Should unemployment benefits be phased out after a certain age? Or is that just ludicrous thinking?
I wrote this article in 2011, a couple years after the worst of the global financial crisis. The government provided generous unemployment benefits up to 99 weeks. Meanwhile, I was burning out from my investment banking job at age 33, wondering what else is there to life.
Should Unemployment Benefits Be Phased Out After A Certain Age?
An AP article highlighted how several 45-50 year old people were so thankful to have unemployment insurance extended further. They talked about how it was “their life line” after being out of work for over a year. I'm really proud that unemployment benefits are working and going to people who need it most. The people profiled all sound like hard working people who just need a little bit of help during tough times. As you know, I'm all for a 5-year “Shock & Awe Yeah” unemployment program, which probably will never pass.
Part of me wonders what happened though? If I was 50 years old and got laid off, I would have 28 years worth of savings and investments to hold me through for potentially the rest of my life. In fact, I would hope that I'd be about to double dip by collecting 99 weeks of unemployment while also living off the interest and dividends from my savings and investments!
Time Can Make You Very Wealthy
If you saved just $10,000 a year on average for 28 years, you'd surely have more than $500,000, if not millions due to compounding! If you save just $5,000 a year for 28 years, you'll still have over $250,000 dollars thanks to the miracle of compounding. If you don't save and invest, it simply means you don't think you'll need money in retirement or during unemployed periods, hence perhaps helping out isn't necessary? Or maybe life just happens.
So I got to thinking, perhaps the government should skew their unemployment benefits more towards younger unemployed workers and less towards older unemployed workers. Each year after 15 years of work experience the benefits get reduced by several percentage until they get phased out over 40 years of experience since there is Social Security. After all, we have massive budget deficits and can't help everyone. What say you? Should unemployment benefits be phased out?
Let's Help Our Youth
If you are 28 years old and get laid off, chances are you don't have much savings to hold you over for a long time. After only 6 years of working, you are still at the bottom of your earnings power, while the fixed cost of living is relatively high compared to your salary.
You might even have school loans to pay off as well. As an unemployed 28 year old, your last resort is to move back home with mom and dad after your friends get sick of you for sleeping on their sofas.
Some may say the younger you are, the more resilient and resourceful you are. Perhaps. Or maybe it's just an excuse older people make? If you're older, you've got that many more connections and that much more knowledge. I know I am way more resourceful and savvy now than I was 15 years ago. Aren't you?
Others may highlight that when you're young, you have much less responsibility, debt, and dependents. True, but you also have much lower savings and income. Â
Whatever the case may be, there always seems to be an excuse for everything. All I know is that the longer you work, the more you have time to compound your savings.
Related: When To File For Unemployment Benefits If You Receive WARN Act Pay
Phased Out Benefits Supported By Simple Math
It is a tautology that a younger person is at a disadvantage when it comes to the compounding miracle of savings and investing that older people have. Hence, if you look at any demographic wealth chart, you will see that younger people are worth less! There's no gray areas here.
Since younger people are disadvantaged by time, perhaps they should get even higher benefits from unemployment than older people.
After working for 30 years, maybe you shouldn't even be allowed to get unemployment since Social Security and Medicare are just a decade away? It sounds cruel, but this post is a thought exercise in allocating resources efficiently.
What's great is that even if you have investment income, you can still collect unemployment benefits. Unemployment benefits are tied to W-2 job income, and not to investment income.
Therefore, it behooves everyone to try and build as much passive investment income as possible for financial independence. It's not good enough to just contribute to your tax-advantage retirement accounts. You must focus on building up your taxable investment accounts and real estate portfolio.
Arguments To Support The Elderly
When it comes to respecting one's elders, I am all for it. When we ask should unemployment benefits be phased out after a certain age, we must respect our elders.
But, do we disrespect our elders by giving them unemployment benefits? Or do we disrespect our elders by not giving them unemployment benefits? On the one hand, perhaps our elders don't want government benefits because they know they've had decades to save and invest for themselves.
We don't want to insult them by giving them money they don't really need. On the other hand, some of our elders might say that they deserve unemployment benefits because they are our country's elder statesmen.
Perhaps you are an older person who poured their entire savings into raising a wonderful family so that your kids can lead a wonderful life. Money spent fixing the house and paying for education is expensive after all these years.
Meanwhile, you might have to pay a lot in medical bills, weddings expenses, and funerals. Yes, living life and providing for a family is not cheap, which is why you should always be paying yourself first, in the first place.
Is It Up To The Government Or Family To Support The Elderly?
Should unemployment benefits be phased out? After all these years of providing for your family, leaving you with not so much in savings, should it be your family who pays you back and helps you in times of need, or the government? One would argue that your grateful kids should be there for you 1000% to provide whatever financial assistance you need if hard times ever occur.
In my own case, if my parents were down on their luck, I will be the first person to send them any amount of money they need. It would be my absolute honor to help them since they gave me so much for two decades growing up.
Clearly, the government needs to give some money back to those who paid the most taxes over their career. Sure, we have infrastructure and public education that we have all benefited from. Perhaps our elder unemployed should get even more unemployment from the state given they have been paying federal income taxes all these years.
There's no easy answer to this debate. However, the more I think about it, the more it makes sense to help our youth because our youth are our future. We obviously don't want to cultivate a bunch of dead beats, but let's face facts. Life ends for us all. Who should we invest in the most?
Be smart: Negotiate a severance so you can get a severance and unemployment. Read my book: How To Engineer Your Layoff: Make A Small Fortune By Saying Good-bye
Should Unemployment Benefits Be Phased Out After A Certain Age? is a Financial Samurai original.
Horniness is definitely a factor! Oh, and I left out another reason some people don’t have a lot of cash lying around at age 50: Because they spent their 30s and 40s not just raising kids, but helping them through college. Again, this might have felt safe doing this right up until one or both parents became unemployed.
(And I’m not advocating that, either, by the way. As they say, you can finance an education but you can’t finance retirement. Neither do I advocate taking out horrendous student loans.)
I agree with the person who said that ideally we’d all have big fat savings accounts by age 50. But life happens:
–Unemployment in your 30s or 40s: A friend of mine was unemployed for nearly two years, and her husband was also unemployed for about 11 months during that time.
–Serious illness: When I was 40 years old my daughter nearly died from a rare neurological disease; had we not had insurance, we’d have been bankrupted. Not everyone is lucky enough to have insurance.
–Divorce: One of my pals had two kids at home and a job that paid relatively little. Her husband rarely paid child support.
–Or even just the everyday cost of living that’s multiplied when you have children. You know you need to put away more for retirement but you’re too busy putting out fires (new glasses, new shoes, co-pays for various childhood ailments) to max out your fund.
In a perfect world every 50-year-old would be sitting pretty. Right now I’m 53 and none of my close friends are in positions to retire because of the reasons listed above.
Hi Donna,
Thx for your perspective. So perhaps the keys is to have good insurance and not have too many kids? These two alone might allow us to do very well by the time we are in our 50s? But, if kids are expensive, why are there poor families with so many kids, let alone just a couple?
Thx
One might argue that having more than a couple of kids MAKES people poor.
But there are other reasons:
1. People were doing just fine with two jobs and six kids — until unemployment happened.
2. Cultural mores dictate having more than one child.
3. Religious practices dictate no artificial birth control.
4. Lack of education about family planning.
5. Birth control fails.
Look, it’s not that I agree that you should have children you’re not financially prepared to handle. But it’s not as simple as “Well, then why do poor people have kids in the first place?”
Note: My parents had four kids in five years, right out of high school. None of them were planned. It’s not that they wanted to have four kids in five years, but it happened.
I didn’t realize there were cultural mores to have more than one kid.
Perhaps the answer is really: people are really horny and it’s hard to control our urges?
So deregulating, industry, outsourcing of American jobs to countries that provide the lowest cost of production, taxing the middle class to the brink of existence yet giving the tax breaks to the top 2% of the country to allow them to hoard their wealth; putting a for sale sign in washington DC for every powerful lobbying group that wants to buy legislation to enrich their clients. Recently we passed billions of dollars in legislation that bailed out wall st but socialized all of the losses and they all got bonuses for management and shareholders kept the companies.
and all u can do is blame social security and medicare? Dude those are going to be the only programs at will make your retirement a bit easier as decide whether to eat cat or dog food.
Dude tell me why a multimillion or billion dollar hedge fund manager should pay 15% on his compensation and you have to pay at least double that?
Wake up.
Your age based argument is nonsensical. Unemployment benefit is a social insurance program for those who have qualified to receive the benefits. Basically workers who lose their employment through no fault of their own. The insurance ‘premium’ is paid while the worker is gainfully employed. Worker loses their job they receive the benefit, no unemployment tax is collected, although the IRS does count it as an income and will tax it; workers gets a job again and the unemployment tax is collected. Basically it is funded to some degree and pad for by all liable employers.
So since it is insurance program pre-paid for through the collection of a tax on those who are employed, why would u discriminate the payout of the benefit based on age?
You seem to confuse the recent political decision to extend the benefits vs the actual purpose and intent of the social program.
Exactly what is the interest rate you are assuming for 28yr of savings?
Also since u seem to be a compound interest guru can u tell me exactly what the risk free interest rate will be in 22yrs? I am sure you accurately knew 28yrs ago what it would have been today, correct?
Same reason why the government limits the child credit at income of 75k, and doesnt allow a married couple to deduct $2.2 mil of mortgage indebtedness and instead keeps it the same as a single person a $1.1. It’s all about discrimination. Let’s have our countries richest (older people, help our countries poorest (younger people).
The older workers would argue that they’ve paid into the system for many, many years so they should be entitled to benefit from it.
However, I see your point. The older generation has had time to invest. But did they? Until financial literacy becomes part of education, we can’t assume that every worker over the age of 50 has a nice nest egg waiting for them.
But this could change down the road. For instance, this summer I’ll be teaching basic money management to middle schooler’s. I’m very excited!
Sounds like an exciting adventure this summer! AWESOME! You’ll have to blog about it and stuff. Would love to read about your summer teaching progress!
Quite an interesting argument. I like how you consistently articulate the common sense involved in basic conservative principles. While I am a dedicated acolyte of compound interest, I had never applied the thought to risk benefits for age groups before. As someone who takes responsibility for their finances I am continually angered by the fact I have money taken off of every pay cheque to help fund individuals who simply refused to learn money management skills, or work hard/creatively/smart enough to ensure they could support themselves.
Nothing ever gets more comments on my blog but my thoughts about employment, etc. I see unemployment as a double edged sword. I would pay for unemployment insurance if it were privately funded and replaced my FULL salary for a year or so. What we get now in NY isn’t worth it. I don’t want someone to sit on their ass for a long time collecting unemployment, but I don’t think that it should go to just the young.
Chances are they I will never get out what I’ve paid into the system but that’s the benefit of insurance. You pay for it in the hopes that you never need it.
You definitely add a different perspective to this topic, and you do it in a convincing way. However, most people have NOT adequately saved over their lives, and we know this. This is why it works out better for those that are younger sometimes, because they have longer to save.
How do you know though? And why would that be? It would be illogical not to save after all those years.
Controversial and way to spur debate. This reminds me of government bailouts. The ones who were foolish and upside down were given lifelines. The ones who followed rules got screwed because everyone but them were getting help. Ideally everyone saves for retirement, but it’s deja vu if we “bail out” elderly who blew their savings on vacations. Tough call, government has to protect their citizens, but it’s unfair that the responsible ones get left holding the bag.
Never thought about it this way in terms of government bailouts! It’s a good analogy indeed.
The reality is most people approaching retirement in the US haven’t really saved much at all for retirement and they plan on relying very much on fixed income from the government. Since they aren’t of SS age yet, they are reliant upon unemployment. Right, wrong or indifferent, this is the current situation. Young people are much more employable (at least inthe eyes of hiring managers) and are thus LESS in need of UI than older workers.
Do you also realize that they recently announced that the bottom 40% of all American tax-payers actually pay no federal taxes and get money back from the government?
While I have not read the entire bill that Rep. Paul Ryan proposed I think it’s time that we stop letting people pay no taxes at all. I also strongly believe that someone who has paid nothing into the system, illegals I am looking at you, should not get a single penny in government aid.
How about we start being jerks for awhile and stop pretending that we can help everyone?
I’m well aware, see: https://www.financialsamurai.com/2011/04/12/how-much-money-do-the-top-income-earners-make-percent/
How do illegals legally get any benefit in gov’t aid? They can’t, can they?
U do know that the top 1% control about 40% of the financial wealth of the country; US corporations taxes are about 2% of GDP which basically mean they pay way less than the 35% fed corp tax rate and through various loopholes and the ability to hide profits they may actually pay less than 20% which is far less than u as an individual pay.
Wake up dude, assuming that u are middle class you are subsidizing the top 1% as well as the lower 40% that your ire is directed at. I don’t know about u but I would prefer that those who control the 40% of the nations wealth cough up a bit more in taxes instead of going after the pennies of the the least.
The top 1% pay 38% of all taxes. Check out the chart. https://www.financialsamurai.com/2011/04/12/how-much-money-do-the-top-income-earners-make-percent/
The Top 25% pay 86% of all our nation’s taxes.
You made the wrong assumption about my income. Perhaps that’s why you are so confused?
Yes, it is perhaps somewhat harsh, but this is just a thought exercise. If we are a wealthy country, then why do we need unemployment? If we are a loving country, why don’t our relatives and children take care of us?
Interesting argument Sam! Hard to say without being in such a position. We spend countless billions on needless wars, unemployment benefits are a small drop…
Not saying we should keep this up, but start where the leak is the biggest and work your way to unemployment benefits and other hand-outs.
I’m more concerned about the bailouts and money paid to non-us banks.
I would argue that the older one is, the more you need the help.
Sure, it would be great if everyone was willing and able to accumulate retirement funds over the course of their lives. It’s a personal responsibility to take care of yourself and not depend on others to foot your bill, that’s a good guideline to follow.
However, many people – whether of their own doing or not – just don’t have sufficient funds for retirement when they’re in their 40’s or 50’s. They have less available years where they’ll have the energy and stamina to work hard and build up savings. Plus, as we know, many older workers don’t always get the same opportunities as younger ones. Younger folks have their whole lives ahead of them. Plus, they haven’t paid as much into the unemployment pool as the older worker, as Everyday Tips pointed out.
I’m going to have to take a different view on this, and say that the idea that benefits should be phased out as people get older is not a fair one. I’d be more inclined to help older people than young adults, but that’s my own bias.
Anwyay, the post was thought-provoking and a good read.
It’s really hard to say! I’m receiving unemployment benefits at 20 and working hard to find a job. My future mother-in-law has received unemployment as well at 50+ years old. Her children are all grown, living expenses are low, and she really (in my opinion) didn’t need it as much as I do. But it really depends on the person and the situation.
This is the example that I am looking for! Unemployment is helping you when you need it most. YOU are our future who will hopefully add a lot more value to society over the next several decades. We want you to flourish.
Your mother-in-law sounds like she has the means, and grown children to take care of her. I’m happy she gets unemployment too… but if it was a choice between you and her? I would have to invest in you and give you a chance.
Yeah it’s a tough one. Someone always loses when there are budget cuts and when the ecomony goes through the garbage disposal. Markets are so ugly today! Anyway, I think we need to teach our kids and even college students more about personal finance in schools to better prepare them for the future so that more people will learn how to manage their spending, set up retirement plans, and the importance of having emergency funds so that they won’t lose everything if they can’t find work. Nice post!
It is a nice thought that older americans would have that type of savings but it is not realistic. I am 46 and currently do not have a savings account. My 401k was hit like many americans over the past 3 years and I have been unemployed for 2 years so I don’t have money to add.
My husband and I started our life together and did everything the right way–meaning we lived off our base pay and invested every raise or bonus and income tax return. Unfortunately, in 1993 many companies had downsized and we were in the same position then. Working for fortune 100 companies that decided to move out of the area — we were jobless and not able to find comparable work or salaries. We had 3 children and depleted our savings on medical benefits. We could not get any help from our welfare system until we depleted all we had. A regret even today–16 years later. We never really got back what we lost.
If we didn’t receive unemployment benefits this time around I would have lost everything! I can’t even get a lesser job due to hiring managers saying I am over-qualified and they fear I will leave when something better comes up. Also I was just turned down for a part-time minimum wage job at Home Depot for the same reason.
We need to help people who did the right thing and worked all their life!
Kath, I’m sort to hear about your situation and I do agree that we need to continue to help those who’ve done the right thing. Thank you very much for your perspective! Best of luck to you. The economy is getting better and I’m confident thigs will get better for you too. Sam
Great post with some thought provoking viewpoints. Ravi, Engin and David make some very good additions to the post. It’s not an easy one to answer – the elderly have indeed paid in the most, and the young do need the most help. I would personally keep the system as it is, because I cannot think of a mode just/fair way of running the program. If anything, I am with Engin on giving more to those that need more (not want more). Should family help? Sure I would say, but who are we to force anything upon anyone?
This seems to be an ideal world scenario.. If everyone was saving money like they should then there would be no need for social security right :)
I’ll play devil’s advocate and say that maybe younger people should have less unemployment and the elderly more since the younger have more energy, can move back in with their parents, and are more desirable by companies (ageism to a certain extent).
Whereupon the elderly may not have family to move in with, are less likely to learn new skills to help them get the next job, and probably have more to support (assuming they have a family of their own).
Just an idea :)
I think more and more older workers are losing their jobs because companies are letting them go so they can hire younger, cheaper workers. Sure, a 50 year old SHOULD have more in savings than a 28 year old. However, it doesn’t always work out that way.
I don’t know many people that could retire at the age of 50 without a great buyout and health care provided. Actually, we fall into that category. When I am 50, our expenses will be minimal, but we look to accumulate a lot of savings from 50-55 since our kids will be out of the house and our home will be paid off.
Some life circumstances make it easier to accumulate money than others. We still save money, but not nearly what we would if we didn’t chose private school for the kiddos and such.
Not to mention, the 50 year old has put a heck of a lot more money into the unemployment pool than the 28 year old.
Agreed on all accounts and thanks for your insights. Interesting to see how you plan to save a lot of more money from 50-55 since there won’t be private school bills and kids to pay for anymore.
I’m not saying retire at 50 though.. I’m saying after 28 years of work, shouldn’t we be able to live at least comfortably on our own savings for several years, with unemployment checks supplementing for 50-99 weeks? What happened……..
Many of the youngest workers graduating from college don’t even have work experience, so for them they would get not unemployement checks.
Besides, it’s much easier for a young person to get a job than an older person (ag discrimination)…
I think “Everyday Tips” nailed this one…
What you wrote make sense! The problem is, our society doesn’t teach us the math you did. In fact, it encourages us to spend, to get better credits and increase our credit ceilings?
I didn’t know the total number of weeks (of benefits) had increased so much. When I applied for unemployment compensation, it was only 26 weeks.
Yep, 99 weeks of unemployment benefits now which rocks!
Simple math makes us all wealthy in the long run!
Sam,
This is a tough call. I had alot of financial screwups in my early 20’s mainly not saving. If I had been smart enough to save even a little bit I would have been in a different situation. I think the really problem lies in the fact that we don’t educate our youth on the practical matters of money. There’s no personal finance class in college. I made about $25k in college and blew it all on nonsense. All my money from my internships and everything else which I could have put into savings was shot. So maybe the first step is prioritizing the education of youth. If we started there it’s likely we’d fix the problem.
Hi Srini – Good to hear from you. How did you make 25K in college alone? That’s huge! Education really is the key to so many things. This is part of the reason why I love writing about PF and hosting the Yakezie Writing Contest. Thnx, Sam
Sam,
I actually had part time jobs throughout college. I think that good thing about people like you do doing what you’re doing is that education on personal finance is more accessible to us than ever before. Hopefully we’ll see the byproduct of it on the next generation of college grads.
Sam,
You and most of your readers are in a much better financial situation than the vast majority of Americans.
Does common sense dictate that someone in their 50’s should have plenty saved and not need unemployment insurance – ABSOLUTELY!
However, many people in America in their 50’s have little or not saving and they NEED unemployment benefits.
Would I have more than enough money after 30 years to not need unemployment benefits – absolutely.
Why don’t people save and invest more for retirment – one reason is they spend a lot of money on NECESSITIES – high cell phone and cable bills, new cars, expensive vacations, new cloths, lots of stuff for their children, etc. I however, do not have cable, have a prepaid cell phone, buy a new car every 10 years, etc — thus I have lots of money that I can/do save for retirement.
Are you sure me and my readers are in better financial situation than the rest of America? We are a sample set of thousands.
If you spend on necessities such as a tropical vacation and don’t save, it means you don’t need the money and are not worried enough to bother.
I’m afraid I have to disagree with you on this one.
While in theory, many people should have saved enough money over the course of their working lives to cover a period of unemplyment later in life, many will not have done so. As you say, some will fail to save through choice. But there are plenty of people who have limited or no savings for other reasons – financial illiteracy, high medical bills, children with special needs, fraud, divorce etc etc – not all of which are controllable. Unless you can fairly account for these issues then what you are proposing amounts to age based discrimination.
Also, there is plenty of at least anecdotal evidence to support the widely held perception that it is harder for older workers to both keep and obtain well paying jobs which means that, on average, an older person is more likely to need assistance for longer than a younger person.
Lastly, as Ravi pointed out, the older worker is more likely to have paid into the system over the years.
If you want to limit entitlement to receive unemployment assistance (i) a lifetime limit on the number of months you can claim and (ii) an asset based means test will be fairer.
Of course, Plan B is a work for entitlement programme.
The government discriminates every single day ie only people making $75k or less can claim te $1,000 child tax credit, a couple who get married lose $1 mil worth of mortgage interest indebtedness.
The government consistently tries to manipulate people to follow their way of what they think ia right. Do you not believe people are rational and will save if they feel money is important to them?
I agree that the government discriminates in many ways. They shouldn’t. All (or at least most ) of the discriminatory policies, including the one you refer to should go. If people want children they can pay for them instead of getting subsidised through lower taxes. Home ownership credits, industry subsidies, earmarks etc etc etc – they should all be done away with. The social welfare net should be a minimal support system for those who need it, not an entitlement for those who choose to rely on what the politicians compel current and future tax payers to cough up.
People are not rational. No matter what you do, there will always be plenty of people who behave in sub-optimal ways. Although contrary to my theoretical preference for freedom of choice, I ended becoming an advocate of compulsory retirement savings along the Australian model.
Singapore model has the same program called the EPF. 20% of your income is mandatory taken out and socked away! Smart if you ask me!