In this episode of Motley Fool Answers, Alison Southwick shares how an entertainment giant is leading the way to encourage African-American businesses. Then Motley Fool certified financial expert Robert Brokamp talks to Dr. Richard Johnson, director, Program on Retirement Security, Urban Institute, about career disruptions for older people, Social Security benefits, age discrimination in hiring, working beyond 65, how retirement plans work, and much more.

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This video was recorded on September 15, 2020.

Alison Southwick: This is Motley Fool Answers. I'm Alison Southwick, and I'm joined, as always, by Robert Brokamp, personal finance expert here at The Motley Fool. I have to do it nicely and straight up every now and then, right, Bro?

Robert Brokamp: So people know what my real name is; thank you very much.

Southwick: So in this week's episode, we're joined by Rich Johnson from The Urban Institute to discuss job security in the second-half of your career, or should we say, insecurity. Dan-dan-dah! All that and more on this week's episode of Motley Fool Answers.

[...]

Brokamp: So, Alison, what's up?

Southwick: Bro, I'm so glad you asked. A few episodes back, I introduced you to Robert Smith, the successful venture capitalist and philanthropist. I also told you about his idea to encourage businesses and, sure, even individuals, to funnel 2% of their profits to Black-owned businesses as a way to have a positive impact on the lasting negative consequences of slavery and racism in the U.S.

Somehow, I missed or forgot to mention that Netflix (NASDAQ:NFLX) is doing just that. Back in late June, Netflix announced that it will move up to $100 million or 2% of its cash holdings, to financial institutions that focus on Black communities. As Netflix said in the statement, "We wanted to redirect some of our cash specifically toward these communities and hope to inspire other large companies to do the same with their cash deposits." As DealBook reported at the time, Netflix will start with $35 million split two ways: $25 million in financing for a new fund called Black Economic Development Initiatives that will itself invest in Black financial institutions and $10 million deposited with the Hope Credit Union. Netflix, again, hopes that other companies will follow, and hopefully will go a long way with helping the underbanked.

So I thought I'd dig a little deeper into so-called financial deserts, which we talked about a little bit, I talked about only briefly at the time. I landed on some research by Donald Morgan, Maxim Pinkovskiy, and Bryan Yang with the New York Fed. They decided to look at the impact of the Great Recession and subsequent bank branch closings to see who was the hardest hit.

All right. So, Bro, would you like to guess just how many bank branches closed between 2009 and 2014? No matter what number you're going to say, it's not going to blow anyone away, or maybe it will, I don't know.

Brokamp: Well, I would put it certainly in the several hundreds, if not thousands, but it depends on your actual locations.

Southwick: Actual bank branches.

Brokamp: Okay. 500.

Southwick: 5,000, in fact.

Brokamp: Oh, you know what, 5,000 was the first number in my head. And then the way you said it, it was like, I must be overestimating. I swear that's the truth, 5,000 was the first number.

Southwick: All right, I believe you, you're a well-read man. So yes, about 4,821 branches closed between 2009 and 2014, reducing the total number of branches by about 5%. So the researchers, the New York Fed, define a banking desert as a census tract, a relatively homogeneous area, or neighborhood containing about 4,000 people with no banking branches within 10 miles of the center of the tract. As they point out, just because you don't have a proper bank around, it doesn't mean you don't have a payday lender or check-cashing service around.

And, yes, Rick, an Atlantic article from 2013 points out that following deregulation and increased mergers and consolidations within the banking industry, smaller banking branches began to close. Again, almost 5,000. And high-cost alternative financial services began to occupy the communities once served by mainstream banking services. And they expanded at a rate of 15% per year since the '90s. And so, we're talking about check-cashing stores, payday lenders, and in this Atlantic article they compared it to fast food restaurants and convenience stores cropping up when grocery stores move out. We're all familiar with food deserts; in this case, we're talking about financial deserts.

So when people are forced to rely on payday loans and check cashing places, we see them stuck in a spiral of debt due to high interest rates. You all know the story, but you know what, let's just hear the numbers again. According to Debt.org, high-interest credit cards might charge borrowers an APR of 28% to 36%, but the average payday loan's APR is commonly 398%. [laughs] It's just mind blowing. For example, if you take out a $500 payday loan with an APR around that, around 400%, you'll owe about $575 just two weeks later. So not only does a banking desert impact individual accounts and checkbooks, it also impacts the availability of mortgages and small-business loans.

As the New York Fed points out, small-business lending is considered particularly reliant on soft information: branch bank managers' personal knowledge of borrowers' intangible traits, their character, competence, work ethic. And local business conditions can inform their lending decisions, along with the usual hard information, like your credit score, balance sheet. If there is no local branch manager who can rely on this soft knowledge to make the call, then small-business loans aren't going to happen.

A UC Berkeley economist found that when merging banks closed a branch, the number of small-business loans made in the tract fell by 13% more than eight years afterward, so there are lingering results.

All right. So the Fed looked at all the closing banks following the Great Recession and they found that lower-income communities and communities of color have been less affected than higher-income and majority-white communities by branch closings that occurred after the Great Recession. However, they point out that these communities -- minority communities, lower income -- they had a lot less to lose to begin with. So lower income communities, communities of color, have been experiencing a shutter of bank branches for nearly two decades. So this isn't just a recent problem, and they've been banking deserts long before the Great Recession.

So this is the kind of research Netflix likely relied on when they made their decision to keep some of their massive hoard of cash with smaller minority-run banks. Ideally, if you can help fund these smaller banks, they will grow and thrive and then be able to loan the money back out to individuals most in need in their communities. So let's see if it catches on.

And that, Bro, is what's up.

Brokamp: Half of working age Americans will be unable to maintain their preretirement lifestyle if they retire aged 65. And that estimate is based on conditions before the pandemic. In a report published in July, the center estimated that the percentage of underprepared Americans may rise to 55% due to the current recession.

One frequently proposed solution for these Americans is to work beyond age 65, which can indeed be very powerful due to more years of saving and a higher Social Security benefit. However, it turns out that this may not be a foolproof strategy, because many people experience an unplanned career disruption in their 50s or later.

Here to talk about this is Dr. Richard Johnson, the director of the Program on Retirement Security at the Urban Institute. Rich, welcome to Motley Fool Answers.

Dr. Richard Johnson: Thank you, it's great to be with you.

Brokamp: So in 2018, you co-authored a report entitled "How Secure Is Employment at Older Ages?" Which looked, basically, at the likelihood that workers in their early 50s would at some point lose their jobs. What did you find?

Dr. Johnson: Yeah, we found that the share of workers who lose their jobs is strikingly high. So what we did -- and I did this work jointly with Peter Gosselin at ProPublica. We followed a group of workers in the early 50s who were employed, they're working full-time full-year. So these are workers who are pretty closely connected to the labor force. We followed them until they were aged 65. And what we found was that fully 56% of them had lost their jobs through what we call an employer-initiated job separation by the time they were 65. So that means either they were laid off, the business closed, or their working conditions became so bad that they decided that they had to leave their job.

So 56%. And what's striking is that that number is similar for both men and women, it's similar for people with college degrees and people without college degrees, similar across all regions of the country, similar across all industries. So it's just a lot of the probability of losing a job, of experiencing this career disruption is really quite common after age 50.

Brokamp: In the report, you had mentioned a couple of times, basically where it seems like employers were reluctant to maintain the employment of older workers or hire older workers. Is this just plain old age discrimination?

Dr. Johnson: So you know, employers obviously don't say that. So when they're asked in surveys why they might not be willing to hire older workers -- or, more accurately, what they might favor younger workers over older workers -- they basically give three answers. One is that they're concerned about the cost of hiring older people and the cost of employing older people. So maybe they have more expensive health insurance costs because they're more likely to get sick. When you look at the data, there's some truth to that, but it's not very large; the cost of health insurance is only a few percentage points higher for older people than for younger people. And then also, wages might be higher, they're more experienced, so often they do command a premium for that.

Another reason that they give, though, is they don't quite have the right skills. That maybe their skills are out of date. They went to college years ago, and what they learned is, kind of, outdated now. They don't have the right technological skills.

And then the other reason employers often say is that they're worried that older people are going to retire soon. So that an employer is going to go through the cost of recruiting someone and hiring them and then training them, and they're only going to be around for a few years anyway, and so what's the point?

But when you look at other evidence, you do see that ageism just plain, old ageism, does seem to play a factor. ProPublica did this deep dive into IBM's workforce practices a few years ago. And they found that IBM was systematically shedding their older workers regardless of income, regardless of productivity. So I do think age discrimination and ageism does play an important role.

And when you ask certain workers, many of them say that they see age discrimination, that they feel that their employers favor younger workers over older workers. So there's a lot of anecdotal evidence to support this.

Brokamp: So let's say you're one of these people. You've lost your job. What happened to the people who did lose their job? Were they able to find another job that paid them as much as they were making before they lost their job?

Dr. Johnson: Yeah, the short answer is, no. So and I should say that when we were measuring these job losses, we were only looking at financially consequential job losses. So we were just looking at job loss that led to an unemployment spell that lasted at least six months or one that, if this unemployment spell didn't last that long, that when workers found a new job, they were paid less than 50%. But among that group, which is primarily people who had this long unemployment spell, only 10% of them ever earned as much as they did on their new job as they did on their old job.

And what we've seen in other studies is that on average people over age 50 who lose their jobs and become reemployed, those are the lucky ones, their median wage is only about 25% less than what they earned on the new job. So on average, losing about 25% of their hourly wages. So it's a big hit.

Brokamp: And this carries through all the way to retirement, because your report looked at the median household income at age 65 of these people who had lost their job versus people who didn't. And it was about 14% lower.

Dr. Johnson: Yeah, it was a sizable difference. And many of these people have spouses who are working, so that does provide an important buffer. You know, when you look at household income, there are ways in which you can make up lost earnings. So even if you're not earning as much, your spouse could maybe work more, you get unemployment benefits that can help. But we found that the income impacts were significant and they were long-lasting.

Brokamp: So someone listening to this might be getting a little nervous and wondering, OK, what can I do to increase the chances that I won't be one of these people who experiences some sort of job or career disruption?

Dr. Johnson: Yeah, so there's few things you can do. One is, certainly keeping your skills up to date, I think, is important, to make yourself more valuable to your employer, that's good, maybe easier said than done.

The other thing, I think, is just constant networking. Given just the churning in the labor market, given that you don't know when the next recession is going to hit, when the next pandemic is going to hit, you know, job loss is just going to happen. And so, I think you always want to, sort of, be prepared for that eventuality. I think for a lot of older workers, maybe they found their job 20 years ago, they haven't looked for a job in 20 years. And so, the job search process has changed so much, I think that's one of the challenges that many older unemployed people face. You know, in 2020, how do I go about finding a new job? It's really different today than it was in 1990, for example.

So I think just keeping up to date with these new technologies and also constantly networking, always making sure that you have these contacts, because that's one of the things that older workers bring to the labor market that younger workers don't, which is they have this experience. And that's something that's valuable, and that's something that they can leverage to try to find a new job.

Brokamp: Another interesting thing that you pointed out in this report is you basically looked at retirement satisfaction. And it's actually been decreasing. Now, I'm just going to read a line from the report: "Between 1998 and 2014, the share of new retirees reporting being very satisfied with retirement fell 15%, from 60% to 45%, while the share reporting being not satisfied with retirement increased 8 percentage points from 8% to 16%." Any ideas why retirees are less satisfied these days?

Dr. Johnson: Yeah. And we were looking at new retirees. So people who first reported in a survey being retired. So we're not looking at the 85-year-olds who have been retired for 15 years. One of the differences is that defined-benefit pensions are much less common today than they were even in 1998. They've been slowly eroding. But for people who are retiring in 1998, many of them did have a defined-benefit pension. And those are the pensions that give you this monthly payment from the time you retire until you die. So you have a lot of security there.

You know, with the 401(k) plans that most people are retiring with now, you might be fortunate enough to have amassed a lot of money, but then you have to figure out how much to spend, and that can be really challenging. And I think a lot of people are a little reluctant, don't quite know how to make this adjustment. How much can I really afford to take out of my account each month? And if I take out too much, am I going to then not have enough when I'm 80 or 90?

I think another challenge is our healthcare costs have increased a lot. And that's something that when people lose their health insurance when they retire, and they go on to Medicare. And that's a nice benefit to have, but there's a lot of holes in Medicare coverage, and it's not complete. And there's a lot of cost sharing, there are high deductibles and there are premium payments. And I think those costs have increased a lot since 1998, and so I think that's catching -- also the premiums for things like the Medigap insurance that people use to supplement Medicare to cover those holes, those premiums have increased a lot as well.

So I think that combination of factors is probably leading people to be a little more dissatisfied with retirement than they were in 1998, which was a pretty, kind of, a golden time for retirement, because you had people who had these very generous retirement benefits.

Brokamp: Okay. Let's actually talk a little bit more about the various ways that people do fund their retirements. Let's start with that defined-benefit pension. People love the idea of it, they love the idea of retiring, getting that check in the mail every month. But many of them are not properly funded. What's your take generally on the defined-benefit pension system these days? Are you concerned that there are too many that do not have enough money?

Dr. Johnson: Yes, I am. So first, sort of to step back, about 20%, well, more like 15% of workers in the private sector still have a defined-benefit plan. So they're scarce and they're rare, but they still exist. And then in the public sector, most workers in the public sector still have access to a defined-benefit pension plan; the vast majority do. And about one in seven workers work for the government, either Federal, state or local level. So it's not insignificant part of the labor force that we're talking about.

In the public sector we do see very high rates of underfunding of pension plans. So on average, the funding level is about 68%, 65%, I guess, I mean, that's a better estimate overall, varies a lot from locality to locality. But what that funding ratio means is that's the share of all the expected liabilities that the plan faces, that's the share of the assets that they have to cover. So that means that on average, the assets that the plan holds would cover about 65% of their expected future liabilities.

So we're not seeing plans in the public sector at risk right now of being insolvent. What I mean by that is, they'll be able to pay the current benefits that current retirees are expecting, but in the future, they're not going to have enough money. And that means that we're going to either have increases in tax rates, increased contributions from the government to cover that shortfall.

I think one of the challenges in the public sector that you don't have in the private sector is that there isn't any federal insurance for the public sector plans. So in the private sector, where the defined-benefit plans are mostly provided by very large corporations, if they run into problems, if they are unable to make their payments then the federal government steps in and makes those payments for them. And that creates problems for the federal government agency that funds that insurance. And that agency, the Pension Benefit Guaranty Corporation, faces some substantial financial problems now, because they are increasing private-sector company plans that are in trouble. But in the public sector, you don't even have that, so there's a lot of risk there in the public sector for these pension plans.

In the private sector, as I said, there is a risk. There are a lot of plans that haven't set aside enough funding. But the real problem on these multiemployer plans. These multiemployer plans are plans mostly by unions. So in, let's say, transportation, in healthcare, we have unionized workers who are making contributions to a union pension plan, and well, many of those union plans are in a lot of trouble. That creates problems for retirees, because if the plans do go under, they're insured, but they don't necessarily get the full benefits that they were expecting. But then it also creates problems for this government agency.

Brokamp: Yeah, it's pretty scary. I mean, I've often said, and tell me what you think about this, but let's say you're covered by a pension and it's 50% funded. How do you factor that into your plan? I've said, I think, generally, people who are already retired will probably be protected, but if you are 10 to 20 years from retirement, maybe you should only expect to get 50% of your promised benefits. What do you think of that?

Dr. Johnson: That's probably a good way of thinking about it, because what happens is, when plans are really heavily underfunded, often the plan is terminated. And when the plan is terminated, what that means is that you'll get your benefits up to your age when the plan is terminated, but you won't get any additional benefits.

The way these defined-benefit plans work is the benefits are very back loaded in a career. In other words, your benefits increase rapidly from, let's say, age 50 to age 65, because they're based on years of service and they're based on the salary you received typically very close to the day you retired. Maybe it's an average of the past two or three years, maybe the past five years, sometimes only the past one year. So that you earn lots and lots of pension benefits as you move through your 50s and into your 60s. So you know, you might be expecting a large benefit if you stayed in that plan until age 65, but if the plan terminates at age 50, you're just going to get a tiny fraction of what you were expecting.

And then the other issue is the way that the insurance works. It sometimes only pays you based on what you would have received at age 65. And so that if you retire early, you then get a further hit on your benefits. So if the plan is underfunded, I think you're right. For many, but not all retirees, you're probably going to be OK. But the plan really goes under, the Pension Benefit Guaranty Corporation may not feel agency, may not give you all of your benefits, but if you're younger than the risk is that much higher.

Brokamp: Let's talk a little bit about the other side of it, the defined-contribution system, that's 401(k)s. This past Friday was National 401(k) Day. It's always the Friday after Labor Day, with the idea that the week begins with labor, ends with retirement, in case you didn't know that. If you were going to give the 401(k) system a grade for how it's doing as, sort of, being a foundational part of America's retirement system, grade A. to F., what would you give it?

Dr. Johnson: So if you'd asked me 20 years ago, I probably would have given a C. grade. And today maybe I'd give a C+ or a D. I do think the system has gotten a lot better over the past 20 years.

One of the challenges facing the 401(k) system is that you have to get people to participate and to contribute. And many corporations didn't really, many businesses, employers, didn't really encourage participation that much. And what we're seeing now is a lot of employers automatically enrolling their staff into the 401(k) plan. And many people just don't enroll, because they just never got around to it, they're all busy, and it's just this other piece of paperwork from HR they have to fill out, and you just don't get around to it. But if your employer automatically puts you into the plan, you also don't get around to disenrolling. And so that, what we see with firms that do automatic enrollment is they get many more workers into the retirement system.

Now, the other issue, though, is you have to get workers to contribute enough to the plan to have a meaningful balance when you retire. And now what a lot of plans do is they have auto-escalation, which means that they automatically enroll you in the plan at a certain percentage, and maybe a sort of small early on in your career, but then it increases a little bit each year, so that workers are contributing more and more as they get older, when they're better able to afford these higher payroll deductions.

I think those two factors have really improved the 401(k) system. We also have target-date funds, which I think are helpful for a lot of people. And there's the question about the fees, the fees can sometimes be high, that's something to consider. You know, one of the challenges of the 401(k) system is that we're asking workers to do a lot. We're asking them to make contributions, we're asking them to participate, we're asking them to make contributions every period.

Now, payroll deduction makes that part easier. So to some extent, you can put your retirement savings on autopilot, but the problem is, a lot of people then do put it on autopilot, they don't really pay attention to where their money is invested or is that investment mix that they chose when they first joined the plan 10 years ago, does that still makes sense? And as different parts of their portfolio perform better, the mix might no longer be right. So in that sense, a target-date fund could help people where it basically moves people into more conservative assets as they get older, as they near retirement, and as maybe they don't want to bear as much risk.

So I think those three aspects of 401(k) plans have improved them a lot. There are still concerns, though. There are concerns people may borrow from the 401(k) plans or withdraw money when they switch jobs. So we have this leakage in the retirement system; that's a little a concern. Still a concern about, then, what do you do when you get two retirement, how do you withdraw your funds? You know, that still creates challenges for a lot of people. And then of course, there are still, you know, roughly 50% of workers any given time who don't have access to a 401(k) plan, and what we do about that?

Brokamp: Let's move on to the other big aspect of retirement; in fact, for most retirees, it's their No. 1 source of income, and that's Social Security. In 2018, you wrote a report entitled "Is It Time to Raise the Social Security Retirement Age?" What would be the reasons for raising the age, and what are some of the potential benefits and drawbacks?

Dr. Johnson: So when we talk about the Social Security retirement age, there's a couple of things to keep in mind. So one is, there's the age at which you can start a first collecting benefits for retirees, and that's 62, and that hasn't changed since this early retirement age was implemented back in the 1960s for men and the late-50s for women. And then there's the full retirement age, which for people who are 62 today, who turn 62 in 2020, their full retirement age is 66 and 8 months. That has been increasing gradually from 65 to 67. So for people who turn 62 in 2022 and later, so people who were born in 1960 or later, they face a full retirement age of 67.

The way the Social Security benefit is computed is that you add up your lifetime benefits, you apply this benefit formula to it, and that amount you get is how much you get if you retire at the full retirement age. Let's say for 67, someone who's born after 1959. And if you retire early, you get less each month. And if you retire later, you get a little bit more, you get 8% more each year you delay retirement.

So when talking about increasing the retirement age, what happened back in 1983, Congress slowly increased the retirement age from 65 to 67 and didn't change the 62 age. And so that meant that, it was really just a reduction in the monthly benefits that people would receive regardless of when they retire. So if you continue to retire at 62, in the past, before this change, when you face a full retirement age of 65, you would get 80% of your benefits, your full benefits, each month. Today, for people who are retiring, people born after 1959, if they retire at 62, they'll get only 70% of their full retirement benefits. So there's this sort of -- and the same, sort of, pattern is true for each age in which you retire.

So if you were to increase the normal retirement age, that full retirement age, it's really just an across-the-board benefit cut. The one thing it does do, though, is what we saw, as the benefit age was slowly increasing from 65 to 67, and it moves, sort of, in two-month increments, is that a lot of people were retiring at their full retirement age. In other words, it seems that a lot of workers take the full retirement age as a signal as to the appropriate age to retire. And so in that sense, as the population is getting older, as employers might start facing some employment shortages once we get out of this recession -- in other words, they might have trouble staffing some of their employment needs -- it's good to have people work longer. They'll pay income taxes longer, they'll contribute to society for longer. So there's a lot of benefits to having people work longer. So increasing that full retirement age could be a good thing.

Then the other issue is, well, if you want to increase the early age, but then they say, well, we don't want people to be able to retire at 62; let's push it up to 64 or 65. And that would shorten retirement for some people substantially, that would save the system money. The system is scheduled to run out in about 15 years. Social Security will run out of -- not be able to pay all the benefits that are scheduled beginning in about 14 years unless something changes.

Increasing the retirement age saves money for the system. And people are living longer on average, so you think, well, now, we're living to a longer age. Let's just move the retirement age, retirement period, let's move the retirement period later in life. People could still retire for the same amount of period, for the same amount of time, they're just going to start late and they're going to end it later because they're going to live longer.

The downside to that, though, is that there are a substantial number of people who develop health problems in their 50s and their early 60s who would have trouble working to a higher early retirement age. What we see today is that poverty rates for people with limited education increase gradually as you get up to age 62. Then when Social Security kicks in, that lifeline that Social Security provides to people with health problems who really can't work, pulls them out of poverty.

So if we were to increase the retirement age, increase the early eligibility age, we really need to think about, well, what are we going to do about people who can't work longer, people who lose their jobs? You know that unemployed people who lose their jobs, but the older workers who lose their jobs are unemployed for longer. Many of them you can never find another job, so what are they going to do? So we really need to think about what kinds of safety nets we want to put in place if we choose to raise that early eligibility age?

Brokamp: Yeah, we talk a lot on this show about the connection of health and wealth. And some of your reports really made it clear that especially in older ages, one of the big reasons why people retire earlier than they planned are health reasons. And it's not equal across education levels. And that is, people with lower levels of education are more likely to experience these health issues later in life, which forces them into an early retirement. But of course, if you had a lower level of education, you probably didn't have as high an income, you maybe didn't save enough. So moving that Social Security age up to 64 or 65 really would have a big impact on those people.

Dr. Johnson: Oh, that's absolutely right. And you know, when we were talking earlier about the likelihood of having a career disruption late in life, and I was saying, it was 56%, that was only the employer-initiated career disruptions. When the employer is, sort of, pushing you out of your job. But then there's a substantial fraction, you know, more than 20%, about 20% of people, who have a health problem, and that causes them to retire earlier than they expected. So that's a very real risk that people face. And so you combine the two of them, you know, it's about close to 75% of the population who's going to end up retiring earlier than they expected, either because their employer no longer wanted them or they're unable to continue to work.

Anyhow, when we are talking about how working longer is this great panacea to the retirement challenges that many people face. Another problem though, is that, because it's the less-educated people who are more likely to have health problems than better-educated people, they're also more likely to work in physically demanding jobs that are more difficult to do at older ages. We're seeing this increased inequality at older ages. It's the better-educated people whose health is more likely to hold up, whose jobs are less physically demanding, who are going to be able to work longer. By working longer, they're going to get higher Social Security benefits, they're going to be able to save more money outside of Social Security, they're going to be able to delay dipping into their retirement savings, they're going to do really well in old age. The people who have to retire at 62 are going to have less money to start with, but they're not going to get that advantage of a longer work career. And so I think that's one of the real challenges we face as a society.

You know, there's a lot of concerns about inequality, in general, I think inequality at older ages can become a bigger issue.

Brokamp: Coming up on the last couple of questions here. Is there anything about retirement policy or planning that you think just doesn't get as much attention as it should or you wish more people knew about?

Dr. Johnson: You know, one of the most important things I think is that people can do, and that there's some attention to but not as much attention, is really thinking about the decision to claim Social Security. When you claim Social Security, it can have an enormous impact on your financial well-being at older ages. And if you claim Social Security at younger ages, you're going to get a permanently reduced benefit for the rest of your retirement. People need to be better aware of just how much more you will get each month for every year you delay Social Security collection.

So you know, it's about 8%, it varies a little bit depending on your age, but you're going to get about 8% more every year by delaying. And Social Security is a great program in the sense that you're getting this inflation-protected annuity, you can't go out into the private marketplace and buy an annuity as cheaply as you can by simply delaying Social Security take-up. So I think that's something that hasn't gotten enough attention, that people really need to think more carefully about when they collect Social Security.

I also think that what's not maybe as understood as it should be is just the out-of-pocket health cost that people face in retirement. And it's not only for medical expenses that are partially covered by Medicare, but that is an issue. I think with Medicare, it's an issue that they do have high deductibles, and you have some high copayments, so people need to really think about just how high those expenses are going to be, but also long-term care.

So these long-term services and support. So when you develop a disability and you need help with basic everyday activities, those activities are typically borne by family members, but not everyone has family members who can do that. And then when those needs become more difficult, when those needs become more intense, that's when people often have to turn to paid helpers and have someone come into your house, and the average cost is about $20/hour across the country; it's a lot more in some places. Or you have to go into assisted living or nursing homes and there the costs are even much higher.

So I think one of the challenges we face right now in retirement policy is that we don't have a national system in place to help people cover these long-term-care expenses. Some states are doing things, and that's exciting. Washington State has a program that would provide people with a social insurance plan, so you don't need to pay taxes while you're working, and then you're going to get a small benefit that you can apply to cover some of these long-term-care costs when you're older. Illinois is thinking about the same thing; other states are starting to think about this. But it's something that I think more states need to be thinking about and the federal government needs to think more about as well.

Brokamp: All righty. Final question. Given your experience and your expertise, what's the most important retirement advice you'd like to pass along?

Dr. Johnson: For most people, if they can delay Social Security longer, delay the take-up, I think that would have an enormous impact on their financial security. And that's something that they should really try to focus on. And the obvious one is just you want to start saving as early as you can, and you really want to max out that 401(k). You want to make sure you get that full employer match if that's how your plan works. You don't want to leave that money on the table. I think those two issues get a lot of attention recently, but they're really, really important.

And then, I think, people are willing to think more about how they withdraw their funds from their accounts as they retire. You know, we've had so much attention to putting money into savings, you know, to accumulating these retirement accounts. But what happens then we start drawing down from them? And one of the challenges you see is, that a lot of people are so afraid of withdrawing their funds from their retirement accounts, because they're worried about outliving their assets, running out when they're 80 or 90, and that's a real concern, but then they don't get to enjoy their retirements when they're young and healthy as much as they could.

Brokamp: Yeah, that's a good point. There actually are studies that show that retirees are not spending as much as they could, they're not enjoying as much, just because they're afraid. And there's so much advice and even help within the 401(k) in terms of how much to contribute, how to invest at the target retirement fund, but very little help on the other end in terms of helping people determine how much to take out safely.

Well, this has been great. Thank you very much for joining us. Again, our guest today has been Dr. Richard Johnson, the director of the Program on Retirement Security at the Urban Institute. Rich, thank you very much for joining us on Motley Fool Answers.

Dr. Johnson: Thank you very much. It was a pleasure.

Southwick: All right. The show is edited, belatedly, by Rick Engdahl. Our email is Answers@Fool.com. We probably have a mailbag episode coming up around the bend, so get those questions in. For Robert Brokamp, I'm Alison Southwick. Stay Foolish, everybody!