Retirees & Recession

The lowering of interest rates are generally a good thing for most people, many of whom are attempting to dig their way out of debt. However, when it comes to those who have already retired, there may be a different story.

As pensions are often tied to longer term investments, the amount of money retired people have at their disposal is actually declining. In the UK, the expected yearly income for a retiree has gone down £884 to £17,779. While lower interest rates tend to make life less expensive, certain costs, such as those fuel and food, are actually rising. In addition, the lower cost of home loans and borrowing money does not tend to help retirees, but rather hurts their pensions, which are tied to interest rates and the markets.

In the United States, more people are claiming their social security benefits earlier, as people are let go from their jobs and employment becomes more difficult for everyone to find. Many of these people will find themselves in financial difficulties later, as the ramifications of taking social security benefits early means they will get less on a monthly basis. In the past, older workers were cushioned from lay-offs, but in the current economic downturn, this seems not to be the case. This may also be due to the steady loss of union jobs, which protect experienced workers from job losses. Meanwhile, some US companies such as Yahoo are taking the step of freezing company 401K contributions.

Here in South Africa, where skills are in scarce supply, retirees are actually seen as an asset, and so may weather the recession a bit better. Jan Coetzee, Managing Director at Manpower South Africa sees cutting those close to retirement as naive. "In a recession and consequent downturn, the core business areas need to be tightened and made stronger, and experienced staff are therefore central to this process.”

But then all may not be so bleak for some retirees. A few retirees who are either not ready to quit working or cannot afford to are turning to franchises, at least in the US. A franchise offers a tried and true business plan for experienced workers. Those who put money into starting franchises tend to be older and have savings enough to grow the business, as it takes from $20,000 to as much as $150,000 to buy into a franchise. Perhaps another silver lining in all this mess is that people are saving more for their retirement, so that the next generation of retirees will be better off than those who are retiring now.

Still, the majority of retirees are finding it difficult to survive in the current economic climate. Prices of petroleum and other carbon-based energy are likely to stay high due to increased usage in China and India of automobiles, and if there is an upturn, prices for such fuels, as well as commodities that require transport, are likely to increase even further.