Preparing For Retirement 101

The unemployment rate is at a whopping rate of 10.2 percent, with older Americans included in these latest numbers. What does unemployment mean for those who are trying to retire? Jean Stezfand, the director for Financial Security at the AARP, offers tips on how to prepare for retirement.

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MICHEL MARTIN, host:

Retire now or later? That's the question for our weekly Money Coach conversation.

The unemployment rate hit double digits last week at 10.2 percent for October. And while older Americans are less likely to be unemployed than many younger workers, older workers who are unemployed tend to be out of work longer. So some may be wondering why not just retire? Could that be better than the stress of hitting the pavement?

We thought many people might have that question, so we decided to call Jean Stezfand. She is director for Financial Security at the AARP, that's the organization formerly known as the American Association of Retired Persons, and she's with us now in our Washington, D.C. studio.

Welcome. Thank you for joining us.

Ms. JEAN STEZFAND (Director for Financial Security at the AARP): Thank you for having me.

MARTIN: So unemployment for workers 55 and above in the U.S. has increased to seven percent from 6.8 percent in September. But that's still lower than the overall unemployment and why is that?

Ms. STEZFAND: It is. I think because there are fewer older workers than there are younger workers; however, one of the things that we're concerned with is how long they stay in unemployment. It tends to be much longer than the younger average worker.

MARTIN: Why is that? Why is that (unintelligible)? Is it that older workers tend to have seniority so that they tend to be the last fired but then they're also last hired when they're out looking?

Ms. STEZFAND: Yeah. I think that's definitely true. And the other thing is, I think for more experienced workers, some employers tend to think that they have skills that are out of date or too entrenched in what they used to know. So trying to find a new job and trying to reinvent yourself tends to be a little bit harder for an experienced worker.

MARTIN: To this point, the average period of unemployment for older workers 55 and above is what?

Ms. STEZFAND: Its 33 and a half weeks, so thats really, by definition, long-term unemployment when we call long-term unemployment 27 weeks.

MARTIN: Wow. And how is this playing out workers of different ethnic backgrounds? We know, for example, that the unemployment rate for Latino and African-American workers is higher, right now, than for white workers who are 55 and older.

Ms. STEZFAND: Right.

MARTIN: And why is that?

Ms. STEZFAND: Unfortunately, I think as much as we want everything to be absolutely equal, it's still not completely on the same playing field for all. So for segments of the minority population, they tend to have a harder time finding work. It depends upon the cycle in the industry, also, in terms of where the unemployment is hitting harder.

So for now, as we see the housing bust and construction being one of the hardest hit areas, there's a lot more let's say Hispanic workers, especially for men, than there are for white males, for example. And so, you'll see higher numbers for those reasons.

MARTIN: And we also see in manufacturing, for example...

Ms. STEZFAND: Correct. Correct.

MARTIN: ...the auto industry has been a significant source of employment for African-American workers, you see the impact there.

Ms. STEZFAND: Exactly.

MARTIN: So what if youre 62?

Ms. STEZFAND: Right.

MARTIN: Youre eligible for Social Security and youve been laid off youre unemployed, youve been looking for a job, you aren't finding one - why not just retire?

Ms. STEZFAND: One major reason is because the change in retirement benefits has been shifting for quite some time. It used to be that when you retired you would get a paycheck, essentially - a retirement paycheck from your employer in the form of a pension. And they would give you a monthly check until you die. It's no longer that way because we're shifting from the old pension system and defined benefits to what we call defined contributions or 401(k) plans.

And unfortunately, in this new reality of retirement, youre really in the driver's seat. And for many, people aren't really driving very well. They're not putting enough money away for their retirement and therefore, that's going to be a harder jump to make into retirement when youre not financially ready.

So there's always Social Security and people are eligible to retire at 62. From a Social Security benefits standpoint, youre eligible, but for a reduced amount of 25 percent.

MARTIN: So if you retire at 62...

Ms. STEZFAND: Mm-hmm.

MARTIN: ...that full benefit amount is reduced by...

Ms. STEZFAND: Twenty-five percent.

MARTIN: And if it's 63 its what?

Ms. STEZFAND: I think it's an increase about 10 percent until you reach full retirement age.

MARTIN: So that's a big hit though.

Ms. STEZFAND: It really is. And depending on who you ask, by Social Security standards, it's anywhere between 30 to 50 thousand less if you retire at 62 versus your full retirement age.

MARTIN: So what should people do then, draw down on savings first? Draw down on other sources of retirement income like a 401(k), for example, before touching those Social Security benefits? Is that what youre telling people?

Ms. STEZFAND: Well, when you actually claim your Social Security benefit and start taking Social Security, in almost all states but four, you can actually continue to take your unemployment insurance and Social Security without getting a penalty. But if you continue to look for work, and once you do find full-time work, then I would say stop taking your Social Security and then have it continue to accrue so that you can increase your Social Security benefit basis.

And that's important, because as soon as you start claiming forever, that's the amount that youre going have. Some people even pay back what theyve already received and get back to the full amount that they could've received at a later date if they didnt have to have access to it.

MARTIN: You can do that too.

Ms. STEZFAND: You can do that too.

MARTIN: Who knew? What if you are just below 62?

Ms. STEZFAND: Mm-hmm.

MARTIN: Youre 60, what do you do?

Ms. STEZFAND: Then you have to really rely on unemployment insurance, and for that, weve seen a lot of increases. With the economic stimulus there was an increase of an additional 26 weeks on top of the normal 26 weeks that you have.

And now with the new legislation that President Obama just signed into law last Friday, there's an additional 14 weeks, plus for some states who have high unemployment rates, an additional six weeks so that there's I think a maximum of almost two years protection from unemployment.

MARTIN: Do you have any advice for older workers, particularly, who may have all the experience in the world but just are not getting the look back - for whatever reason. It could be that people fear the cost of their benefits.

Ms. STEZFAND: Mm-hmm.

MARTIN: It could be whatever reason.

Ms. STEZFAND: Part-time work is also another consideration. If youre 62, taking Social Security, but want to supplement your income with part-time work, you can do that up to a certain limit. In 2009 its 14,160 I believe is the limit. So you can earn up to that amount without having any deductions from your Social Security benefit.

For unemployment unfortunately, its a little bit lower than that, so anything that you earn above $100, youre going to have your unemployment benefits reduced. But, one thing to say around part-time work, though, is, you may be able to parley a part-time job into a full-time job and or use a part-time job to enhance your skills.

MARTIN: Jean Stezfand is director for Financial Security at the AARP and she was kind enough to join us here in our studios in Washington, D.C.

Thank you so much for joining us.

Ms. STEZFAND: Thank you.

(Soundbite of music)

MARTIN: Still to come, how "Sesame Street" teaches the kids about their ABC's, their one, two, threes and diversity. Well hear from one of the series' human stars and the moms.

Dr. META CHEF: So he was over the moon. He'd liked to see an Indian woman on "Sesame Street" and he'd like to see Alicia Keys singing the alphabet song.

(Soundbite of laughter)

MARTIN: "Sesame Street" celebrates 40 years on the air. We'll talk about it, coming up on TELL ME MORE from NPR News. I'm Michel Martin.

(Soundbite of music)

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