Tuesday, February 15, 2011

Making Retirement More "Progressive"

In an earlier post, Unemployment, Social Security and Retirement Age: James K. Galbraith, we described Galbraith’s notion that early retirement could be used to address persistent unemployment. In a companion piece in The American Prospect Eugene Steuerle presents a different view of retirement policy. While aimed at the Social Security System, Steuerle’s comments would be relevant to any country with an age-based retirement plan.

Steuerle emphasizes the view that our social security system has evolved from an old-aged system to a middle-aged retirement plan.

“A single person retiring at the earliest retirement age (65) in 1940 was likely to receive close to 14 years of benefits. By 1975, this person could retire at 62 and would likely receive benefits for 19 years, and today that number has risen to almost 22 years. When it comes to couples retiring at the earliest retirement age, by 2030, at least one partner is expected to receive benefits for nearly 30 years.”
“Americans on average retired at age 68 in both 1940 and 1950. If they were to retire for the same number of years on average today as they did in 1940, they would be retiring at age 75. In 2070, they'd quit working at about age 80. Instead, they retire on average at about age 64.”

“Put another way, if you define old age by, say, the last 15, 18, or even 20 years of life, then Social Security has become, almost by definition, a middle-age retirement system."

He argues that there are a number of reasons why the retirement age should be raised for healthy individuals. Older workers are viewed as an asset that continues to be of value to the economy.

“It is a question about how we decide to live our lives and best use our nation's pool of human capital in the 21st century. In the next few decades, older workers will be seen as women were in the last half of the 20th century: the largest pool of underutilized talent in the economy. If we modernize the signals and symbols around the idea of when old age begins -- not just in Social Security but in the private sector as well -- labor demand is likely to shift toward this pool of talent.”
Steuerle’s contention is that encouraging these people to retire early consumes resources that could be better spent on those more in need: the poor and the disabled. The “progressive” aspect arises because requiring the able bodied to work longer effectively raises more tax revenue from them, and one can also choose to limit the amount ultimately paid out to those with higher incomes by the retirement system. This increase in resources can be used to fund a larger benefit for the lower income workers and the disabled.
“If we really wanted to help disadvantaged minorities and other workers with lower lifetime earnings, we could use the money more progressively by targeting benefits directly to them, through devices like minimum benefits and removal of the discrimination against parents -- minority women particularly -- who were not married and therefore get nothing out of the current spousal and survivor benefits, although they pay for them.”
The author realizes that there is an assumption buried in this concept that needs scrutiny.
“To the extent we can improve employment rates, we can also increase national income and personal income and in turn, raise income-tax revenues and therefore the level of benefits that government can provide to the truly needy.”
Steuerly raises the issue of unemployment in this indirect manner, but he never actually deals with it, nor does he address Galbraith’s concept. The notion of making social security benefits more progressive is a good one, but it could have been argued just on the basis of redistributing benefits from high income retirees to low income retirees. The retirement age is really a separate issue which must be defended on its own merit, both for individuals, and for the economy as a whole.

Steuerly makes the rather wild assumption that since life expectancy has increased ten years, then everyone should have ten more productive years at their disposal. Older workers are generally valued because they are a residue of experience, which often translates into wisdom. If one is looking for someone to work long hours and develop new concepts or new business models, you give the old guy a golden handshake and hire yourself a hungry young person—these days a young woman if you are smart. You can always buy the old guy’s experience by the hour, and as needed.

Consider universities where professors love to hang on forever and die at their desks. The schools are desperate to move most of them out. They need productive people who publish and attract grants, and attract students to work on the grants. Many of the older professors are no longer able, or willing, to produce at that level.

I like Steuerly’s suggestion that we can make the retirement system more progressive. I think the prospects for long term unemployment are such that it is silly to consider raising the retirement age. It occurs to me that we should perhaps better spend our time looking for ways to open up more positions for our youth. How about a lowering the retirement age for those willing to spend a compensatory amount of time performing public service as a retiree? Sixty-plus year olds can be of great value to society. I would not expect many to be out generating economic revolutions, but those who can, will continue to do so. But for most, there will come a time when enough is enough. Let them be. Let me be.

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