THERE'S been considerable wringing of hands by politicians and others in the United States about the trend toward early retirement by men. This post World War II trend accelerated in the 1960s and 70s, leading to a dramatic decline in work effort and earnings among the elderly. Keeping people in the work force longer, say these concerned people, would raise national output, reduce the costs of Social Security, and improve the well-being of older Americans. The trend becomes especially worrisome, they add, in the face of the projected slow growth of the labor force in the 1990s as fewer children mature and start work. Further, the size of the elderly population will expand greatly when the baby boom generation retires after the turn of the century. About the year 2010, it is said, the working population will be heavily burdened by the necessity to support financially the large retired population.
Two economists, Gary Burtless of the Brookings Institution, and Alicia Munnell, research director at the Federal Reserve Bank of Boston, calm some of those fears in an article in the Boston Fed's latest New England Economic Review. Here are some of their points from the article and from interviews:
1. The aging of the population does mean that in the future those working will support a greater proportion of retirees. In any one year, both those retired and those working are consuming goods and services produced mostly in that year by those working. But a gradual rise in productivity between now and the next century should make that burden more bearable. If saving rates improve, a higher ratio of capital to labor (e.g., more automation) will boost productivity and living standards.
2. Early retirement does reduce national output from what it would otherwise be. But this is not necessarily bad. The aim of a nation's economic system is the greatest welfare of its citizens. If many of those citizens prefer more leisure (retirement) to working to pay for more goods, fine and dandy. Mr. Burtless and Mrs. Munnell figure that those retiring early are mostly paying the extra cost themselves, and not shifting it onto those who decide to retire later. Most early retirees are living off accumulated assets, military pensions, or private pensions. Those left in the work force may get promoted faster and thus benefit.
3. The Social Security pension system has now been structured so that early retirees do not add to system costs. Pension benefits are not available before age 62. Those who retire before the normal retirement age of 65 get benefits that are reduced on an actuarial basis so that their lifetime benefits are about the same on average as those who retire later. The age at which full benefits are payable is being extended gradually to 66 by 2009, then to 67 by 2027 - a move designed to eliminate a Social Security deficit. For those retiring after 65, the benefits will be gradually increased through 2008 to be more fair actuarially.
4. During the 1980s, the trend toward early retirement slowed and may have actually halted for men over 62. However, early retirements may increase in the current economic slump. Some companies offer older workers financial inducements to retire early when needing to cut back their payrolls. Other older workers, laid off, may find it so difficult to find another job paying as well that they decide to retire.
5. Once the slump is past, the slowdown in the influx of new workers into the labor force may make management more eager to eliminate early retirement incentives and develop flexible job options to hold on to the skilled older worker.
6. The fertility of American women, long in decline to a level below the rate of replacement, has swung back up again to about 2.1 on average - the level where a population maintains itself. The baby boomers are having more babies, though perhaps late in their life by past standards. In around 20 years, these youngsters will join the work force and pay Social Security taxes. 7. Many working Americans complain that they have inadequate leisure time. This complaint has become more common as a large proportion of women entered the labor force in recent decades (a trend that slightly reversed itself in the last year). Women, indeed, are more likely to work between the ages of 50 and 64 than they were in the past. In essence, some people are catching up on leisure by retiring early.