Possible swell of beneficiaries to swamp Social
Security presents questions for 110th
Congress
A tidal wave of baby boomers will begin turning
62 next year, making them eligible for Social
Security. How to keep this swell of beneficiaries
from swamping the country's retirement system looms
as one of the toughest questions confronting the new
110th Congress.
The answer hinges partly on how long boomers are
willing to work and the incentives to keep them on
the job. If they follow their parents' path to early
retirement, the number of workers per retiree will
plummet, reducing the tax base and squeezing budgets
for Social Security and all other government
programs.
New research suggests that aging boomers plan to
work longer than people born just a dozen years
earlier. If they do, the economy will pump out more
goods and services and mitigate the economic
pressures created by an aging population.
This good news bucks a century-long trend toward
earlier retirement, which petered out about 20 years
ago. Labor force participation rates for men 65 and
older fell from 84 percent in 1870 to 46 percent in
1950 to 16 percent in 1990. In 2005, they inched
back up to 20 percent.
Economic, demographic and social changes are
transforming retirement incentives. Social Security
reforms have boosted the normal retirement age to
67, deep-sixed penalties for Social Security
beneficiaries who work past the normal retirement
age and bolstered benefits for those who catch the
Social Security train a bit farther down the line.
All make work more lucrative.
Meanwhile, changes in employer-provided retirement
benefits also promote employment. Between 1992 and
2004, the share of workers ages 51 to 56 with
traditional pension plans fell from 40 percent to 31
percent while the share with 401(k)-type plans
increased from 33 percent to 46 percent.
Traditional pension plans discourage work by making
participants sacrifice a month of benefits for every
month worked past the plan's retirement age. The
401(k) plans have no such penalty.
And nobody needs to remind workers that
employer-sponsored retiree health benefits have
plunged recently, raising the cost of stopping work
before Medicare eligibility kicks in at 65.
Fewer physically demanding jobs also have an effect.
As the manufacturing sector shrinks and workplace
computerization continues, the demand for physical
work lessens, making it easier for older workers to
stay on the job longer. An educated work force also
tends to delay retirement; in 2004, 37 percent of
workers ages 51 to 56 had completed college, up from
22 percent in 1992.
Small wonder older Americans aren't all planning the
shortest route to retirement.
The National Institute on Aging's Health and
Retirement Study for years has been popping the
question about how likely respondents will be to
work full-time at older ages. In 1992, 47 percent
ages 51 to 56 planned to work until 62; in 2004, 51
percent did. When asked about working full-time past
age 65 -- so long the magic pivot point -- the
percentages leapt from 27 to 33 percent.
Of course, the way to underfunded retirement is
paved with good intentions; many healthy boomers may
yet bail out of the work force before turning 65.
And layoffs may force others into early retirement.
Congress can help with reforms that encourage older
people to work longer and employers to hire them.
For example, it can make older workers cheaper by
allowing Medicare to pick up their costly health
care tab, instead of forcing employers to foot the
bill for workers older than 65. And it could help
displaced older workers find new jobs by better
targeting job training and job search services.
Congress could also promote phased retirement
programs -- which could allow older workers to
collect pensions while remaining on the job -- by
clarifying the rules governing them.
Many older Americans say they want to remain
employed, but they want part-time, flexible work,
preferably with their current employers where they
can contribute the most. However, to cover living
expenses on a shorter workweek, they must be able to
dip into their pensions. Few employers have set up
programs for these types of phased retirements,
partly out of fear that they will run afoul of
ambiguous government regulations.
The boomers' current work plans alone won't best all
the challenges an aging population poses. But they
bode well indeed for stronger economic growth,
higher government revenue and better financial
security at older ages.
Richard W. Johnson and Gordon B.T. Mermin are
research associates at the Urban Institute in
Washington.
www.ui.urban.org.