AARP Report Tells How Financial Crisis Impacts Older Americans

1/28/2009

posted by N. Sioris

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The AARP Public Policy Institute published a paper explaining the effects of the financial crisis on the U.S. economy and specifically on older Americans. The paper also addresses the question of what government policies should be adopted to mitigate the effects of the financial turmoil and to prevent a future re-occurrence.

AARP says "the financial crisis that has engulfed the U.S. economy is the worst since the Great Depression. It threatens the stability not only of the financial system but of the economy as a whole." "The stock market has fallen by about 40 percent since the beginning of 2008, mostly since early September; credit is both more expensive and scarce."

The net worth of American households fell sharply during the first three quarters of 2008 primarily as a result of falling housing prices and lost stock market assets. By the end of September 2008, the decline in stock market values is estimated to have wiped out two and a half Trillion dollars of household net worth. Falling house prices may have reduced households' net worth by another Trillion dollars.

According to the AARP report, "The consequences of the fall in stock market values for older Americans can vary substantially across income classes." "The most seriously affected group will be those who were planning to supplement Social Security with income from 401(k) plans, IRAs, and other savings. Many have not followed the standard advice of moving out of equities into bonds, believing that the generally low interest rates of recent years made bonds an unattractive investment."

"The decline in housing prices may cause severe difficulties for older Americans that need to tap the equity in their homes. In particular, the capital gain from the sale of a residence could be substantially reduced, as could the income from a reverse mortgage. There are reports of elderly homeowners who need to move into assisted living but are unable to sell their homes at even a deep discount."

You can read the complete AARP Report here.