Baby Boomers, did you know that you might be working more years than your parents did?

In the 21st century retirement has become a socially accepted, even celebrated phase of life.  This has certainly not always been the case. Until World War II, even in industrial countries, you literally worked until you dropped. In fact, as Peter G. Peterson points out in Gray Dawn, the word retirement used to have a negative connotation. It implied that one’s useful days were over. Men stayed on the job whether they could afford to afford to retire or not.

What happened to change our ideas about retirement? First, as a result of the depression, President Roosevelt initiated the Social Security Act. It was initially designed to provide a safety net to protect retired persons from poverty.  The government then went on to use social security as a way of disbursing benefits to all retirees, regardless of income or wealth. Unfortunately, many people today don’t realize that social security, even with its extended coverage, was never intended to be the sole means of support for retired workers. It was always assumed that individuals would supplement their income from social security, with other built up financial assets.

The second fact that made the concept of retirement universally embraced, was the rise of pension plans during the Second World War.  They came about at a time when there more jobs than workers. Employers used fringe benefits, such as pensions, as a way of attracting and keeping workers without violating the wartime wage freeze rules. Until recently, the most common type of pension has been a defined benefit plan, which workers like very much because it promises a specified benefit at retirement. The rise of pension plans and health benefits for former employees swiftly made retirement an appealing option. In fact, since the fifties, workers have been retiring at ever-younger ages.  In the past employers saw little need to discourage retirement. They had a large number of workers to draw from, including women entering the job market for the first time.

Now the winds of change are blowing. Baby Boomers, like it or not, are going to rewrite the way we view retirement. At the very least, early retirement will become a thing of the past. 

What are the factors that will cause the demise of early retirement?

The most important reason is going to be the government’s lack of fiscal resources to pay a growing number of retirees their benefits. In the early 1900s life expectancy was 47.3 years. Today, it has reached a record high of 76.9 years.

In 1950 there were 16 productive workers to each retiree.  That number has shrunk today to just 3.3. These numbers simply mean that a decreasing number of workers won’t be able to adequately support Baby Boomers as they reach old age. 

Another reason Baby Boomers may be forced to put off retirement may very well be the changeover companies have made from defined retirement benefits to
defined contribution plans. Defined contribution plans pay out according to the size and success of the investments that are made in them. The stock market’s recent debacle has resulted in many people seeing their investments in self-managed pensions lose half their value.  This fact, in connection with companies scaling back many retiree health benefits, may make many retirees reevaluate the costs of early retirement.

Adding to Baby Boomers uncertainty about retiring at age 65 is going to be the fact that many have been overly optimistic about being able to retire. In a recent study by The American Savings Education Council, 70% of workers 40 to 59 said they were confident they would be able to have to have a comfortable retirement. Yet, only 25% had saved at least $100,000. Half of all workers have saved less than $50,000 and 15% report that they have saved nothing. 

You can already see governments in the developed world setting policies that will encourage later retirement. In this country the Senior Citizen’s Freedom To Work Act of 2000 repeals the retirement earnings limit for Social Security beneficiaries age 65 to 70. Also, the age at which one can collect Social Security is gradually being increased. In creating a higher retirement age, we must be sure that we have an adequate safety net for those who are unable to work longer. I think safeguards are particularly important because employers may respond to changing retirements rules by laying off less productive workers at an even younger age.

Some other new work policies are being discussed. They include bigger delayed-retirements bonuses, as well an end to earnings tests that withhold benefits to working seniors. Partial retirement options, that allow older workers to remain employed, are also being considered. Government leader and businesses are also talking about stricter policies and laws against age discrimination, which often block the recruitment of workers over 50. The question is, will employers trying to fill vacant jobs chose to work harder on attracting younger workers rather than retaining and retraining their older workers?

Finally the argument for later retirement is also being discussed on other grounds than just its fiscal merit. Some medical experts are saying that a longer work life will improve the health and well of older Americans. A leading American gerontologist Dr. Robert Butler has said, we must develop a vision of “productive aging” in which “work expectancy” rises along with “life expectancy.”  He went on to say if people desire satisfying sex at age 70, why not satisfying work as well.