Finance

Many people expect to keep working because they need extra retirement income.
However, research shows workers often retire earlier than planned, perhaps due to a layoff or poor health.
That means workers can’t rely on delayed retirement as a financial plan. For those who are able, working longer is among the best ways to shore up one’s nest egg, though.

Alistair Berg | Digitalvision | Getty Images

Planning to work longer is a popular escape hatch for Americans who feel they’ve saved too little to support themselves in old age.
About 27% of workers intend to work in retirement because they need to supplement their income, according to a new CNBC and SurveyMonkey survey. They polled 6,657 U.S. adults in early August, including 2,603 who are retired and 4,054 who are working full time or part time, are self-employed or who own a business.

While working longer is among the best ways to shore up one’s nest egg, the plan may backfire, according to retirement experts.

Workers may not be able to work into their late 60s, early 70s or later due to an unexpected health complication or a layoff, for example.
“It sounds great on paper,” said Philip Chao, a certified financial planner and founder of Experiential Wealth, based in Cabin John, Maryland. “But reality could be very different.”
If workers lose those wages, they’d have to figure out another way to make their retirement savings last.

Workers often retire earlier than planned

A nonexistent ‘escape valve’

Americans generally use a later retirement age “as an escape valve which doesn’t necessarily exist,” Chao said. “But saying it and doing it are two totally different things.”
It could ultimately be a “very dangerous” assumption, Chao said.
Many people who retired earlier than planned, 35%, did so because of a hardship, such as a health problem or disability, according to the EBRI survey. Another 31% of them retired due to “changes at their company,” such as a layoff.  

It sounds great on paper. But reality could be very different.

Philip Chao
founder of Experiential Wealth

More than half, 56%, of full-time workers in their early 50s get pushed out of their jobs due to layoffs and other circumstances before they’re ready to retire, according to a 2018 Urban Institute paper. Often, such workers earn substantially less money if they ultimately find another job, the paper found.
Of course, some people exit the workforce early for positive reasons: More than a third, 35%, of people who retired earlier than anticipated did so because they could afford to, EBRI found.

There are benefits to working longer

Working longer — for those who can do it — is a financial boon, according to retirement experts.
For one, workers can delay drawing down their savings; that keeps their nest egg intact longer and may allow it to continue growing via investment profit and additional contributions. Workers can also delay claiming Social Security benefits, which can boost how much they receive.

Some people continue to work longer because they like it: About a quarter, 26%, of workers said they want to work in retirement, and 17% of retirees continue to work in some capacity because they enjoy it, according to the CNBC retirement survey.
Americans may also get non-financial benefits from working longer, such as improved health and longevity. However, research suggests such benefits depend on how much stress workers experience on the job, and the physical demands of their labor.
Working longer also appears to be more of a possibility for a growing share of older workers.
“A shift away from a manufacturing economy to one primarily focused on delivering services and information facilitates working to an older age,” Jeffrey Jones, a Gallup analyst, wrote. More

Latinas contributed $1.3 trillion to 2021 U.S. gross domestic product, up from $661 billion in 2010, according to a recent report funded by Bank of America.
The economic output of Latinas was more than Florida’s economy that year, with only the GDP of California, Texas and New York being larger.
Still, some economists believe that Latinas’ total contribution to the country’s GDP could actually be more than what’s being reflected in the data.

Miami Beach, Florida, Manolo, restaurant, employees at bakery counter. (Photo by: Jeffrey Greenberg/Universal Images Group via Getty Images)
Jeff Greenberg | Universal Images Group | Getty Images

Latinas are making substantial contributions to the U.S. economy.
The female Hispanic population contributed $1.3 trillion to gross domestic product in 2021, an increase from $661 billion in 2010, according to a recent report funded by Bank of America.

That marks a real GDP growth rate of 51.1% between 2010 and 2021, meaning an economic contribution that’s 2.7 times that of the non-Hispanic population.
The total output of U.S. Latinas in 2021 was also larger than the entire state of Florida that year, the report noted, citing data from the Bureau of Economic Analysis. In fact, only those from California, Texas and New York, respectively, were larger that year.

Despite those large figures, some economists think that U.S. Latinas could be contributing more to GDP than the report’s figure.
Belinda Román, an associate economics professor at St. Mary’s University, said that there’s activity in various areas that the data may not be capturing. Child care is one of those.
“A lot of that is uncompensated care,” she said in an interview with CNBC. “Interestingly, there are a lot of Latinas in that space that you’re not going to see in these numbers, so I think to some extent it may not be big enough actually.”

Economist Mónica García-Pérez also believes the figure could be bigger, saying that some of Latinas’ “unmeasured” contributions — such as being a stay-at-home mom that’s providing care for other neighbors’ kids, for example — allow “other groups to participate in the labor market.”
She also pointed to the occupational positions they hold more generally as posing some difficulty when assessing their contributions.
“This group is very sensitive to shocks, and it could be related to their presence in sectors where there’s a lot of mobility or turnover,” the Fayetteville State University economics professor said. She added that they tend to be concentrated in care and service industries, such as health care, retail and hospitality. This is what makes them a “moving piece” in economic cycles.
In the case of a recession, for instance, García-Pérez said Latinas are “likely to lose their job much faster being in the sectors they’re in,” as seen during the Covid-19 pandemic. “But they also may be more likely to be reincorporated in the market because the cost of entry and the type of positions they enter at have lower barriers.”

A growing force

When it comes to labor force participation, Latinas are outpacing other groups, the BofA report showed.
From 2000 to 2021, the participation rate for Latinas rose 7.5 percentage points. On the other hand, the participation rate of the non-Hispanic women in the same period was flat.
The group has also been more resilient than others. Although labor force growth slowed overall in 2020, the growth rates for Hispanic men and women were still positive. Conversely, the non-Latino labor force growth rate was negative that year, meaning that more people left the labor force than entered it.
Beyond that, Latina GDP grew more than five times the rate of non-Latino GDP between 2019 and 2021, gaining 7.7% compared to 1.5%. Meanwhile, the GDP of Hispanic men grew nearly four times the rate of non-Latino GDP in those years at 5.9%.
These contributions are notable given that Latino households were some of the hardest hit by the pandemic.
“When the economy broadly is most in need, that’s actually when we see the most dramatic contributions of U.S. Latinas,” said economist Matthew Fienup, the report’s co-author and executive director of the Center for Economic Research and Forecasting at California Lutheran University. “Whereas all Latinos are a source of economic strength, Latinas are drivers of vitality that the economy needs.”
“If Covid-19 couldn’t stop this growth, it’s hard to see what would,” said David Hayes-Bautista, report co-author and director of the Center for the Study of Latino Health and Culture at the School of Medicine at UCLA.

Drivers of change

Since the late 1970s, the share of Latinas with a job has grown. Specifically, the employment-to-population ratio for the group has surged from 41.6% in December 1978 to 56% in December 2023, per data from the Economic Policy Institute.
By comparison, the ratio for Black women — who alongside Latinas experience the most severe wage gaps relative to white, non-Hispanic men — has advanced 11.9 percentage points. The metric for women overall has climbed by 8.8 percentage points in that period.
“Some of this is an expansion of opportunities for women,” said Elise Gould, a senior economist at EPI. Part of this is also due to a lack of wage growth for typical workers over the past few decades, she said. “Because it can be hard to get ahead, households may have had to put in more work hours to do better.”
That seems to be paying off to some extent. The growth in labor force participation as well as a rise in educational attainment are resulting in income gains for the group, notably about 2.5 times that of non-Hispanic women from 2010 to 2021, the BofA’s report co-authors found.

Brooklyn Puerto Rico Day Parade on June 13, 2021 on Knickerbocker Avenue in the Bushwick neighborhood of Brooklyn, New York.
Andrew Lichtenstein | Corbis News | Getty Images

Hayes-Bautista also cited intergenerational shifts and Hispanic women’s more rapid population growth over the Hispanic male and non-Latino populations as another catalyst of Latinas’ economic output.
“What we started to see in about the year 2000 is that the immigrant first-generation started to age out of the labor force,” he said. “As they age out, their shoes are being filled by their daughters and granddaughters, who are twice as numerous in terms of population size, and they’re bringing much higher levels of human capital.”
Latinas have especially bolstered the contributions of Latinos as a whole. Fienup told CNBC that Latinos’ total contributions have pushed labor force growth positive in certain regions across the country at times when the non-Latino labor force was contracting.
“We expect that dynamic to be increasingly important over the next three decades,” he said. “What we’re seeing now is really just the beginning of what will be an increasingly important story in the United States economy.” More

The Federal Deposit Insurance Corp. on Tuesday proposed a new rule forcing banks to keep more detailed records for customers of fintech apps after the failure of tech firm Synapse resulted in thousands of Americans being locked out of their accounts.
The rule, aimed at accounts opened by fintech firms that partner with banks, would make the institution maintain records of who owns the account and the daily balances attributed to the owner, according to an FDIC memo.
Fintech apps often use a type of account where many customers’ funds are pooled into a single large account, relying on either the fintech or a third party to maintain ledgers of transactions and ownership.

Tsingha25 | Istock | Getty Images

The Federal Deposit Insurance Corp. on Tuesday proposed a new rule forcing banks to keep detailed records for customers of fintech apps after the failure of tech firm Synapse resulted in thousands of Americans being locked out of their accounts.
The rule, aimed at accounts opened by fintech firms that partner with banks, would make the institution maintain records of who owns it and the daily balances attributed to the owner, according to an FDIC memo.

Fintech apps often lean on a practice where many customers’ funds are pooled into a single large account at a bank, which relies on either the fintech or a third party to maintain ledgers of transactions and ownership.
That situation exposed customers to the risk that the nonbanks involved would keep shoddy or incomplete records, making it hard to determine who to pay out in the event of a failure. That’s what happened in the Synapse collapse, which impacted more than 100,000 users of fintech apps including Yotta and Juno. Customers with funds in these “for benefit of” accounts have been unable to access their money since May.
“In many cases, it was advertised that the funds were FDIC-insured, and consumers may have believed that their funds would remain safe and accessible due to representations made regarding placement of those funds in” FDIC-member banks, the regulator said in its memo.
Keeping better records would allow the FDIC to quickly pay depositors in the event of a bank failure by helping to satisfy conditions needed for “pass-through insurance,” FDIC officials said Tuesday in a briefing.
While FDIC insurance doesn’t get paid out in the event the fintech provider fails, like in the Synapse situation, enhanced records would help a bankruptcy court determine who is owed what, the officials added.

If approved by the FDIC board of governors in a vote Tuesday, the rule will get published in the Federal Register for a 60-day comment period.
Separately, the FDIC also released a statement on its policy on bank mergers, which would heighten scrutiny of the impacts of consolidation, especially for deals creating banks with more than $100 billion in assets.
Bank mergers slowed under the Biden administration, drawing criticism from industry analysts who say that consolidation would create more robust competitors for the likes of megabanks including JPMorgan Chase.

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The longed-for moment is almost here. For two and a half years, ever since America’s Federal Reserve embarked on its fastest series of interest-rate rises since the 1980s, investors have been desperate for any hint of when it would reverse course. Now it would be a huge surprise if Jerome Powell, the central bank’s chair, did not announce the first such reduction after its rate-setting committee meets on September 18th. Indeed, among traders, the debate is no longer “whether” but “how much”. Market pricing implies roughly a 40% chance that officials will cut their policy rate, currently between 5.25% and 5.5%, by 0.25 percentage points, and a 60% chance that they will instead opt for 0.5. More

Moving money from a workplace retirement plan like a 401(k) plan to an individual retirement account is common when switching jobs or retiring.
Savers are often unaware their 401(k)-to-IRA rollovers sit in cash as a default.
Holding excess cash is generally a mistake for long-term investors.

Sergio Mendoza Hochmann | Moment | Getty Images

Many investors unknowingly make a costly mistake when rolling their money from a 401(k) plan to an individual retirement account: leaving their money in cash.
Rollovers from a workplace retirement plan to an IRA are common after reaching certain milestones like changing jobs or retiring. About 5.7 million people rolled a total $618 billion to IRAs in 2020, according to most recent IRS data.

However, many investors who move their money to an IRA park those funds in cash for months or years instead of investing it — a move that causes their savings to “languish,” according to a recent Vanguard analysis.

About two-thirds of rollover investors hold cash unintentionally: 68% don’t realize how their assets are invested, compared to 35% who prefer a cash-like investment, according to Vanguard.
The asset manager surveyed 556 investors who completed a rollover to a Vanguard IRA in 2023 and left those assets in a money market fund through June 2024. (Respondents could report more than one reason for holding their rollover in cash.)
“IRA cash is a billion-dollar blind spot,” Andy Reed, head of investor behavior research at Vanguard, said in the analysis.

‘It always turns into cash’

The retirement system itself likely contributes to this blind spot, retirement experts said.

Let’s say a 401(k) investor holds their funds in an S&P 500 stock index fund. The investor would technically be liquidating that position when rolling their money to an IRA. The financial institution that receives the money doesn’t automatically invest the savings in an S&P 500 fund; the account owner must make an active decision to move the money out of cash.
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“That’s one of the challenges: It always turns into cash,” said Philip Chao, a certified financial planner and founder of Experiential Wealth based in Cabin John, Maryland. “It sits there in cash until you do something.”
About 48% of people (incorrectly) believed their rollover was automatically invested, according to Vanguard’s survey.

When holding cash may be a ‘mistake’

Grace Cary | Moment | Getty Images

Holding cash — perhaps in a high-yield savings account, a certificate of deposit or a money market fund — is generally sensible for people building an emergency fund or for those saving for short-term needs like a down payment for a house.
But saving bundles of cash for the long term can be problematic, according to financial advisors.
Investors may feel they’re safeguarding their retirement savings from the whims of the stock and bond markets by saving in cash, but they’re likely doing themselves a disservice, advisors warn.
Interest on cash holdings may be too paltry to keep up with inflation over many years and likely wouldn’t be enough to generate an adequate nest egg for retirement.

“99% of the time, unless you’re ready to retire, putting any meaningful money in cash for the long term is a mistake,” Chao said. “History has shown that.”
“If you’re investing for 20, 30, 40 years, [cash] doesn’t make sense because the return is way too small,” Chao said.
Using cash as a “temporary parking place” in the short term — perhaps for a month or so, while making a rollover investment decision — is OK, Chao explained.
“The problem is, most people end up forgetting about it and it sits there for years, decades, in cash, which is absolutely crazy,” he said.

Relatively high cash returns over the past year or two in some types of cash accounts — perhaps around 5% or more — may have lulled investors into a false sense of security.
However, investors are “unlikely to keep those returns for long,” Tony Miano, an investment strategy analyst at the Wells Fargo Investment Institute, wrote Monday.
That’s because the U.S. Federal Reserve is expected to initiate a round of interest-rate cuts this week. Investors should “start repositioning excess cash,” Miano said.
Investors should also question if it’s necessary to roll money from their 401(k) plan to an IRA, as there are many pros and cons, Chao said. More

In understanding China’s persistent consumption slowdown, analysts are looking at the connection between China’s real estate slump and local governments’ financing.
“Macroeconomic headwinds continue to hinder the revenue-generating power of China’s local governments, particularly as related to taxes and land sales,” said Wenyin Huang, director at S&P Global Ratings.
Often overlooked is that fact that ” investment is creating weak nominal GDP growth outcomes – pressuring the corporate sector to reduce its wage bill and leading to a sharp rise in debt ratios,” Morgan Stanley’s chief Asia economists Chetan Ahya and Robin Xing said in a September report.

Local governments in China are still building highways, bridges and railways, as pictured here in Jiangxi province on Sept. 6, 2024.
Cfoto | Future Publishing | Getty Images

BEIJING — China’s persistent consumption slowdown traces back to the country’s real estate slump, and its deep ties to local government finances — and debt.
The bulk of Chinese household wealth went into real estate in the last two decades, before Beijing began cracking down on developers’ high reliance on debt in 2020.

Now, the values of those properties are falling, and developers have reduced land purchases. That’s cutting significantly into local government revenue, especially at the district and county level, according to S&P Global Ratings analysts.
They predicted that from June of this year, local government finances will take three to five years to recover to a healthy state.
But “delays in revenue recovery could prolong attempts to stabilize debt, which continues to rise,” Wenyin Huang, director at S&P Global Ratings, said in a statement Friday to CNBC.

“Macroeconomic headwinds continue to hinder the revenue-generating power of China’s local governments, particularly as related to taxes and land sales,” she said.
Huang had previously told CNBC that the financial accounts of local governments have suffered from the drop in land sales revenue for at least two or three years, while tax and fee cuts since 2018 have reduced operating revenue by an average of 10% across the country.

This year, local authorities are trying hard to recoup revenue, giving already strained businesses little reason to hire or increase salaries — and adding to consumers’ uncertainty about future income.

Clawing back tax revenue

As officials dig into historical records for potential missteps by businesses and governments, dozens of companies in China disclosed in stock exchange filings this year that they had received notices from local authorities to pay back taxes tied to operations as far back as 1994.
They stated amounts ranging from 10 million yuan to 500 million yuan ($1.41 million to $70.49 million), covering unpaid consumption taxes, undeclared exported goods, late payment fees and other fees.
Even in the relatively affluent eastern province of Zhejiang, NingBo BoHui Chemical Technology said regional tax authorities in March ordered it to repay 300 million yuan ($42.3 million) in revised consumption taxes, as result of a “recategorization” of the aromatics-derivatives extraction equipment it had produced since July 2023.
Jiangsu, Shandong, Shanghai, and Zhejiang — some of China’s top provinces in tax and non-tax revenue generation — see non-tax revenue growth exceeding 15% year-on-year growth in the first half of 2024, S&P’s Huang said. “This reflects the government’s efforts to diversify its revenue streams, particularly as its other major sources of income face increasing challenges.”
The development has caused an uproar online and damaged already fragile business confidence. Since June 2023, the CKGSB Business Conditions Index, a monthly survey of Chinese businesses, has hovered around the 50 level that indicates contraction or expansion. The index fell to 48.6 in August.
Retail sales have only modestly picked up from their slowest levels since the Covid-19 pandemic.
The pressure to recoup taxes from years ago “really shows how desperate they are to find new sources of revenue,” Camille Boullenois, an associate director at Rhodium Group, told CNBC. 
China’s national taxation administration in June acknowledged some local governments had issued such notices but said they were routine measures “in line with law and regulations.”
The administration denied allegations of “nationwide, industrywide, targeted tax inspections,” and said there is no plan to “retrospectively investigate” unpaid taxes. That’s according to CNBC’s translation of Chinese text on the administration’s website.
“Revenue is the key issue that should be improved,” Laura Li, sector lead for S&P Global Ratings’ China infrastructure team, told CNBC earlier this year.
“A lot of government spending is a lot of so-called needed spending,” such as education and civil servant salaries, she said. “They cannot cut down [on it] unlike the expenditure for land development.”

Debate on how to spur growth

A straightforward way to boost revenue is with growth. But as Chinese authorities prioritize efforts to reduce debt levels, it’s been tough to shift policy away from a years-long focus on investment, to growth driven by consumption, analyst reports show.
“What is overlooked is the fact that investment is creating weak nominal GDP growth outcomes —pressuring the corporate sector to reduce its wage bill and leading to a sharp rise in debt ratios,” Morgan Stanley chief Asia economists Chetan Ahya and Robin Xing said in a September report, alongside a team.
“The longer the pivot is delayed, the louder calls will become for easing to prevent a situation where control over inflation and property price expectations is lost,” they said.
The economists pointed out how similar deleveraging efforts from 2012 to 2016 also resulted in a drag on growth, ultimately sending debt-to-GDP ratios higher.
“The same dynamic is playing out in this cycle,” they said. Since 2021, the debt-to-GDP has climbed by almost 30 percentage points to 310% of GDP in the second quarter of 2024 — and is set to climb further to 312% by the end of this year, according to Morgan Stanley.
They added that GDP is expected to rise by 4.5% from a year ago in the third quarter, “moving away” from the official target of around 5% growth.

The ‘grey rhino’ for banks

Major policy changes are tough, especially in China’s rigid state-dominated system.
Underlying the investment-led focus is a complex interconnection of local government-affiliated business entities that have taken on significant levels of debt to fund public infrastructure projects — which often bear limited financial returns.
Known as local government financing vehicles, the sector is a “bigger grey rhino than real estate,” at least for banks, Alicia Garcia-Herrero, chief economist for Asia-Pacific at Natixis, said during a webinar last week. “Grey rhino” is a metaphor for high-likelihood and high-impact risks that are being overlooked.
Natixis’ research showed that Chinese banks are more exposed to local government financial vehicle loans than those of real estate developers and mortgages.
“Nobody knows if there is an effective way that can solve this issue quickly,” S&P’s Li said of the LGFV problems.
“What the government’s trying to do is to buy time to solve the most imminent liquidity challenges so that they can still maintain overall stability of the financial system,” she said. “But at the same time the central and local government[s], they don’t have sufficient resources to solve the problem at once.” More

On a recent visit to his hometown of Laixi, in eastern China, Guo Ping received a shock: the local government had sold off a number of state-owned assets, including two reservoirs. The small city’s finances, as well as those in the neighbouring port of Qingdao, were under strain, forcing officials to come up with new sources of revenue. This meant hawking even large bits of regional infrastructure. The sales seemed to be part of what Mr Guo, who asked to use a pseudonym, views as a gradual economic deterioration. More

Retail sales rose by 2.1% in August from a year ago, missing expectations of 2.5% growth among economists polled by Reuters. That was also slower than the 2.7% increase in July.
Industrial production rose by 4.5% in August from a year ago, lagging the 4.8% growth forecast by Reuters. That also marked a slowdown from a 5.1% rise in July.
Fixed asset investment rose by 3.4% for the January to August period, slower than the forecast of 3.5% growth.

Pictured here is a shopping mall in Hangzhou, China, on Sept. 9, 2024.
Nurphoto | Nurphoto | Getty Images

BEIJING — China’s retail sales, industrial production and urban investment in August all grew slower than expected, according to National Bureau of Statistics data released Saturday.
Retail sales rose by 2.1% in August from a year ago, missing expectations of 2.5% growth among economists polled by Reuters. That was also slower than the 2.7% increase in July.

Online sales of physical goods rose by just under 1% in August from a year ago, according to CNBC calculations of official data.
Industrial production rose by 4.5% in August from a year ago, lagging the 4.8% growth forecast by Reuters. That also marked a slowdown from a 5.1% rise in July.
Despite the miss, industrial production still grew faster than retail sales, “reflecting the structural imbalance imbedded in China’s economy, with stronger supply and weaker demand,” said Darius Tang, associate director, corporates, at Fitch Bohua.
The firm expects the Chinese government will likely announce more, gradual stimulus in the fourth quarter to support consumption and real estate, Tang said.

Fixed asset investment rose by 3.4% for the January to August period, slower than the forecast of 3.5% growth.

The urban unemployment rate was 5.3% in August, an uptick from 5.2% in July.
Among fixed asset investment, infrastructure and manufacturing slowed in growth on a year-to-date basis in August, compared to July. Investment in real estate fell by 10.2% for the year through August, the same pace of decline as of July.
National Bureau of Statistics spokesperson Liu Aihua attributed the uptick in unemployment to the impact of graduation season. But she said that stabilizing employment requires more work.
This year, the statistics bureau has been releasing the unemployment rate for people ages 16 to 24 who aren’t in school a few days after the wider jobless release. The youth unemployment rate in July was 17.1%.
“We should be aware that the adverse impacts arising from the changes in the external environment are increasing,” the bureau said in an English-language statement. A “sustained economic recovery is still confronted with multiple difficulties and challenges.”
This weekend, Saturday is a working day in China in exchange for a holiday on Monday. The country is set to celebrate the Mid-Autumn Festival, also known as the Mooncake Festival, from Sunday to Tuesday. The next and final major public holiday in China this year falls in early October.

Growth in the world’s second-largest economy has slowed after a disappointing recovery from Covid-19 lockdowns. Policymakers have yet to announce large-scale stimulus, while acknowledging that domestic demand is insufficient.
Other data released in the last week has underscored persistent weakness in consumption.
Imports rose by just 0.5% in August from a year ago, customs data showed, missing expectations. Exports rose by 8.7%, beating expectations.
Beijing’s consumer price index for August also disappointed analysts’ expectations with an increase of 0.6% from a year ago. More