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Recession’s Continuing Hardship Hits Middle Class IRAs and Taxes: Part 1
The Great Recession that began in 2007 affected people of all ages and socioeconomic backgrounds. But, according to the Government Accountability Office, baby boomers took the biggest hit. Now, 7 years later, those 55 years of age and older are still the largest demographic struggling today.
In the interim, record amounts of hardship withdrawals from middle class pensions have not solved those financial concerns, and in fact, have exacerbated the problem by creating a class of pensionless people with significant tax debt caused by early withdrawals.
The report: older workers affected to greater degree from Great Recession
The Government Accountability Office, or GAO, is an independent, nonpartisan governmental agency that provides research for Congress in an effort to ensure government accountability to the American taxpayers.
As far back as 2012, the GAO released a report that detailed the financial affects of the Great Recession on individuals, particularly those ages 55 and older. The findings were astonishing. The report essentially revealed that older individuals faced much more of an uphill battle than those in other age groups. And many are still struggling today. But why?
Lack of employment, salary reductions
A big reason is due to the lack of employment opportunities for baby boomers. Millions of workers 55 years of age and older are still seeking employment.
Many baby boomers have never regained employment and most of those who have been able to find a job, unfortunately, could not recapture their prior salaries earned before the U.S. economic decline. Specifically, wages for adults age 55-64 have dropped by 6 percent. Roughly 17 percent of individuals in this age group were forced to accept part-time work due to a lack of other employment prospects.
Turning to retirement savings for relief
With mounting bills and unemployment or underemployment, many turned to their retirement savings accounts for relief. Many hoped that hardship withdrawals would help keep them afloat until the economy rebounded or Congress took action to pass legislation to assist the struggling middle class by waiving the present-day tax liability for them and hundreds of thousands of others in the same financial situation. Unfortunately, there has been no rebound and Congressional and Executive branch promises have continued through various election cycles as empty campaign palaver.
Data from the IRS indicates that there was a total of $57 billion in early retirement withdraws in 2011 alone. And, according to a survey conducted by the AARP Public Policy Institute, 25 percent of individuals 50 years of age and older have completely exhausted their pensions and 401(k)s during the Great Recession.
Sadly, the economic storm continues for these individuals, despite massive pension withdrawals to meet recurring debt service. Although economic pundits tout the U.S. "recovery," baby boomers and retirees are still struggling today.
Wages and tax debt
Those who were fortunate enough to secure a job once the economy began to stabilize do not take home the wages they once could. Many are working low paying and even part-time jobs. A report from the U.S. Census Bureau released in the fall of 2013 shows that the average median income has declined by 9 percent since the Great Recession began over 5 years ago, leaving many families still deep in debt without pension resources, and in many cases, facing significant IRS debts for penalties and taxes due on each pension withdrawal that didn't solve their continuing problems.
But stagnant wages are not the only reason why many baby boomers and retirees are struggling to stay afloat; a big reason is attributed to present-day IRS rules. Click here to find out why.
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