Sunday, July 20, 2008

New book: “Working Longer: The Solution to the Retirement Income Challenge”

Alicia Munnell and Steven Sass of the Center for Retirement Research at Boston College have a new book, Working Longer: The Solution to the Retirement Income Challenge. Here's a short summary of the topics covered:

Why Do We Need to Work Longer?

• Americans need to work longer due to a contracting retirement income system, longer lifespans, and rising health care costs.

• Working longer does not mean working forever — the goal should be to move the average retirement age from 63 to 66.

• Working longer improves retirement security by: 1) boosting monthly Social Security benefits; 2) allowing workers to build up larger 401(k) balances; and 3) reducing the period over which households must rely on their retirement assets.

Will We Be Able to Work Longer?

• Most people will be healthy enough to work until at least 66.

Will We Want to Work Longer?

Reasons for Hope: For men, the century-long decline in their labor force participation has halted and even begun to reverse. For women, labor force patterns have been converging toward those of men.

Reasons for Caution: The ability to claim Social Security benefits at age 62 is a powerful inducement to retire. Also greater job turnover makes employment more difficult for workers in their fifties.

Will Employers Want to Employ Us?

Reasons for Hope: Employers value older workers' productivity and reliability. And some industries could experience labor shortages as the population ages.

Reasons for Caution: Employers are concerned about older workers' wage and health care costs and question their ability and desire to keep their skills current. Also, many employers can tap a global labor market to replace older workers.

How Can We Encourage Longer Work Lives?

• Workers: Make a plan to keep working and stick to it.

• Employers: Redesign production and personnel systems to fit older workers.

• Federal government: Raise Social Security's Earliest Eligibility Age.

• State government: Develop job skills and job matching programs.

Also, click here for a list of myths regarding retirement that Munnell and Sass discuss, and click here to order a copy.


Bruce Webb said...

Alert the Sandwichman at Econospeak

The whole argument for increasing retirement age implicitly privileges income to leisure and more disturbingly builds in the argument that if you can work you should work. The notion that retirement is the reward for a lifetime of work and that extended mortality translates into more reward rather than less opportunity to pile up income seems lost here.

This whole drive to impose higher retirement ages and mandatory savings plans seems to draw its roots less from some desire to insure that old people have a comfortable retirement but instead from some fear that the rest of society might have to pick up the tab.

I am no economist but I am a trained narratologist and this particular storyline stands out like a beacon. Metaphorically you can translate 'sustainable solvency' into 'don't want to have grandma living in the spare bedroom'.

For an interesting example of this kind of thinking you could examine EconomistMom's take on Deming and Dynarski's "The Lengthening of Childhood" in On "RedShirting" My Son. Even Diane with her Mom's hat on tight can't quite abandon the idea that people are not just production units and feels compelled to justify her Mom driven decision to hold her kid back a year with an economic argument.

Where did this notion that it is a discrace to allow a kid an extra year to be a kid or allowing a grandpa to have some extra years puttering around the garden because the net result is a minor decrease in life time productivity plus a digit or two difference in grandpa's Social Security check come from?

Which is a rhetorical question. Because besides my training in narratology I was also trained in history and can pin this down in both time and place, the whole notion that a 35 hour work week and seven weeks of vacation represents some sort of cultural weakness on the part of the French is just proof that the thinking of Dutch burghers simply got internalized by pretty much the whole of Anglo-American economic thought.

It may or may not be true that God rewards thrift but this idea that everyone should be compelled to embrace this notion through such things as extended working years and mandatory savings pretty much equates to imposing a religious test. If I want to accept the tradeoffs of retiring early to spend more time with my grandkids or for that matter sipping beer down at the VFW who are you to insist that I remain chained to the grindstone in the interest of maximizing national productivity? But often enough that is where the story carries us. (Although to be fair many who push this seem unaware of the roots of their thought.)

Work more, make more, save more. Who could argue with that? Well me. And millions of French and Spanish and Italian people who understand that living happens mostly outside work and that the Protestant Work Ethic didn't come down from Sinai with the Commandments.

Jim Glass said...

Working longer is wonderful if one wants to do so -- but it doesn't have anything to do with Social Security on its face, since delaying retirement results in a correspondingly increased (roughly actuarially so) retirement benefit. So the effect on SS's finances is basically zero.

Thus, to the extent this relates to SS, the authors seem to be presenting a friendly, optimisic introduction to the idea of delaying the SS retirement age -- which is an involuntary, regressive benefit cut that lands hardest on those who can least afford it.

Not that I'm entirely against it, in a world where the average person is living a longer and something will have to be done. I can be as regressive as the next guy.

But it's my experience, FWIW, in discussion of such things that I've participated in, that delayed retirement age often starts off as a very popular "natural fix" ... then people realize it's a flat benefit cut ... and that any flat benefit cut is regressive ... and support for it starts diminishing and moving to some sort of means testing.

Of course Congress added it to the '83 fix (if as sort of an afterthought) and it certainly makes sense in its own way, so it's entirely possible we may see it again.

I'm just saying that people who want to argue for it, in addition to presenting the "working longer cane be a great and rewarding thing!" argument, had better be prepared to answer the "though being forced to is a regressive benefit cut" argument.

Andrew G. Biggs said...

Raising the normal retirement age isn't really regressive; it's basically an across the board reduction in benefits at any age at which you retire. Raising the early retirement age (62) could be regressive for folks who would die before claiming benefits, but their survivors would get higher benefits which (to some minds) might mitigate things a bit.

Regarding the early retirement age, there's always something of a judgment call since some folks will take money pretty much as soon as you offer it to them (these are the same folks a mandatory saving program like Social Security was set up to help). Whether 62, 65 or something else is the best age isn't possible to say with certainty, and there's always some paternalism involved.

That said, if people want to retire before 62 -- or before 65, if we raised the early retirement age -- nothing prevents them from doing so with their own savings. If Social Security was designed to provide income in 'old age,' we might conclude that age 62 doesn't qualify when most folks that age will survive into their 80s, and many well beyond that.

Bruce Webb said...

"That said, if people want to retire before 62 -- or before 65, if we raised the early retirement age -- nothing prevents them from doing so with their own savings"

"The Law in its Infinite Justice prevents Princes and Paupers alike from sleeping under the Bridges of Paris"

"The people are pleading there is no bread? Let them eat cake!"

Andrew you may have inadvertently made the point I was trying to make. People may calculate they can get by with a reduced benefit and so trade Social Security income for time but the number of people who could actually simply pay for two or three years of living expenses without seriously depleting long term retirement needs I think is vanishingly small.

Andrew G. Biggs said...


A low earner who retires at the full retirement age will have a high retirement income relative to his pre-retirement earnings. So those folks don't need to save that much to maintain their pre-retirement standard of living. (They might want a higher absolute standard of living, but the causes and solutions to that lie elsewhere.)

If that person chooses to retire 4 or 5 years prior to the full retirement age, their replacement rate is going to drop a LOT. They might be fine with that, or they might be myopic and not understand that they're going to be stuck with that lower retirement income for the rest of their lives. There's no easy answer to this, but a lot of folks on both sides of the aisle are starting to conclude that offering early retirement hasn't been a great idea for a lot of people.

Whether people could afford to save a little more (say 2%) to provide for income in early retirement is a good question. I'd just submit that people in the past, who were a lot poorer than people today, managed to save a much higher percentage of their earnings than today's workers do.