If Your Nest Egg is “Broken,” Here’s How to Repair It
By John Whitefoot for Daily Gains Letter |
A growing number of American retirement nest eggs are cracked, and the fault lines are getting bigger.
While the S&P 500 and Dow Jones Industrial Average are enjoying record highs, the same cannot be said for the employment rate. In fact, stubbornly high unemployment and underemployment mean a growing number of Americans have had to dip into their retirement funds—and sacrifice their future stability—just to get by.
While the official U.S. unemployment rate sits at 7.4%, the U.S. Bureau of Labor Statistics reports that the underemployment rate—those who are unemployed, want work but have stopped searching, or are working part time because they can’t find full-time work—remains stubbornly high at an eye-watering 14.2%.
If history is any indicator, it looks as though the underemployment rate will remain sky high for the near future. That’s because more Americans are being forced into part-time jobs to pay the bills. In fact, almost four times as many Americans are taking on part-time work as opposed to full-time jobs—the complete opposite of last year. (Source: Luhby, T., “Want a job? Good luck finding full-time work,” CNN.com, August 12, 2013.)
Why are American companies hiring more temps and part-time workers? It depends on who you ask. Economic uncertainty, weaker consumer confidence, and a lack of consumer demand are certainly major reasons why employers are holding back on hiring full-time workers, but when it comes to the economy, it’s open for debate.
What isn’t open for debate is that more than one-third (36%) of unemployed or underemployed American workers have been forced to tap into their retirement accounts just to get by. On top of that, 41% of displaced workers do not have a retirement savings account of any kind. (Source: “Repairing the Damaged Nest Egg: How to Improve the Retirement Outlook of the Unemployed & Underemployed,” Transmerica Center for Retirement Studies, August 2013.)
Not surprisingly, the longer you’re out of work, the more your retirement account suffers. Almost half (42%) of workers displaced for a year or more dipped into their retirement savings versus “just” 23% of those displaced for less than a year.
How cracked are the retirement nest eggs? On average, the median household retirement savings account for displaced workers is roughly $7,500. The group that is worst off also happens to have the highest withdrawal rate; those in their 40s have an average of just $1,900 in their retirement accounts, and more than half (55%) of that group had to borrow against their retirement account.
Those unemployed or underemployed in their 60s have the highest rate of retirement savings at $93,000. But that’s not a total surprise either, when you consider they’ve had a longer time frame in which to save and prepare for retirement.
Those nearing retirement that are comfortable with what they have in their retirement account can still consider defensive plays like Johnson & Johnson (NYSE/JNJ) that provide long-term capital appreciation and consistent dividend growth.
Those who think America’s part-time job bonanza is going to continue unabated for years to come might want to consider companies that provide staffing services like Kelly Services, Inc. (NASDAQ/KELYA) or ManpowerGroup Inc. (NYSE/MAN).
Anyone that does not have a lot of money to invest but wants to avoid the risk of stocks and bonds might want to look at an exchange-traded fund (ETF) like the IQ Real Return ETF (NYSE/CPI), which hedges against U.S. inflation.
What can America do to help its growing part-time working class prepare for retirement? While the government could expand retirement plan coverage for all workers (that includes part-timers), chances are it isn’t going to do anything.
Tags: Dow Jones Industrial Average, employment rate, retirement (hyperlinked); S&P 500, retirement funds, Retirement savings