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Posted on: Thursday, 31 July 2008, 03:00 CDT
By Rappaport, Anna
As the population is living longer, periods of retirement have been lengthening. At the same time, more people are leaving the workforce gradually rather than in one step. By building on research and data from a variety of sources and combining this information with intuition, the author of this article explores the context for retirement in the future; sets forth alternative scenarios for retirement; and discusses the public policy, individual and family implications of these scenarios. In doing so, she considers the perspectives of the individual, the employer sponsoring retirement plans and society as a whole. OUTLINE
This article looks at different ways to define retirement as part of the lifecycle and focuses on reinventing retirement to create a better future. It provides scenarios for the future of retirement, expresses the opinions of the author and builds on the work done by the Society of Actuaries (SOA) in the Risks and Process of Retirement Surveys and other work. It is organized as follows:
* Retirement: a historical perspective: This section provides a brief history of retirement and a perspective on retirement today.
* The scenarios: This section builds four scenarios and compares them, linking them to demographics, retirement, work patterns, pension plan structures and economics.
* Recommendations for institutional support: This section provides a wish list for decision makers in key stakeholder organizations.
* Context: This section provides the research findings that together with intuition led the author to building the scenarios. It starts with the "puzzle about working longer," which can be viewed as a synthesis of this information.
* The future: Where do we go from here? A conclusion is presented, and the author's opinions are summarized. The author presents opinions about the maximum age to which people are likely to work, the desirability of later and phased retirement, the potential for future labor shortages and the dangers of planning to never retire.
This article looks at the issues from a U.S. perspective, but many of the same issues can be found in other countries, and the concepts can be used to think through the challenges in different settings.
RETIREMENT: A HISTORICAL PERSPECTIVE
Life spans are increasing. Longer life spans, the aging of baby boom cohorts and lower fertility rates are combining to produce populations that will be much older on average than ever before. In many countries, there are more people at traditional retirement ages, and periods of retirement are growing. The relative lifetime balance between work and leisure has shifted, and retirement is expected to put increasing strains on many economies. Governmentsponsored programs are a problem for taxpayers and raise questions of resource allocation to different types of programs.
This large demographic picture is common to industrialized countries. Within the United States, employer-sponsored programs can be a problem for the sponsoring organizations, and high legacy costs are a threat to old, well-established businesses as they compete against new companies. There are uncertainties about the balance of labor supply and demand, and there are predictions of worker shortages, at least in some occupations.
In the history of mankind, retirement is a relatively new social pattern, as is the allocation of time to leisure in the form of vacation and days off. Prior to the development of industrialized society, people worked as long as they could and did what they could. They got little leisure. The family and workplace were not as separate as they became in the last century.
During the 20th century, as the economy shifted to an industrialized and then service economy, people moved long distances. Work and family were no longer linked. Formalized retirement systems became widespread in many countries, as did provisions for vacation and days off. The expectation under these systems was that people would leave the paid labor force between the late 50s and the age of 65 or a little later, depending on country and specific employment. Final average pay plans were designed particularly for people to work for a long time in one organization and to work full time until they retired. The interaction between longer life spans and traditional retirement ages led to longer periods of retirement.
During the same time that retirement systems evolved and matured, the role of women and the structure of families changed. Women very often work outside the home today, but they still do the larger share of caregiving. The traditional idea was that retirement systems would cover a worker and dependent family members; but, today, as living together without marriage and divorce have become more common, people move in and out of family relationships. The benefits based on the traditional definitions of family do not work for everyone.
For example, a divorced older woman may not have much in the way of resources for retirement, depending on her personal work history and how pension and other assets were split at divorce. Today, retirement at usual retirement ages will lead to very long periods of retirement. In a few cases, some people may be retired more years than they worked.
As industrial society and retirement systems evolved, so did the expectation of a lifecycle pattern with three major phases. New patterns have been emerging. One such pattern is a four-phase lifecycle, with a period between full-time work and full-time retirement, often referred to as the third age. This term refers to a period when people are involved and engaged in major activities, often working, but making a variety of life choices.
Another pattern has been called the cyclical life plan. Under this plan, periods of work and leisure are interspersed over a longer period. Academic employment, with its provisions for sabbaticals, is a very formalized version of the cyclical life plan.
Both the third age and phased retirement are discussed later in the article. Phased retirement can be defined as a reduced commitment to work before full retirement; and it can involve a change in schedule, place of work duties, or a combination of these. There is no standard definition of phased retirement, but some people would require that it include a partial payment of pension benefits and/or access to retirement resources. This author uses a more inclusive definition of phased retirement and would not require that it include partial payment of benefits.
SCENARIOS FOR THE FUTURE OF RETIREMENT
This section explores four scenarios:
1. Continuation of present trends-retirement is generally accepted part of the lifecycle
2. Increase in retirement ages
3. End of retirement
4. Move to new patterns of retirement-much later total retirement, but introduction of a third age where people work at a reduced level with more choices before total retirement.
Looking at these scenarios, it must be remembered that they are opinions operating in the context of increasing life spans, and are built on a combination of intuition and interpretation of research findings. Some experts are calling for a different term to replace retirement, but it appears to the author that it is unlikely that any consensus will be reached on a new term. While these scenarios have been built to fit the situation in the United States, issues surrounding retirement ages and the third age are applicable in many settings. The same types of scenarios can be considered in other industrialized countries, linking to their demographics, laws, retirement systems and family structures.
Scenario I: Continuation of Present TrendsRetirement Generally an Accepted Part of the Lifecycle
Under this scenario, many people will have access to regular retirement income, and the expectation is that, between the ages of 60 and 67, most people will leave the full-time paid labor force, and often they will leave all employment.
There is a substantial difference in individual circumstances with regard to access to pension benefits. People with long-term employment in major firms and/or government employment are likely to have good resources for retirement, including their Social security, and do well in retirement. The situation is much more mixed with regard to people who had many different jobs or who worked primarily for smaller firms. People without substantial attachment to the paid labor force are unlikely to have retirement benefits, although they could have family assets.
People seeking work during retirement have different experiences with their ability to find work. Professionals are most likely to find work based on contacts from former employment and professional associations, and are quite likely to be able to find contract work. Retailers often use part-time and/or older workers, and firms such as Home Depot are known for their hiring of older workers. On the other hand, many older persons seeking employment have difficulty finding work.
Scenario II: Increase in Retirement Ages
Under this scenario, there would be a significant increase in retirement ages. Retirement may be defined as it is now, or it might be defined to include much more phased retirement and different patterns of work and activity. As in Scenario I, there are substantial differences in individual circumstances with regard to retirement resources and employability. This scenario will create problems for people in very strenuous jobs who wear out early and are unable to do jobs later. Scenario III: End of Retirement
Under this scenario, many people will need to continue working, and there will be no (or very inadequate) formal systems for retirement income. When people become disabled, they will usually stop working. Hopefully, disability benefit plans will be extended to higher ages. For some people, families will be available to help them out. While this scenario seems politically impossible, some commentators talk about people working much longer, and boomers not retiring. They seem to be promoting such a scenario.
People with adequate personal assets will have the choice to stop working, but those without will not, or they may find a bleak existence. People with larger families are more likely to be able to live with family members and to receive help from them. Widows are particularly likely to have problems in old age.
This scenario could well lead to an increase in fertility rates in the long run, as adult members of society would recognize the importance of children in helping care for them as they get older. This scenario will likely lead to conflict between generations, as members of society fight over allocation of governmental resources, and will probably lead to more demands on government and a focus on increased programs for the poor.
Scenario IV: New Patterns of Retirement
Scenario IV includes much later total retirement and a "third age in which people work at a reduced level with more choices before total retirement." This scenario builds on Scenario II and takes it much further. As in Scenarios I and II, there are substantial differences in individual circumstances with regard to retirement resources and employability. This scenario redefines patterns of work in a later period of work, and introduces more work options and phased retirement. It introduces the concept of the third age, and anticipates that new careers and different activity patterns will be used widely.
This scenario will work much better for some jobs than for others.
Exhibits
Tables I through XVII compare various aspects and consequences of the four scenarios. Tables I-V show the scenarios.
The author's preference is for Scenario IV, "Move to new patterns of retirement," as her choice for the future, with eligibility for full benefits under public systems indexed to increases in longevity starting from the age of 67, and with employers fully allowed to pay benefits under employer systems while people continue to work after the age of 62, with that age indexed in parallel with the full benefit retirement age under public systems.
Scenario III, "The End of Retirement," is viewed as very unfortunate, and it is the author's opinion that this would lead to many more poor women in old age and an undesirable greater dispersion in wealth.
RECOMMENDATIONS FOR INSTITUTIONAL SUPPORT
The following is the author's wish list for institutional support, including public policy and employer support, that would facilitate Scenario IV or an evolution from the current system as provided in Scenario II. This type of support is very desirable under Scenarios I, II or IV, but would not be consistent with Scenario III, the end of retirement. Under Scenario III, the retirement system would wither away, but that is a very undesirable result. This wish list is not endorsed by or included in the agenda of any organization. It is a personal statement about the path to a desirable future.
* Policy acceptance of the importance of an organized retirement system and its value to society. Without such a system, there would be many more poor people in old age and a great deal more stress on society. Disabled individuals would be severely disadvantaged unless there was good coverage for them.
* Build integrated retirement policy including cash, medical and long-term-care elements, and use it to facilitate good public policy. The benefits are interrelated and should be dealt with in a unified way.
* Innovation is important-Support it, but don't get rid of the basics. It is important to accommodate new ideas and support emerging designs but, at the same time, remember system goals and support what has worked well previously.
* Remember the widows and divorced women. Women who are alone are most likely to be poor and need protection. One person needs about 75% of what a couple needs! Families can be important in caring for family members, but those who spend their lives caregiving also need retirement benefits. It also needs to be remembered that not everyone has a family in retirement.
* Support defined benefit (DB) plans. DB plans remain the most efficient way to provide regular income to longer service employees. They are important to retirees today; and, in spite of rhetoric to the contrary, turnover patterns have not changed that much over time.
* Maintain Social Security as a system that pays out regular retirement income. For many people, this is the only retirement income guaranteed for life, and this will be true for a greater percentage of the population in the future.
* Facilitate work options and work later in life. Under the emerging patterns of retirement and all of the scenarios, this is very important.
* Facilitate phased retirement. Part of later retirement and part of the idea of working in retirement is to have systems that support phased retirement, allowing people to use retirement resources for part of their support as they continue to work on a partial basis.
* Encourage full retirement at later ages. This is called for under some of the scenarios, and is important in adjusting to longer life spans. At the same time, this requires a balanced approach and a focus on how to handle disability and demanding jobs. Adjust to improving life spans on a gradual basis.
* Facilitate autopilot defined contribution (DC) plans. Autopilot DC plans are those that work well without employee decisions. They would include autoenrollment, good methods of handling investment mix and, ideally, good distribution options.
* Support and encourage regular income with survivor benefits as a distribution option in DC plans. As DC plans have become important, regular income remains very important.
* Make life simpler for plan sponsors. Many of the problems of the last few years are rooted in complexity and uncertainty.
* Try to improve financial literacy, and remember the diversity of the people who need the messages. Offer education to increase personal savings but recognize the realities. There is ample evidence that many Americans are not positioned to make good retirement decisions. No amount of education can completely solve this, but the best efforts must be made.
* Provide health care access for all. If private individual insurance markets are central to this, use a method of risk adjustment so that individual insurance markets can function. If there are no such private markets, make sure public programs are available to cover people who do not have employer coverage.
CONTEXT FOR THE FUTURE OF RETIREMENT
In this section, important groundwork is laid for the scenarios by looking at forces that drive the emerging retirement scene, and by looking at work and retirement in different ways. This section draws heavily on studies of how people work and on other research. It starts with a synthesis of what follows presented in the puzzles about working longer. The following topics are covered.
Synthesis: Bringing Together Different Perspectives-"The Puzzle About Working Longer"
Demographics
* Mortality and life spans
* Morbidity and health expectancy
* Changes in physical status and the need for help
* New ways to think about the lifecycle-the "third age"
The Work and Retirement Experience
* What people want
* Patterns of work after retirement
* Older workers have more problems securing work.
* Leaving the labor force at earlier ages
* Innovative practices to support working later in life
Economics: Earnings and Retirement Income
* Sources of income for older Americans and earnings of employed older Americans
* The evolution of retirement benefit systems
* Understanding of risk
The National Picture
* Labor force projections
* Social Security and retirement ages
* Public policy and working longer
Synthesis: The Puzzle About Working Longer
A number of factors come together to create unanswered questions about how long people will work and what they often say. Key points are:
* More than seven in ten workers say they expect to retire gradually or work as part of their retirement. While many people want to work in retirement, they may be seeking different job options and working conditions that differ from regular full-time work.
* About four in ten retire earlier than planned.
* Of people ages 50-61 who are not in the labor force, many more are disabled than retired.
* Typical workers say they expect to retire at 65 but are more likely to retire at 62 (Center for Retirement Research, Data Profile #4, April 5, 2004).
* More people say they plan to work in retirement than actually do work in retirement.
* When people work in retirement, retirement takes on a different meaning, and it can be viewed as reinventing oneself.
* Some people (13% in the 2005 Risks and Process of Retirement Study) say they do not plan to retire; but, realistically, few people want to continue working beyond age 75. Of those who want to work, many may not be able to. Many people will have more than ten years of life beyond that point.
* Periods of retirement have lengthened dramatically over the last 50 years. Many experts feel that raising retirement ages so that periods of retirement track longer life spans is very appropriate.
* Today's longer periods of retirement are creating financial problems and challenges in both government and private sector pension plans. Later retirement could go a long way in solving these problems and, at the same time, reduce the amount needed to be saved to get to an adequate retirement income. Savings need to last over fewer years, and need to earn investment income longer before they are used for retirement. * With the baby boomers reaching traditional retirement ages, the balance between people ages 15 to 64 and those over 65 will shift dramatically. With no change in those traditional retirement ages, fewer people will support more people.
* The growth of the labor force will slow unless something changes (for example, there might be more immigration, or people might continue working longer). It is unclear whether there will be general labor force shortages and, if so, how severe they might be. Some occupations seem certain to be in very short supply. Early examples are nurses and nuclear engineers.
* If people work longer and retire later, more people are likely to be disabled before they retire. In addition, some people will be in jobs with heavy lifting and other physical demands, and they will burn out before retirement age. Later retirement is not feasible for everyone.
* While longer average work life is certainly a possibility for the future, it remains to be seen whether those who can and want to work longer will have access to jobs that enable them to do so. It also remains to be seen whether public policy will accommodate better options. The scenarios presented earlier are designed for considering good options for the future and what will be needed to make them work.
Demographics
This section provides information about key demographic variables and preferences that drive the environment for retirement in the future and provides rationale for Scenarios II and IV. Increasing life spans, including health status at higher ages, are important in this regard. On average, people are staying healthy to higher ages, but many still experience periods of frailty later and need assistance and ultimately long-term care. The information on life spans and on disability shows us how dangerous Scenario III would be. The concept of the third age, an important part of Scenario IV, is introduced. The third age is a period of changed engagement somewhere between full-time work with a major career commitment and total retirement. |
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发表于 2008-8-23 15:10:30
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