An End to the 'Golden Years': Increasing Longevity Changes the Work-leisure EquationPublished: December 06, 2010 in Knowledge@Wharton
The winds of change are whipping across the face of retirement everywhere. Consider:
- In the United States, visions of gold watches and handshakes are fading as workers delay planned retirements and some doubt they will ever be able to afford to stop working.
- In France, waves of protest by millions of workers who took to the streets last fall could not stop the government from raising the retirement age from 60 to 62.
- In fast-aging Japan, the world's oldest country, men stay on the job until the age of 69.5 on average, well past the national retirement age of 64.
Driving such trends are both individual and global factors. The economic crisis of recent years has shattered nest eggs that people were counting on to finance their retirements. Besides the need for continuing income, many baby boomers plan to keep working past their parents' retirement age in order to stay useful and mentally active. "The usual belief is that people have delayed retirement for economic reasons," says Kent Smetters, a Wharton insurance and risk management professor. "But it's also true that because life expectancy is going up, people want to keep busy." There is a bonus for those who do: Tests show that people who stay on the job remain mentally sharper than those who retire.
Rising longevity is forcing France, Britain, Germany and other nations to boost their retirement ages to ease the burden on younger workers whose taxes must support the growing legions of long-lived retirees on public pensions. Similar considerations have led the United States to lift the age for collecting full Social Security benefits from 65, when the program was enacted in 1935, to 67 for workers born since 1960.
At the same time, the once-sharp line between work and retirement is rapidly fading as people explore fresh options after leaving 9-to-5 employment. These may range from downshifting to part-time work to launching new businesses or embarking on new careers. "Somewhere around midlife, people start to think about what they can do for future generations," says Marci Alboher, vice-president of Civic Ventures, which helps people find paid "encore careers" in public, nonprofit and social ventures. "There are incredible opportunities for people who want to do something that makes a difference."
Hard times are causing older workers to stay on the job in the face of lost wealth and investment income. "People are responding to plunging housing prices and the fact that they over-invested in the stock market," says Wharton's Smetters, who runs a financial planning service called Veritat Advisors. "Stocks are said to be a good thing," he adds, "but when it comes to consumer protection, they're not." And people who had planned to sell their homes and retire in less expensive ones "can't do that any more and now must work longer."
The ripple effect is clear in surveys of worker attitudes. Nearly one quarter of the U.S. workers polled last March by the Employee Benefit Research Institute, a think tank that studies benefit plans, said they had postponed their retirements in the past year, and one third said they intended to work past 65 -- up from just 11% in 1991. A Labor Day poll by the public opinion firm StrategyOne was particularly striking. It found that nearly two-thirds of those surveyed said that retirement might never be a realistic option for them.
In the United States, the trend toward working longer is actually a throwback to earlier times. "The new retirement is really the old retirement," says Olivia S. Mitchell, professor of insurance and risk management and executive director of the Pension Research Council at Wharton. For most of the first half of the 20th century, "everyone worked as long as they could.... Sitting around and doing nothing was an alien concept."
This work-until-you-drop mentality prevailed before Social Security and corporate pension plans began to provide retirees with income for as long as they lived. That was not expected to be very long when Social Security became law in the Great Depression, since the average life expectancy was little more than 61 years in the country at the time -- compared with over 78 years today. Social Security was initially limited to commercial and industrial employees and became universal in the 1950s.
By then, corporate defined-benefit pensions had strengthened the retirement safety net. They, too, provided income for life and were launched during World War II to recruit workers to strategic industries such as shipbuilding and auto manufacturing. Such pensions were in lieu of wage hikes, since wages and prices were frozen at the time. "That was what gave impetus to the pension movement," says Mitchell.
The new income security promised a new stage of life that marketers dubbed "the golden years," in which retirement was seen as an endless weekend. Real estate developers seized on the concept to build retirement communities featuring golf courses and other leisure activities, while travel agencies packaged cruises and tours for the senior set. Work itself was often viewed as "something horrible that you did until you got enough money to retire," says Kevin Coyne, managing director of The Coyne Partnership, a consulting firm in Atlanta, Georgia, that has studied retirement trends.
Changes in the workforce reflected this attitude. From 1948 until the early 1990s, the proportion of working men aged 65 and over fell from nearly 50% of that age group to less than 20%, according to the U.S. Bureau of Labor Statistics (BLS). The proportion of older working women remained relatively constant during that period at about 10% of those aged 65 and over.
This male exodus proved to be more the exception than the rule as the decline in the proportion of older men in the work force reversed itself in the mid-1990s. The number of older workers of both sexes has kept rising in this century along with the age for collecting full Social Security benefits and as guaranteed corporate pensions have given way to volatile 401(k) plans recently pounded by the stock market. People 65 and over are now expected to increase their presence in the workforce from 3.6% in 2006 to 6.1% by 2016, according to the BLS. "With the baby boom generation about to start joining the ranks of those age 65 and older," adds the bureau, "the graying of the American workforce is only just beginning."
The good news is that working later into life helps people retain their cognitive abilities. "The usual belief in gerontology is that if you retire your mind, you die," says Smetters. In a study last spring, researchers at Rand Corp. and the University of Michigan found that men and women in countries where people work longer did better on a test of cognitive skills involving memory than those in countries where early retirement was the norm. The performance gap was widest between countries like the United States, where about half those aged 60 to 64 continue to work, and France, where just one-sixth of the members of that age group are in the workforce. "Retirement has a strong effect on cognition," says Susan Rohwedder, associate director of the RAND Center for the Study of Aging and coauthor of the paper. "People who continue to work retain their cognitive ability longer."
The flip side is that working longer can be hard on people in physically demanding jobs such as those that require crouching or lifting heavy objects, or jobs in cramped workspaces or harsh working environments. Some 8.5 million U.S. workers aged 58 and over hold such jobs, according to a study by the Center for Economic and Policy Research, which promotes debate on economic issues. "Even if these workers were to move to jobs that were less physically demanding, they are more likely to face age discrimination and shortcomings in job training," says study author Hye Jin Rho.
Europe's Unsustainable Plans
In Europe, fewer older individuals work because public policies encourage them to step down and create job openings for younger employees. In France, where retirees can collect full public pensions at 60, there is no reason to work longer to boost retirement pay. France's high income taxes are another disincentive to staying on the job. "Europe still has generous retirement benefits," says Smetters, "but the pension systems aren't sustainable and will have to change."
In Japan, where the proportion of people aged 65 and older is rising while that of younger age groups is falling, the government gives subsidies to companies that hire or retain older employees. Many Japanese seniors are self-employed, which increases their workforce participation rate.
The gap between the official retirement age and the age when people actually stop working is even greater in South Korea, where relatively few people are covered by pensions. South Korean men work to the age of 71.2 on average, according to the Organisation for Economic Co-operation and Development (OECD), more than 11 years past the official retirement age of 60. South Korean women also work well past 60 and leave the workforce at 67.9 on average.
Japan and South Korea are notable exceptions within the 33-nation OECD, most of whose members are developed countries. In Spain, for example, men retire at the age of 61.4 on average versus the current official age of 65. Spanish women work nearly two years longer than the men and retire at 63.1 on average. French men and women typically retire before the official age of 60, leaving the workforce on average at the ages of 58.7 and 59.5, respectively.
Many countries have lower official retirement ages for women than for men, despite the fact that women live longer on average. British women can retire at the age of 60 compared with 65 for men, for example, although this gap is gradually closing. The women's retirement age will reach 65 in Britain in 2020, while the men's retirement age will increase to 66 in 2016.
In less-developed countries in Africa, Asia and Latin America, where pensions can be rarities, many people have little choice but to work into old age. More than one-third of men aged 65 and older are still on the job in such regions, according to the United Nations, compared with less than 15% in the developed world.
Keeping economically active and engaged is becoming a necessity despite regional disparities as people live longer everywhere. Some countries may be adapting to this reality more readily than others, but virtually all are moving in the same direction. Propelled by factors ranging from global aging to the pursuit of income and personal fulfillment, work is becoming the new face of retirement in the 21st century.