For baby boomers, retirement likely to include a job

by DOUG BATES If you’re among the first wave of baby boomers thinking of retiring soon, here are a few phrases you might start practicing: “Paper or plastic?” “Welcome to Wal-Mart.” “Want fries with that?” You won’t necessarily be bagging groceries, greeting shoppers or flipping burgers in your golden years, but the odds are great that you’ll need some kind of paying job. That’s because the traditional three-legged stool of retirement — savings, pensions and Social Security — has grown a fourth leg, called “paycheck.” This is no news flash. Economists began warning years ago that “retirement” in the 21st century isn’t really going to be conventional retirement for most Americans. They’re going to need employment to stay out of poverty. Retirement wave starting What’s new, however, is that 2008 is an important milestone for baby boomers, the 78 million Americans born from 1946 to 1964. This is the year the first crop of them began turning 62, and thus eligible for Social Security benefits, at the rate of 8,000 per day. The bold headline is that 55 percent of them are retiring and collecting those benefits. And for most, it’s a mistake. “Two-thirds of today’s leading baby-boom cohorts are not ready for a financially comfortable retirement,” says Isabel Sawhill, a senior fellow at the Brookings Institution. Soaring health care costs get part of the blame. So do the decline in traditional employer-subsidized pensions, a plummeting stock market and increasing life expectancy, which means millions of people will outlive their money. The biggest culprit by far, however, is that most boomers have failed to save enough money, experts say. “We used to have a saving ethic in this country,” says John Rother, a national-policy director for AARP , the lobbying group for people 50 and older. “But the personal saving rate has been declining for 20 years and now is negative.” Reinventing retirement Rother and Sawhill were among a dozen economists and policy experts who spoke to journalists at a recent seminar on retirement issues at the National Press Foundation in Washington. Among their varied messages, one universal theme stood out: The United States must reinvent retirement and create a more flexible labor market that encourages and enables Americans to work and save later in life. That assertion is echoed in an important new study by the McKinsey Global Institute, an independent research organization. It concluded that baby boomers, while earning record levels of income, generating great wealth and spurring economic growth, also spent at record levels, failed to save and accumulated unprecedented levels of debt. “Now, as the oldest boomers near retirement,” the study says, “we estimate that approximately two-thirds of early boomer households, who are aged 54 to 63, are financially unprepared for retirement — that is, they have not accumulated enough savings to maintain their lifestyle as they age. Meanwhile, their predicament is worsening with the fall in home values and stock prices that began in 2007.” As a result, millions of these aging Americans are going to have to bolt that fourth leg to the retirement stool. If they don’t want to become impoverished in their twilight years, they’re going to have to keep working. Benefits of working That’s not necessarily a bad thing. McKinsey researchers and others say the nation needs older Americans to keep working. It will shore up the economy, for one thing. When millions of aging boomers begin working less and spending less, it will mean a slowdown in gross-domestic-product growth, so the more retirement-age employees on the job, the better. According to the yearlong McKinsey study, if 62-year-old boomers would work just two or three more years, it would have a powerful positive impact on the economy as well as their own retirements. Other benefits would include larger tax collections, increased household savings and easing the fiscal squeeze on Social Security and Medicare. Several studies indicate that most boomers want to keep working or are at least resigned to the necessity. A survey by AARP, for example, found that 80 percent of boomers said they would keep working once they were “retired,” and only 16 percent said they expected to quit altogether. An iffy prospect There are problems, though, with the expectation that continued employment can be a sturdy fourth leg on the retirement stool. It may be a responsible, even attractive route for well-educated older Americans, particularly those who love their work, but what about the nearly half of boomers who are in physically demanding occupations like construction, logging, pipe fitting and housekeeping? Millions of such workers will need to switch jobs, which can be challenging later in life. Surveys show that most companies resist hiring older workers and that significant legal and institutional barriers stand in the way, too. Health-insurance costs, for example, rise with age and create a disincentive for companies to retain or hire older workers. Such workers, however, have a powerful force on their side. The Census Bureau projects a serious labor shortage within 10 years as the initial cohorts of boomers retire, and the resulting vacuum will work in their favor as they run out of money and return to the workplace. Experts at the retirement conference said the good news for older Americans is that employers are going to have to get creative to compete for them. It will require flexible hours, part-time positions and work-from-home options that many employers today are reluctant to offer. Most boomers over 50, however, will have no choice but to reduce their spending, and they’ll do it “retired” on that four-legged stool.