Personal Finance: Hopes dim after Great Recession

It's almost as though Americans sense what's coming in the years ahead.

The country is recovering from the recession, but a feeling of vulnerability remains.

Even among the affluent surveyed this month by MFS Investment Management Inc., there is unease. The survey found that 44 percent had reduced discretionary spending over the last year. In addition, 59 percent said they were "more concerned than ever about being able to retire," and 49 percent said they had lowered their expectations for how they will live when they retire.

Part of this fragile attitude may be due to still-high unemployment and gasoline pump prices. Empty homes, unmanageable household debts, and the government's $14.3 trillion debt load also do not help people feel comfortable.

But maybe the apprehensiveness goes beyond that, to a sense of a future that is dimmed, too.

Researchers at the Urban Institute have calculated that the Great Recession will be with this generation for life, eroding earnings and leaving them with less to spend in their working years and later in retirement.

On average, today's workers can expect to end up with $2,300 a year less in retirement benefits than they would have had if the financial crisis had not put a stranglehold on jobs and wage growth, according to research by Barbara Butrica, Richard W. Johnson, and Karen E. Smith.

While people close to retirement might feel the most vulnerable now because they have little time to regain retirement savings and have had more difficulty than younger workers getting rehired, they are going to end up less brutalized on average than younger workers, according to the researchers.

The researchers note that, over a lifetime, the recent stress of unemployment will not have as profound an effect as the anemic wage growth of the last few years. Salaries and wages generally build on previous pay. So if people are out of jobs or have pay cuts or anemic wage growth, the next year's pay builds on a low base.

In addition, pensions and Social Security are based on incomes, so benefits do not build as much as they would if pay levels had not lagged. Even 401(k) sums can be restrained.

The Urban Institute researchers say "the recession will reduce average annual incomes at age 70 by 4.3 percent" for people who had been working-age in 2008. That's the $2,300 a person.

Since most people kept their jobs during the recession, the researchers say, unemployment will have "little effect on future aggregate retirement incomes" compared with the residual effect of low pay over many years. Between 2009 and 2010, the Urban Institute found, real weekly earnings declined 3.3 percent for men 50 or older who were employed full time and 1.2 percent for their female counterparts.

People closest to retirement are not expected to be hit as hard as younger workers because they have fewer years of work in which pay was anemic. But they have problems of their own, according to another Urban Institute study by Johnson and Janice S. Park.

Older workers who had not built enough retirement savings had planned to work longer before retiring so they could amass more savings before dipping into nest eggs. The researchers found that the recession ruined those plans for many people 50 or older. The unemployment rate for men ages 50 to 61 increased to 8.3 percent in 2010.

And older workers have had significantly more trouble than younger workers getting jobs after being laid off. The researchers found that among jobless workers, about 53.5 percent of the people age 50 to 61 were unemployed more than 26 weeks in 2010, compared with 45.6 percent of those ages 25 to 49. Among those 62 and older, 53.1 percent had been looking for a new job for more than 26 weeks. Unemployment spells exceeded one year for 30 percent of those over 50.