For a Good Retirement, Find Work. Good Luck.

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Published: June 22, 2008
Bill Neugent, an engineer in McLean, Va., is doing his bit to ease the looming generational financial squeeze as the nation’s 75 million baby boomers begin to retire. He’s working longer.
Mr. Neugent, 62, plans to work full time until he is 65 and then part time for the Mitre Corporation, a federal research contractor that encourages older workers to stay on.

There are, it seems, too few such workers and employers. The average retirement age for men now is 63 and for women 62. But the emphatic conclusion of recent research into retirement policy and labor markets is that working another two or three years would have a surprisingly powerful impact on the retirement living standards of millions of boomers and on the economy.

The economic gains, according to a report published this month by the McKinsey Global Institute, a research group, would include increased household savings, higher tax collections and a reduction of the fiscal strain on Social Security and Medicare; together, that would add an estimated $13 trillion to the economy by 2025, or about a year’s total output of goods and services today.

“It’s the only answer, but don’t count on the story turning out that way,” said Alicia H. Munnell, director of the Center for Retirement Research at Boston College and co-author, with Steven A. Sass, of the book “Working Longer: The Solution to the Retirement Income Challenge” (Brookings Institution Press). “It’s going to take a lot of education and changes in policy and attitudes.”

The biggest obstacle, experts say, is that most companies are reluctant to retain or hire older workers. At the top of the corporate ladder, executive recruiters are routinely told not to seek anyone over 50, notes Peter Cappelli, director of the Center for Human Resources at the University of Pennsylvania’s Wharton School.

Similar sentiments, Mr. Cappelli said, can be found across the job spectrum. He points to a batch of evidence. In one survey, one-fourth of companies said they were not inclined to hire older workers. In a research experiment a few years ago, thousands of made-up resumes were sent to employers; younger workers who had the same qualifications as older workers were more than 40 percent more likely to be called in for an interview than someone 50 or older. In an industry survey, a majority of technology companies candidly said they would not hire anyone over 40.

“The issue of older workers is similar in many ways to the arguments surrounding discrimination against blacks and women in the ’60s,” Mr. Cappelli said. At the time, he noted, it was widely said that the “market will take care of it,” since self-interested companies would want to tap a wider pool of workers with varied skills. But ultimately it took anti-discrimination laws and changes in social attitudes to improve job opportunities for women and minorities.

Today, the conventional wisdom holds that market forces will soon stimulate demand for older workers. Business executives and consultants talk of a coming shortage of skilled employees as boomers begin to retire in droves. This year the oldest boomers, born in 1946, reach the early retirement age of 62, when they become eligible to receive Social Security benefits.

But the demand, some say, may not surface as expected. It is true that the boomer generation is huge, but the domestic work force will continue to grow without them. Then, there is the impact of labor-saving technological advances and the increasing ability of corporations to tap skilled workers anywhere in the world. “The demographics don’t necessarily support the view that there will be a labor or skills shortage,” said Laurence Kotlikoff, an economist at Boston University.

If there is a failure in the market for older workers, it is the result of “statistical discrimination,” according to Joanna Lahey, an economist at Texas A.& M. University. Surveys show that companies are leery of hiring and retaining older workers because of concerns that they are less energetic, less productive, less adaptable and more likely to have outdated skills than younger workers. There are, however, studies that suggest such concerns are overstated or inaccurate.

Ms. Lahey explains that while some of the perceived drawbacks may apply to a higher percentage of older workers than to younger people, they still are an unfair stereotype of most older workers, who don’t fit the description. The effects of such statistical discrimination are personal injustice and economic inefficiency. “In that sense,” she said, “the labor market for older workers is broken.”

John Shoven, an economist at Stanford University, advanced the notion of “new age thinking” as an alternative perspective, in a National Bureau of Economic Research working paper last fall. He suggested taking a fresh look at the implications of age, since people are healthier and live longer now. Using his calculation, he said, a 65-year-old man in 2005 was “effectively seven years younger than someone of the same age in 1965.”

So live longer, work longer. It certainly makes economic sense, but often the incentives for companies and workers are not in place. One step, experts say, would be to create a category of “paid up” workers. After, say, 40 years of work, they would pay no further contributions to Social Security and Medicare through payroll taxes, nor would companies make contributions, thus trimming the cost of employing older workers.

Rising health care expenses with age are another issue. For workers 65 to 69, health care costs average 20 percent of wages, compared with 12 percent for workers age 45 to 49, McKinsey estimates. One way to lift that burden from companies would be to return to the pre-1983 policy of making Medicare the primary payer of health care costs for people over 65, whether they are working or not.

The most significant single policy step, experts say, would be to increase the age when people can receive Social Security benefits by two or three years to 64 or 65, with exceptions for the disabled and needy. “We have to raise the age of eligibility,” said Ms. Munnell of Boston College. “If you continue to offer benefits at 62, they grab it.”

Waiting, and working longer, she says, is the wiser and more financially responsible choice for most people. A person who retires at 66 will pocket a monthly Social Security check that is one-third higher than if that person retired at 62.

Judy McCrickard, a 64-year-old administrative assistant in Racine, Wis., plans to retire at the end of 2010, when she will be 66. She works for S. C. Johnson, a household products company that the AARP rates as one of the best employers for workers over 50.

But Ms. McCrickard has also kept up her end of the implicit bargain, by regularly upgrading her skills. When she joined the company in the 1960s, there were no computers in offices. But through courses offered by the company, she has become fluent in budgeting, financial planning and project management programs. Today, she is essentially a project manager, not a secretary. Her latest project was to design and manage an internal Web site for contingency planning across the global company to prepare for emergencies like a pandemic.

“I’m not slowing down because I’m 64,” Ms. McCrickard said, “and no one here would expect me to.” Her boss is urging her to stay on until she’s 70.

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