The Changing Retirement Paradigm

2014

In 1963, the termination of the Studebaker Corporation’s pension plan wiped out or significantly reduced the pensions of thousands of the automaker’s employees and retirees. In response, Congress passed the 1974 Employee Retirement Income Security Act (ERISA), a monumental and revolutionary piece of legislation crafted to address corporate pension underfunding and set new rules regarding defined benefit (DB) and other retirement plans. ERISA also established the Pension Benefit Guaranty Corporation as a government-run insurer to serve as a backdrop to U.S. corporate pensions. Despite the bill’s far-ranging scope, in the years since its passage it has become evident that ERISA failed to achieve all of its intended objectives. The corporate pension scene today is in turmoil, and most private employers have terminated or frozen their traditional DB plans. In their place, employers are increasingly substituting defined contribution (DC) retirement saving plans, which pose a new set of r...

1993

To be effective, policy makers must try to anticipate future crises and develop plans to deal with them. In this paper, I would like to describe a potential crisis I see coming and make some suggestions about what we as a society might do about it. The potential crisis is the retirement of the baby boomerspeople like me. Few phenomena have presented a greater continuing challenge to America than the aging of my generation. We have been making waves since we arrived 30 to 45 years ago. In the 1950s, we created shortages of maternity beds and four-bedroom houses. In the 1960s, we forced massive investment in educational facilities as we moved through primary and secondary school, and painful contractions in the 1980s as we moved out. In the 1970s and 1980s, as we joined the labor force in great numbers, we tested the economy's ability to create jobs and maintain full employment. In the 90s, we are clogging promotional ladders, and early next century, we will contemplate leaving the labor force. The decisions we make about when and how to stop work will have major implications for the size and composition of the labor force, the financial well-being of public and private retirement plans (Social Security and employer pensions), as well as the personal well-being of the individuals involved. in this paper, I will outline recent and projected aging and retirement trends in America. I will then discuss why people retire when they do, with an emphasis on the financial incentives that have been built into many of our public and private retirement systems. I will then turn to some recent research on the plans and preferences of older Americans. Are older Americans willing and able to work? If so, why are more not doing so? Finally, I will address the role of public policy, both past and future, in influencing these retirement trends.

Journal of Pension Economics and Finance, 2011

and stay healthy. Employers must address the challenges and opportunities of an aging workforce, and make workplace accommodations where necessary ; for example, some older workers prefer hours flexibility or less strenuous jobs as they age. A key player must be the government, which has already encouraged additional work late in life by lowering Social Security benefits and by eliminating what were once significant financial work disincentives at age 65. But what is really needed, according to Munnell and Sass, is an increase in the earliest age of benefit eligibility, from 62 to 64. This, they acknowledge, is a controversial recommendation, and one that would harm those who cannot work additional years (which they estimate to be 15 to 20 % of the workforce), and who tend to be vulnerable on a number of counts (health, education, wage rates and retirement benefits). There are many strengths of this slim volume. It is very well written and designed for the citizen, not for professionals in the field. It makes excellent use of graphs, charts and footnotes, where considerable technical detail and bibliographic information reside. The simple math behind the authors' major point (please consider working several more years !) is straightforward and compelling. When estimating available assets per year of retirement, additional years of work both increase the numerator (additional earnings and employer pension contributions, additional savings, and higher Social Security benefits) and decrease the denominator (years of retirement). They point out in a short summary Chapter 7 that four additional years of work can change the ratio of working years to retirement years from about 2 : 1 (40 :20) to almost 3 : 1 (44 :16). I am more optimistic than the authors that American men and women will want to and be able to work longer than they used to. In fact, they already are. Between 1950 and 1985, the labor force participation rates of men aged 62, 65, 68 and 70 declined by 37 % (81.2 to 50.9), 57 % (71.7 to 30.5), 64 % (57.7 to 20.5) and 68 % (49.8 to 15.9), one of the most dramatic demographic changes in recent history. But since then, the retirement environment has changed equally dramatically ; it's a whole new world. Social Security has eliminated strong retirement incentives, as have employers, to an extent, by largely moving from defined-benefit to definedcontribution plans, which have no age-specific retirement incentives. Mandatory retirement is gone and not coming back. People are living longer and healthier lives, jobs are less strenuous, and workplace technology has improved. How have workers responded? Between 1985 and 2008, participation rates of men 62, 65, 68 and 70 have increased by 11 % (to 56.6), 43 % (to 43.7), 45 % (to 29.8) and 52 % (to 24.1)! And female rates have increased even more for these same ages (since 1985, by 52 %, 101 %, 84 % and 90 %). In addition, the majority (over 60 %) of older Americans now retire gradually, in stages, utilizing bridge jobs on the way out, between full-time career employment and complete labor force withdrawal. The era of earlier and earlier retirement is over, and has been for 25 years. A new era has begun. I hope that this book has two impacts : encouraging middle-aged workers to think about working a few years longer and encouraging Congress to discuss an increase in Social Security's early retirement age, along with the attendant changes (perhaps to disability policy) required to protect those unable to work longer. If it does, this book, in addition to being a pleasure to read, will make a very valuable contribution to the national retirement policy debate.

1999

2003

Defined benefit pension plans have become considerably less common since the early 1980s, while defined contribution plans have spread. Previous research showed that defined benefit plans, with sharp incentives encouraging retirement after a certain point, contributed to the striking postwar decline in American retirement ages. In this paper we find that the absence of age-related incentives in defined contribution plans leads workers to retire almost two years later on average, compared to workers with defined benefit plans. Thus, the evolution of pension structure can help explain recent increases in employment among people in their 60s, after decades of decline.

The Journal of Risk and Insurance, 1992

The NEA 2009 Almanac of Higher Education, 2009

Until recently, most observers believed that the long-awaited surge of retirements from higher education was just around the corner. An equally large-scale opportunity for reinvention had not occurred since the hiring boom of the 1960s and 1970s. ...

RePEc: Research Papers in Economics, 1983

Old age income security is one of society's most pressing concerns. A decline in family support of the aged, major increases in the length of retirement, and social security's long-term financial difficulty are all reasons for the growing anxiety. Consideration of current and past socioeconomic data provides a solid basis for this anxiety. Between 1950 and 1970 the fraction of the aged living with their children declined from 31 to 9 percent.' Today fewer than 3 percent of elderly households receive income from their children.z These contributions represent less than 1 percent of the income of the e l d e r l ~. ~ Life expectancy for males at age 25 is 46.9 additional years, up from 44.6 years in 1 950.4 Despite this increase, the average number of years worked by 25-year-old males has declined by 3.13 years.5 Together, these changes have almost doubled the expected duration of retirement and other nonworking periods for males from 5.93 years to 11.47 years. The ratio of nonworking to working years for males is now .32, more than twice the 1950 value. For females, growth in the expected work span, associated with dramatic postwar increases in labor force participation, has exceeded growth in the expected life span by 3.26 years. However, if one measures female work years on a male-equivalent earnings basis, the average young adult's expected nonworking period has increased by 3.60 years.6According to this measure, 25-year-olds can now expect to spend 1.2 years out of the work force for every year they spend in the work force.' Difficulties in financing an extended retirement without major family support have been eased considerably by sizable increases in real social security benefits. These benefits now represent the major source of income for 54 percent of the aged.8 However, the continued reliance on social security benefits as the primary source of old age income support is becoming increasingly unlikely. Demographic changes continue to place the Social Security System in a long-term financial crisis. Changes in fertility rates are expected to lower the ratio of social security contributors to beneficiaries from the current value of 3.2 to 1.5 by the year 2040.9The 1983 social security legislation notwithstanding, unless additional measures are enacted shortly, social security tax rates, including health insurance tax rates, could rise as high as 25 percent by the early part of the next century to meet projected benefit payments.lo The rapid growth of private, state, and local pensions in the 1950% 1960s, and 1970s represents a natural response to changes in family support of the elderly, an expansion of the retirement period, and uncertainty concerning the amount of retirement income one can expect from social security. Special tax incentives, a recognition of the advantages of group insurance policies, and the use of fringe benefits to avoid periodic government wage controls are important additional explanations of pension growth. The American pension system is, however, more than simply the inevitable product of changing social, demographic, and economic conditions. Pensions themselves are playing an increasingly important role in shaping social conditions and altering economic behavior. Pensions and the Economics of Aging 1 1.3 The Emerging Role of Pensions in the American Economy: Postwar Patterns of Growth Private, state, and local pensions now cover over 45.28 percent of the U.S. labor force. In 1950 the figure was 19.93 percent. Coverage of private wage and salary workers more

2016

Pensions and population aging intersect in two ways. First, demographic change threatens the sustainability of traditional pay-as-you-go social security pensions, leaving workplace-linked pensions with a greater role in retirement provision. Second, as the Baby Boom generation enters retirement, new challenges arise around its retirement support. This chapter reviews some of the implications of population aging for workplace pensions in this new environment, outlines market considerations important for workplace-related pension design for the future, and discusses how governments can create an environment supportive of workplace-related pensions, should they wish to do so. We conclude that workplace-linked retirement saving systems will be asked to do even more than in the past, given the financial stress that pay-as-you-go government-run Social Security plans are confronting in the face of an aging demographic. This will require further product innovation and additional research.

1983

Recent trends toward earlier retirement have exacerbated the financial problems facing the Social Security system and many other public and private pension plans. The massive. commitment of public and private funds to Social Security and pension funds is-partly responsible for the,trend to early retirement. This, in fact, was one of the early goals of Social Security: to induce old9r workers out of the weaklabor-markets of,the 1930's. Now, however, the age distribution has changed and the population of retirees has risen. There are three general approaches to bolstering the Social Security System: (1) an increase in employee contributions; (2) a decrease in the schedule of benefits, or delay of eligibility; and (3) an alteration in public policy to induce later retirement. The benefit structure oi Social ,Secueity and Rehsion plans often provides strong financial incentives to retire precisely at the mandatory age: the carrot and stick are frequently applied simultaneously. To observe actual labor ,Force transition behavior, adults employed in 1973 who did not fate mandatory .