U.S. citizens nearing retirement are hit hard by the global recession, prompting some to relocate overseas

Oct 2, 2012

In addition to be the most vulnerable to the housing crisis, the typical U.S. citizen 55 to 64 years old has a household income almost 10 percent less than it was when the recovery officially began three years ago, according to a new report from Sentier Research.

The report found that after adjusting for inflation, the median household income for Americans of all ages was 4.8 percent lower in June 2012 than it was when the recovery technically started in June 2009, to $50,964 from $53,508.

Demographers say the income drop is one of the reasons for an increase of retirees deciding to relocate overseas, particularly in Latin American countries.

The decline looks even worse when comparing today's incomes to those when the recession began in December 2007. Then, the median household income was $54,916, meaning that incomes have fallen 7.2 percent since the economy last peaked.

Income losses vary significantly by age, though. Householders between the ages of 55 and 64 have taken the biggest hit; their household incomes have fallen to $55,748 from $61,716 over the last three years, a decline of 9.7 percent.

Younger Americans also sustained huge earnings cuts. The inflation-adjusted median household income for those 25 to 34 fell 8.9 percent, while that for people under age 25 fell 6.1 percent.

Incomes for the oldest Americans, on the other hand, have risen steadily since the recovery began. Among householders between the ages of 65 and 74, the inflation-adjusted median household income rose 6.5 percent (to $42,113 from $39,548), and among those age 75 and older, the increase was 2.8 percent (to $26,991 from $26,244).

It's not clear why incomes rose for older people when everyone else suffered income losses.

This may be because older Americans are working longer than they ever used to, which means they are taking in more income at more advanced ages. Perhaps they are working longer partly to compensate for the decline in the value of their homes. Rising employment rates among older people predate the housing bust, however.

The employment-population ratio for people over 65 has been rising since the early 1990s, and their incomes have been rising since at least the late 1960s (as was the case for other age groups, too, with a bit more volatility; remember, though, that older people have at least some reliable income through Social Security).

Income losses since the recovery began also varied depending on educational attainment. People with the least education and people with the most education had smaller income losses, supporting the idea that the job market in the United States is "hollowing out," as the M.I.T. economist David Autor has proposed, meaning that high-skilled and low-skilled jobs are growing while midskilled jobs are thinning out.

The median household income of high school dropouts has fallen 5.3 percent (to $24,495 from $25,860), while that for college graduates has fallen 5.9 percent (to $83,378 from $88,570).

Meanwhile, incomes for those with mid-level educational attainment — a high school diploma, some college but no degree, or an associate's degree — slid much further.

As you can see in the chart above, the biggest percentage decline was for people who took some college courses but never got a degree. Their median income fell 9.3 percent over the course of the recovery so far, to $46,200 from $50,948. That must especially sting, given that these income losses are probably accompanied by student loan debt.

Black Americans are perhaps the worst-hit demographic.

The real median annual household income for blacks fell 11.1 percent from June 2009 to June 2012, landing at $32,498 from $36,567. That compares to 5.2 percent for whites, 3.6 percent for other race combinations (including Asians) and 4.1 percent for Hispanics — all of whom had higher incomes than blacks to begin with.

University of Virginia demographics reasearcher Kevin Martin, who has been studying migrations based on economic factors, said he believes the decline in income and net worth will continue with retirement-aged Americans and this will lead to more overseas retirement relocations. “We have seen exponential growth in the number of people retiring is such contries as Mexico, Panama and Ecuador. This is a trend that has gone under the radar of many economic studies. It is just now beginning to be noticed.”

Credit: By Catherine Rampell, http://finance.yahoo.com

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