Friday, January 25, 2019

How and Why Does the World Need to Rethink Retirement?

A piece came out in the December 4th New York Times with a title intriguing to me.  Unfortunately, Katie Robertson’s “Why the World Needs to Rethink Retirement,” after presenting a list of things it would be nice for retirees to have, became only a compendium of the current Social Security and Medicare equivalents in nine other countries – useful, but hardly suggesting revolution.  So how can we do that?

Until around 1860, Americans worked as long as they could, so there was no such thing as routine retirement.  The first such law was passed in 1861, allowing most naval officers to stop working at age 62.  Thirteen years later, a railroad, the Canadian Great Trunk, implemented the first North American private business retirement system.  In the 1880s, German chancellor Otto Von Bismarck created a state retirement program which was the first major plan to use the age of 65, which, as life expectancy there was then 45, had a rather different significance.

According to one source the proportion of American men 65 years and older working dropped steadily from 68.3% in 1890 to 41.8% in 1940, though another claimed observers disagree on how much, if at all, the rate of labor-force participation in older men declined between 1875 and 1935.  The same proportion for women followed no clear pattern, fluctuating between 6.1% and 8.3% from 1890 to 1940.  The largest single American retirement plan started in 1920 for 500,000 civil service workers.  Later in that decade, retirement became commonly viewed as a tool to reduce unemployment, and in 1935, implementation of the Social Security Act served to start the current era of aging.

Employment rates for older men dropped for the next several decades, but all who retired did not stay that way, as about 25% of those retiring from 1969 to 1973 had worked again for at least some time by 1979.  Around that time there was a backlash, with older people wanting to work equating their situation with those of blacks and women, wanting freedom with a lack of discrimination.  Serious concerns about retirement in general also characterized those years, with some thinking it was inefficient and economically destructive.  During the economic expansion of the 1980s and 1990s, more attention became paid to older employees in both commercial and academic sources.

Over the past few years, per Robertson’s article, the two main directions of national retirement programs have been toward closing gaps in coverage and increasing eligibility ages.  In most places, employer-provided pensions have become much rarer, though self-funding options, now in Canada, Australia, and The Netherlands as well as here, are appearing in more places.

While officials more uniformly recognize that some type of national retirement plan is necessary, they also are loath to allow all of the extra time from increased life expectancy to go toward sponsored idleness.  But retirement has still gathered a lot of that – while, despite a recent American dip, lifespans are near all-time highs almost everywhere, typical retirement and pension-onset ages are sometimes slightly higher than 65 but frequently lower.  The examples Robertson cited were 56 for men and 53 for women in Brazil, as low as 60 but going up to 62 for France, 60 for women and 65 for men in Great Britain, as low as 60 in Canada, 65 years and 6 months in Australia, 65 years and 7 months in Germany, 66 in The Netherlands, and still 65 in Japan.  With longevity at age 65 now eighteen years in the United States and higher elsewhere, since Bismarck’s time retirement lengths have jumped; as of 2010 the chancellor, to get the same relation between retirement and death times, would have to set the work-stopping age at 98. 

So where should we go from here?  Clearly, much older people should be fed and covered for health expenses, and, with the physical significance of being 65 today hardly the same as a century ago, postponing benefits is at least justifiable.  The difference between the mid-20th-century situation and now, though, is that there is less demand for employees.  As above, a major reason for implementing Social Security in the 1930s was to cut back the number of workers, and if we were to start Medicare and other payments at, say, age 70, that would be the equivalent of increasing it – so let’s keep retirement age increases modest.  As well, the baby boom generation, perhaps more than any other, has blurred the line between main career and retirement years by not only working later but working off and on – that trend should continue with later cohorts.  Health care expenses have reached the point where it is somewhere between aggressive gambling and outright recklessness for most people middle-aged or older to not have insurance coverage, and Obamacare or whatever program replaces it seem likely to continue for all.  Accordingly, retirement is losing its meaning – and that is how the world, ready or not, will need to rethink it.          

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