boomers who are now in their 50s. With lower incomes, wealth, homeownership rates, and more debt than generations before them, members of this large age group may be unable to cover the costs of appropriate housing or long-term care in their retirement years.

Indeed, while a majority of people over 45 would like to stay in their current residences as long as possible, estimates indicate that 70 percent of those who reach the age of 65 will eventually need some form of long-term care.

In this regard, older homeowners are in a better position than older renters when they retire. The typical homeowner age 65 and over has enough wealth to cover the costs of in-home assistance for nearly nine years or assisted living for 6 and half years. The typical renter, however, can only afford two months of these supports.

“As Americans age, the need for safe and affordable housing options becomes even more critical,” says Lisa Marsh Ryerson, President of the AARP Foundation.

“High housing costs, aging homes, and costly repairs can greatly impact those with limited incomes. The goal in our support of this report is to address the most critical needs of these households and it is AARP Foundation’s aim to provide the tools and resources to help them meet these needs now and in the future.”

Indeed, older Americans are getting squeezed, unable to find safe, affordable housing and many of them are increasingly isolated, leaving them vulnerable during to their golden years.

But there is another reality squeezing older Americans. A growing percentage of aging Americans are struggling to pay back their student debt:

Rosemary Anderson could be 81 by the time she pays off her student loans. After struggling with divorce, health problems and an underwater home mortgage, the 57-year-old anticipates there could come a day when her Social Security benefits will be docked to make the payments.

Like Anderson, a growing percentage of aging Americans struggle to pay back their student debt. Tens of thousands of them even see their Social Security benefits garnished when they cannot do so.

Among Americans ages 65 to 74, 4 percent in 2010 carried federal student loan debt, up from 1 percent six years earlier, according to a Government Accountability Office report released Wednesday at a Senate Aging Committee hearing. For all seniors, the collective amount of student loan debt grew from about $2.8 billion in 2005 to about $18.2 billion last year.

Student debt for all ages totals $1 trillion.

"Some may think of student loan debt as just a young person's problem," said Sen. Bill Nelson, D-Fla., chairman of the committee. "Well, as it turns out, that's increasingly not the case."

Anderson, of Watsonville, California, amassed $64,000 in student loans, beginning in her 30s, as she worked toward her undergraduate and graduate degrees. She said she has worked multiple jobs — she's now at the University of California, Santa Cruz — to pay off credit card debt and has renegotiated terms of her home mortgage, but hasn't been able to make a student loan payment in eight years. The amount she now owes has ballooned to $126,000.

"I find it very ironic that I incurred this debt as a way to improve my life, and yet I still sit here today because the debt has become my undoing," Anderson said in prepared testimony for the hearing.

Despite not making payments, she's managed to keep the education debt in good standing, she said.

Ed Boltz, a bankruptcy attorney in Durham, North Carolina, who is president of the National Association of Consumer Bankruptcy Attorneys, said in an interview that many of the seniors he sees with student loan debt are also struggling with challenges such a medical problems, job loss or divorce. Some, he said, went back to school with hopes of making a higher salary and that didn't pan out, or the children they helped fund to attend school are not in a position to help the parent in return.

"They are stuck with these debts and they can't try again," Boltz said. "There's no second act for them. It holds off on people retiring."

The GAO found that about 80 percent of the student loan debt by seniors was for their own education while the rest was taken out for their children or other dependents. It said federal data showed that seniors were more likely to default on loans for themselves compared with those they took out for their children.

It's unclear when the loans originated, although the GAO noted that the time period to pay back such debt can range from a decade to 25 years. That means some older Americans could have taken out the loans when they were younger and they've accumulated with interest, or got them later in life — such as workers who enrolled in college after a layoff in the midst of the economic downturn.

The GAO found that about a quarter of loans held by seniors ages 65 to 74 were in default. The number of older Americans who had their Social Security benefits offset to pay student loan debt increased about fivefold, from 31,000 to 155,000, from 2002 to 2013.

"As the baby boomers continue to move into retirement, the number of older Americans with defaulted loans will only continue to increase," the GAO said. "This creates the potential for an unpleasant surprise for some, as their benefits are offset and they face the possibility of a less secure retirement."

Typically, student loans can't be discharged in bankruptcy. In addition to docking Social Security, the government can use a variety of tools to recoup student loans, such as docking wages or taking tax refund dollars.

Sandy Baum, a senior fellow at the Urban Institute, said these seniors having their Social Security docked likely don't have much discretionary income and Congress should consider taking away this option. There's a limit to how much Social Security can be docked, but some seniors are left with benefits below the poverty level, the GAO said.

"It's not an issue that affects large numbers of people," Baum said. "It's a very big issue for people who are affected by it."

As more Americans take out student loans to pay for their ridiculously high tuition fees, this will add to the debt levels of millions looking to retire but unable to pay off these loans. Most will have to put off retirement, if they can, but others will get reduced Social Security cheques, pretty much ensuring they retire in poverty.

And with interest rates at historic lows, and heading lower, older Americans are increasingly speculating on high dividend stocks to collect the yield they're looking for. But high dividend stocks carry a lot of risks and I fear the worst as this dividend mania garners steam.

Finally, it's important to understand that aging demographics in the U.S. and elsewhere adds to global deflationary headwinds. Older people on limited incomes struggling to survive don't spend as much on food, housing, clothing and entertainment. They can't afford to. 

I leave you with an update. In the year since Bloomberg News reported on Tom Palome, the 78-year-old former marketing executive who was unable to retire due to financial challenges has made some employment changes and endured new challenges. Where is Tom now? Bloomberg's Carol Hymowitz reports.

Tom Palone is actually part of the lucky few. Most older Americans won't be able to work during their golden years. The sad new reality of America's retirement crisis is that millions will retire in poverty. That is the cancer of pensions nobody seems to be discussing and it will come back to haunt this great nation.