Faced with these economic times, millions are postponing retirement
Recently, another iconic media property changed hands. Newsweek magazine, founded in 1933, was sold by the Washington Post for a small sum to Sidney Harman, a fellow who has made a great deal of money in the auto parts business. Mr. Harman is 91 years old and has absolutely no background in magazines; presumably he occasionally reads them. Let us hope his learning curve is steep.
There is much that could be said about this news, but on this we can agree: Mr. Harman is an optimist and he clearly enjoys working. Few of us would tackle a new career at the age of 91 – and especially in a field with as uncertain a life expectancy as Mr. Harman himself. Though he is perhaps an extreme example, Mr. Harman is not unique in his ornery refusal to retire at a graceful age.
Indeed, faced with an uncertain economy, disappointing investment returns, sinking home values and changing actuarial expectations, millions of Americans are postponing retirement. The government is encouraging us to do so. The most recent notice from the Social Security Administration presents forceful incentives to delay the age at which you start receiving benefits. Not only are payments lower at an earlier retirement date, but the wizards at the agency provide these helpful nuggets: Tthe typical 65-year-old will live to 83, one in four 65-year-olds will live to age 90 and one in ten will live to 95. In other words, you may hit pay dirt and live beyond your wildest expectations. Stay on the job!
Americans’ postponement of retirement is a two-edged sword. On the one hand, it significantly bolsters the financial outlook for our ailing Social Security system. The longer people work, the longer they contribute to the agency’s fund and the fewer years they are likely to request benefits. On the other hand, younger workers might have more luck finding jobs if the old coots would butt out.
This year social security expenditures will exceed receipts for the first time since 1983, falling short by an estimated $41 billion. The agency expects to see a modest recovery to surplus in 2012 to 2014, and then projects rapid growth in red ink. Reserves, according to the trustees, will be exhausted by 2037. In other words, at that time social security will be broke.
The biggest problem for social security is, of course, the imminent retirement of the Boomer generation. There are some 79 million Americans who were born between 1946 and 1964. Statistically, the first wave will begin to retire next year at 65. The number of workers paying into the system and supporting the number receiving benefits has steadily dropped. In 1955 the ratio was above eight to one; now there are about three workers supporting each retiree. By 2031, there will be only two. That is a demographic reality that is not confined to the United States; nearly all developed countries are facing a similar prospect. Even China has a prospective decline in workers some twenty hence.
Governments here and elsewhere have responded to these trends by jacking up the age at which retirees can claim benefits. In the U.S. we have increased the cutoff to 67 for people born after 1959. Without a doubt this will impact retirement choices. For many years the average retirement age in the U.S. was 62 – which just happened to parallel the age at which benefits became available. A recent Gallup poll reports that more than one third of workers expect to retire after 65, compared to only 12 percent in 1995. This was the first year in which a majority of Americans expected to leave the workforce at or past the age of 65.
There has also been talk of trying to hike the investment returns of the social security fund. Today the return is roughly one percent – not nearly enough to keep pace with growing outflows. Considering that almost 58 million Americans today receive social security benefits (one in seven), and that at least half rely on those payments for the bulk of their income, maintaining the system’s integrity is paramount. Given that we are entering an election season and that our legislators are allergic to delivering bad news, we probably won’t hear much about this problem anytime soon. Eventually, remedies will be adopted, such as increasing payroll taxes or introducing some means test that will preclude wealthier Americans from receiving benefits. These changes will not impact today’s retirees, but will be phased in gradually. The latter proposal will not be too popular. In a recent poll, 98 percent of Americans said they believe Social Security funds belong to the people who contributed them.
Though social security’s outlook has dimmed, Americans have not responded by ratcheting up their savings from other sources. The recession has made it tough for millions just to get by, much less save. A study from the Employee Benefit Research Institute reports that only 16 percent of workers are confident about having enough savings for a comfortable retirement. Some 27 percent of workers say they have less than $1,000 in savings (up from 20 percent in 2009). Less than half say that they have tried to calculate how much money they will need to retire.
On the whole, it’s easier for many to keep working until the storm recedes. While postponing retirement is good for the social security administration and for individual Boomers, it is not such good news for younger people looking for jobs. It wasn’t so long ago (believe it or not) that economists were predicting a dire shortage of trained workers. The premise was that a massive exodus of skilled employees was imminent and that the next generation was not large enough or educated enough to fill the gap. Though recent events have turned that argument on its head, there are still those projecting a worker shortfall over the next decade. For the sake of the millions unemployed, let us hope that they are correct.
Editor’s Note: Liz Peek is a financial columnist.