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Forced to Retire

Disgruntled with corporate America after being laid off three times in 14 years, Jan Gissel decided to take charge of her destiny. She dipped into her retirement funds, accumulated over a long marketing career, and bought a franchise seven years ago that provided technical support to small businesses.

Then the recession swept through the nation, bulldozing businesses like Gissel’s into ruin. Last December the 63-year-old entrepreneur walked away from her franchise and reluctantly settled into retirement.

“Royalties had to be paid every month whether the business brought in any money or not,” says Gissel, who lives in a $225,000 townhouse in Orange County, Calif. “I kept pulling more money out of my retirement funds. It left me pretty much devastated.

“Fortunately, I’m old enough to qualify for early Social Security retirement benefits and a reverse mortgage on my home,” she says. “Unfortunately, I’m too old to snag one of the few jobs available in this economy. Who’s going to hire me at 63?”

Gissel is part of a rising tide of people who blame the recession for pushing them toward an early and unwelcome retirement.

They are being forced to make financial decisions more typically reserved for later in life, like filing for Social Security benefits or taking a reverse mortgage.

Turning to such resources too soon comes with a big risk: running out of money in later years.

Since December 2007, the United States has lost more than 8 million jobs. Among workers age 55 and up, the jobless rate has more than doubled, from 3.2 percent to 6.9 percent. That translates to 2.1 million older people out of work.

The persistently weak labor market has kept them unemployed. The average duration of joblessness for workers age 55 and up expanded from 20 weeks to 36 weeks between December 2007 and February 2010, according to AARP’s Public Policy Institute (PPI). Consequently, it’s no wonder that the number of “discouraged workers”—those who gave up looking for jobs—is increasing. Among older workers, the numbers rose from 53,000 to 287,000 in the same period.

It isn’t just the current recession that has hurt older Americans. Over the course of the past decade, PPI notes, there was a dramatic increase in the number of unemployed people age 55 and older—up 331 percent from January 2000 to December 2009.

“When you’re in your mid-30s and you lose your job in a recession, it’s terrible. You may not get a job that pays as well for a long time … but you still will have time to recover financially,” says Phillip Levine, associate professor of economics at Wellesley College in Massachusetts. “But when you’re older, you have no recourse; your labor market career is largely over.”

After her franchise folded, Gissel was certain she couldn’t land another job. “I feel like I’ve been out of [the workplace] too long,” says Gissel, a great-grandmother. “I’m taking my Social Security, but I need more money than that to make it.”

There may be freelance or part-time work in her future, but right now, she says, “I’m trying to figure out my next step.”

Steve Stanislowsky, 61, thought he’d be working a few more years. But in August he lost his job at a computer service company in Milwaukee and hasn’t been able to find work since. He recently moved to Tennessee to take advantage of its cheaper living costs and to look for a job.

In September, when he turns 62, Stanislowsky plans to file for early Social Security benefits. “I’m pretty much resigned to retiring,” he says. “Losing my job did force my retirement plans to be activated ahead of time.

“I’m very worried about running out of money,” he adds. “My whole retirement plan has crumbled.”

Throughout America, out-of-work boomers face the danger of being unable to finance 20 or 30 years of retirement. “Lots of people are in this situation. They got laid off, ran out of unemployment and had no choice but to drop out of the labor force and file for early benefits,” says Heidi Shierholz, an economist with the Washington-based Economic Policy Institute.

Indeed, new applications for Social Security benefits rose by nearly 21 percent in the fiscal year that ended Sept. 30, 2009, says Stephen Goss, Social Security’s chief actuary.

Currently, 42 percent of men and 48 percent of women start taking benefits as soon as they are eligible, at age 62. But by collecting before the full retirement age of 66, the monthly amount is reduced by 25 percent for the rest of their lives.

Consequently, many experts advise people to wait, especially if they are in good health. “Claiming a lower benefit may not seem that bad in your 60s, but in your 80s it will be noticeable because some of your savings will be used up,” says Alicia Munnell, director of the Center for Retirement Research at Boston College. “You’ll be left primarily with your Social Security benefit.”

Many people won’t have much in the way of retirement savings to start with. According to an Employee Benefit Research Institute survey in March, 37 percent of workers age 55 and older had saved less than $25,000, excluding their home and pensions.

“With the decline in the stock market and the bursting of the housing bubble, older workers are much less wealthy heading into retirement than they once were,” says economist Shierholz.

People may be unprepared for retirement, but that doesn’t mean they aren’t facing up to reality. “People will look for alternatives. Some will say, ‘I have to keep looking. I’m going to have to get that part-time job and work until our retirement security is back in order,’ ” says Shierholz.

In the meantime, people are forced to make painful cuts in spending. Gissel had to give up her health insurance when she lost her franchise. “I’m clipping coupons … I’ve cut down my cable bill, I read the newspaper online. I’m trimming everywhere I possibly can,” she says.

“I had great plans for what retirement was going to look like,” she adds. “This isn’t it.”

Carole Fleck is a senior editor at the AARP Bulletin.

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