Interview by Joseph Coombs, SHRM Workplace Trends and Forecasting Specialist
Based on EBRI's recent research, what is the most notable trend or piece of data you've seen regarding retirement?
Working longer, and planning to work longer, is the most significant trend of the last 20 years, and the economic downturn seems to have reinforced it in such a way as to suggest it will not reverse. Our studies using U.S. Census Bureau data show a turning point in the early 1990s as older workers kept working in larger numbers, and those percentages have been going up for nearly 20 years. Our annual Retirement Confidence Survey has recorded over 20 years of an intention to work longer, with recent years being even more pronounced. Our EBRI Notes of December 2011 reported that between 2006 and 2010 the proportion of workers 50 and over saying they planned to retire before or at 62 had continued its steady decline, reaching 7.9%. The same report finds that the proportion of those planning to retire at 70, 75 and 80 continues to climb.
The most significant piece of data that goes along with working longer was contained in our June 2011 Issue Brief which looked at how much longer one would need to work to make up for a shortfall in retirement savings and expected income, if the goal was simply to have enough to be near certain of being able to cover basic expenses for your remaining lifetime. We found two things of note. First, working longer will almost always allow you to stay in better financial condition, but, second, for many in the lowest income groups who have never had any participation in either defined benefit or defined contribution retirement programs, even working into the 80s will never get you to enough income for retirement. Finally, at all income levels, health status and health expenses are the single cost factor that can keep individuals and families from having a decent retirement.
The good news in all of this is that every data source and survey tells us that as individuals and as a nation we are all paying more attention to saving and planning. We are not simply just retiring the day someone says we are “age eligible,” only then to realize we do not have enough income or savings and have to go find another job!
Older workers often have more expertise, making it beneficial for companies to keep them on payrolls for longer periods. Are there broader economic benefits of older workers staying on the job longer?
Talent in the workforce always provides economic benefits at many levels. Workers pay taxes which support Social Security, Medicare and many other programs. And, delaying the age at which you retire and take these benefits reduces the cost of the programs. For Social Security and most other retirement programs it also increases the benefit you will ultimately be paid. The economy then benefits from retirees with more income, who spend more to drive the economy. Human capital increases over time with on-the-job learning and training and the experience of being able to identify circumstances and troubleshoot what is happening. That has economic value for the nation, not just an individual employer.
The fact that there are currently a large number of vacant jobs in the nation because we do not have enough properly trained workers available begs for well-trained workers to work longer. A commonly stated fear of many employers today – hospitals for example – is the coming wave of retirements of nurses and other medical professionals with no pipeline to fill the positions. This is true in many fields, and another example of how the economy benefits from later retirements.
Are there also downsides to these employees working longer? If so, what are they?
The answer depends upon whom we are talking about. The nurses and doctors and pilots and engineers that have kept their training up to date and are in positions where the economy does not have enough qualified applicants, do not produce any downside.
Where a retired individual takes a position – full or part time – where there are many qualified unemployed willing to fill the position, one can argue there is a downside. The question for society is whether or not we anticipate getting back to such low unemployment that we need to beg workers to stay in the workforce, and also provide a magnet for illegal immigration because there are so many jobs at all levels of the economy that employers go wanting.
Expansion gets truncated because there are now workers available. There are both short- and long-term issues, and long term I certainly hope our economy is vibrant enough that it is always to our advantage to have everyone work as long as they want, and economically need, to do so.
What do you think is the most important step for improving retirement security, and why?
It is actually a few steps that work together. The first important step is taking whatever action is needed to secure Social Security as we know it. It is an essential floor for nearly everyone. My dad worked for one firm for 30 years and had a defined benefit plan, a defined contribution plan, employer paid retiree medical, etc., and investments to draw on that lasted until he and mom hit about 85. When he retired in 1978 he had it all. Fast forward to 2007 when my dad passed just shy of 94: Suddenly, mom had one and only one income source: Social Security. So first things first: secure Social Security.
The second important step is for employers to provide automatic payroll deduction, at an average of 15% of pay, into a savings program for every worker, from day one of employment. Workers must then preserve the money upon job change and add more with every increase in income. For those that start at 35 instead of 20, they will have to do more like 25% on average for the rest of their working years. Oh, you are self-employed? Then you have to set up the automatic savings payment with a financial institution. Pay yourself first and save for your future!
Step three is to have a plan, update it regularly, and include life income in the plan so that someone else takes on the risk of you living as long as both my parents did. Finally, have life insurance, disability protection and health insurance so that all of your life risks are secured so that you can save for your future!
Are employers doing anything to strengthen workers’ retirement prospects, or perhaps making benefits more enticing for older workers?
Employers are doing a great deal to strengthen workers’ retirement prospects. First, they are sponsoring savings and retirement plans, increasingly using automatic enrollment, contribution escalation and life income choices.
Second, all employers are helping to fund Social Security (retirement, disability and survivors) and Medicare, unemployment and workers’ compensation insurance, and added voluntary benefits at work. Large numbers provide communication and education programs that increase financial capability, and provide programs that make it easier to assure your financial security. For older workers and part-time retirees, employers are increasing the reach of programs for part-time workers, adding flexibility of schedules and benefits choice.
EBRI’s Value of Benefits Surveys have made it clear for decades that workers value trust in their employers more than most institutions, want them involved, and appreciate the benefits they provide access to, regardless of whether the employer, the employee, or both, share in the cost.
Do you expect the “graying” of the work force to ebb once the economy enters a period of significant expansion, or are we seeing a “new normal” for delayed retirement?
I will end where I began with the note that retirement ages and work force participation of those over 55 and 65 and 75 and 80 began to change in the early 1990’s, and that is when the “new normal” began to form. What has been different in this new decade is that even the lucky few that have long service, a pension, retiree health care, and more, have been hesitant to retire until the economy rebounds.
I think that as long as the Federal Reserve artificially holds interest rates at near zero so that savings essentially provide no interest income at all, the trend will hold. Only when, and if, rates rebound to more historically normal levels like 5%, will some comfort return and the willingness to leave a paycheck behind accelerate.
The longer the current interest rate environment persists, the deeper the memory scars will be, and the more one might expect even the best off among workers to keep working longer. If working longer than our parents is viewed as the “new normal,” then yes, the “new normal” is with us to stay.