Who Wants to Retire Later? (Don’t Laugh)

Original Source Off the Shelf By HARRY HURT III WORK longer and retire later? The very idea sounds depressing, especially to overworked, underpaid, aging baby boomers like me. But we may have no choice if we want to avoid a precipitous decline in our accustomed standard of living. That is the basic thesis of Working Longer: The Solution to the Retirement Income Challenge, by Alicia H. Munnell and Steven A. Sass (Brookings Institution Press). In thought-provoking if sometimes cloistered academic terms, Working Longer tackles the issue of surviving one’s so-called golden years. Ms. Munnell, a former assistant Treasury secretary for President Bill Clinton, is a professor of management sciences and director of the Center for Retirement Research at Boston College. Mr. Sass, a former economist at the Federal Reserve Bank of Boston, is associate director of the research center. Ms. Munnell and Mr. Sass define succinctly the problem faced by baby boomers, and for that matter, by all Americans who aspire to retire now or in the near future. They note that the nation’s retirement system, as embodied by Social Security and Medicare in the public sector and I.R.A.’s and 401(k) plans in the private sector, is contracting in its ability to replace workers’ lost income – even as life expectancy is increasing. About 19 percent of men and 33 percent of women who survive to age 65 will live to age 90 or older and have to support themselves for almost 30 years, the authors report, adding matter-of-factly, The arithmetic does not work. Citing a plethora of actuarial studies, Ms. Munnell and Mr. Sass estimate that people who retire at age 65 today can expect Social Security to provide the equivalent of only 39 percent of their incomes after deductions for basic Medicare contributions. Those who plan to retire in 2030 can expect net benefits, similarly calculated, of only 30 percent of their incomes. Current and future retirees would be ill-advised to rely on private-sector income supplements. In 1989, the authors report, 66 percent of American employers provided postretirement health care benefit programs. By 2006, that number had fallen to just 35 percent. Worse, the rate at which Americans save for their nest eggs is abysmal. According to a Federal Reserve study in 2004, the simulated, or theoretically possible, savings in I.R.A.’s and 401(k) plans owned by people ages 55 to 64 was $314,000. The actual average savings, however, was just $60,000. So what do we do about the looming retirement income crisis? Ms. Munnell and Mr. Sass recommend that people postpone their retirements from age 63, the current average, to 66. Interestingly enough, 66 was the average back in 1962. They also say that it is time to look at raising the earliest eligibility age for Social Security benefits. (It is currently 62.)The authors write that four more years of work alters the ratio of retirement to working years from 1 to 2, meaning 20 years of retirement and 40 years of work, to almost 1 to 3, or 16 years of retirement and 44 years of work. The authors contend that working longer and retiring later can generate powerful benefits for aging baby boomers and the workers in their wake. First, it would delay the need for people to tap into I.R.A.’s and 401(k)’s, thereby swelling their total assets and increasing the future income they can produce. Second, it would help maximize the benefits of Social Security, which are about one-third higher for recipients who are 66 than for those who are 62. The authors concede that convincing people to retire later will be a challenge on sociocultural, economic and political levels. There are medical issues, too. The title of Chapter 2 asks, Will Older People Be Healthy Enough to Work Longer? The answer is a qualified yes, given the improvements in health care in the last few decades and the less physically demanding employment roles that have come with the rise of the service economy. But as subsequent chapters ask, will men and women want to work longer? The fact that both sexes currently have access to Social Security benefits at age 62 makes the answers here just qualified maybes. The answer to the question raised by Chapter 5, Will Employers Want to Employ Older Workers? is probably not. As Ms. Munnell and Mr. Sass say, older workers can offer maturity, wisdom and sound judgment, and can ensure the continuation of institutional memory at small business and large corporations. But the authors also remind us that employers in the past have not been eager to retain or hire older workers, and there is little indication that attitudes have significantly changed. After all, they say, employers are not in the business of providing retirement security. What’s more, the rising percentage of older workers in the labor pool is likely to reduce their value relative to one another as well as to younger workers who earn lower salaries and incur lower health care costs. IN the end, the retirement income crisis becomes an issue of political and demographic will. Only Congress can raise the age for access to Social Security benefits. But what Congress would do such a thing? Would a President Obama support it? Would a President McCain? Would voters accept it? In answer to these types of questions, Ms. Munnell and Mr. Sass urge both government and prospective retirees to be rational actors in the life-cycle drama. As a baby boomer, I strive for the best, but I have learned to expect the worst. It may be a stretch to ask government to act rationally. Asking my contemporaries to recognize that it is in their long-term interests to delay the immediate gratification of retirement may be wishful thinking. As far as many of us are concerned, the Who’s rock anthem of 1965, My Generation, still says it all: I hope I die before I get old.