Lower the Retirement Age

101230_UW16 I've had another soul crushing morning dealing with health insurance companies and I've decided to handle my agression on the treadmill. Off to the gym! But before I go, I thought I would leave you with a policy proposal.

James K. Galbraith at Foreign Policy says that instead of raising the retirement age, we should be lowering it. With the job shortage, it's better to give the work to younger workers and let the oldsters take their RVs on a tour of the nation's camp sites.

As a rough cut, why not enact a three-year window during which the age for receiving full Social Security benefits would drop to 62 — providing a voluntary, one-time, grab-it-now bonus for leaving work? Let them go home! With a secure pension and medical care, they will be happier. Young people who need work will be happier. And there will also be more jobs. With pension security, older people will consume services until the end of their lives. They will become, each and every one, an employer.

Does this make sense to you?

22 thoughts on “Lower the Retirement Age

  1. They will become, each and every one, an employer.
    Then I’d be inclined to treat them like I would treat an employer I couldn’t quit working for.

  2. No, because you’re also retiring some amount of expertise and experience about what works and what doesn’t. And by retiring well-paid older workers in favor of hiring lower-paid younger you reduce the income taxes collected on that work.

  3. “Does this make sense to you?”
    No, for many reasons, including what KJ said about the new hires being much lower-paid than the retirees. Also, in the current economic environment employers may not hire a replacement, at least for the next several years. One of the more dire scenarios is that the deal could entice small business owners into shutting down their operations, in the process removing several jobs from the economy while increasing the load on remaining taxpayers.
    I particularly dislike the one-time, grab-it-now aspect, which is designed to appeal to impulsive types with poor judgment and poorer math skills. Very few Americans have much in retirement savings, even those close to retirement. This blogger says that the average 55-64 year-old has $69k in retirement savings (I believe that probably excludes home and pension), with the number dropping to $56k for 65-75 year-olds:
    http://www.bargaineering.com/articles/average-retirement-savings-by-age.html
    $69k is better than nothing, but it’s only enough for one year of nursing home, if I understand these things correctly–no room there for an RV.
    If there’s an award for most irresponsible economic suggestion of the year, Galbraith is definitely in the running.

  4. “One of the more dire scenarios is that the deal could entice small business owners into shutting down their operations . . . .”
    Yes, the problem with lots of these “incentives” is that it entices people to do what they might do anyway, in which case it has no effect. Or, they entice the wrong people, the one’s who will not produce the economic benefit you desire.
    If we were going to spend this kind of money, there are lots of ways we could spend it, and I see no reason why urging people to retire a few years early would be a significant economic boost. Offering early retirement seems like a better incentive for employers to offer, who could target them in economically desirable ways. Presuming this is an incentive for people who would retire at 65 to retire at 63 instead, it’s worth something less than 100K. Employers can decide whether that’s worth it for their economic productivity, rather than taxpayers (who can’t target the money very well).

  5. The idea of RAISING the retirement age was to take the burden off the Social Security system. James K. Galbraith can’t be terribly bright if he refers to social security as “a secure pension and medical care”.

  6. I’m with Kate. Only a crazy person thinks social security and medicare are secure and funded (or fundable at this level).

  7. This sounds like the kind of scheme that has been repeatedly advocated and to some extent implemented in many European countries, which is why they generally have lower retirement ages than the U.S. Unfortunately, they also have (a) higher unemployment rates, generally, and (b) truly massive public sector fiscal problems.
    As a theoretical matter, Galbraith’s proposals are a textbook example of what economists call the “lump of labor” fallacy.

  8. Actually, I kind of liked the idea. My father retired at 55 (teacher) and it’s great that he got in about 5-6 good years before his health went down the toilet.
    I don’t think I’m crazy, but I also don’t believe the gloom and doom predictions about SS. The fact that the corporate right wing is drooling over the idea of eliminating SS is enough reason for me to believe that it’s healthy and has tons of money. If it had no money, they wouldn’t be interested.

  9. Wendy,
    Even if you believed that SS was funded until the end of time, would you really want to live on just that for the rest of your life? As the Arabic proverb goes, trust in Allah, but tie your camel.

  10. Well, my dad has a pension that he supplements with SS; same with my FIL. But you’re changing the subject. Allowing people to retire with full SS benefits doesn’t mean that they have no other income. It just says that maybe the promise of full benefits will make retirement earlier a more viable option. And hey, if no one thinks it’s a good idea to retire earlier, then no harm done, right?

  11. “Allowing people to retire with full SS benefits doesn’t mean that they have no other income.”
    1) The average retiree has a tiny nest egg.
    2) Few people nowadays have pensions (and not that many had them in the good old days, either).
    3) If they do have earned income from continuing to work (which is what I think you’re saying), then what is gained by starting their SS at 62? In that case, they remain in the work force and their place is not freed up for a younger worker, which was supposedly the point of the program.
    The whole scheme is just pointless and would probably mostly amount to giving a big pile of money to the most financially secure retirees. Another possible outcome is that some less wealthy retirees would be enticed into the scheme by the limited-time-offer aspect, they’d eventually discover that they couldn’t live on just SS income in the manner they were accustomed to, but they’d be unable to re-enter the workforce at their previous level, and would wind up as Walmart greeters in their 70s. It’s like Cash-for-Clunkers, or the $8k tax credit for homebuyers, just more expensive.

  12. I think you’re underestimating how many people would like to retire but feel they can’t. Or maybe it’s because everyone in my family is either a teacher or a cop, so pensions are plentiful here.

  13. The whole thing is beside the point and probably not meant to be taken seriously. If he did manage to convince people that you can improve the job prospects of the unemployed by cutting the size of the workforce, the call would be shifted to halting immigration before you even teach the first oldster how to drain the sewage tank of the RV.

  14. “Or maybe it’s because everyone in my family is either a teacher or a cop, so pensions are plentiful here.”
    Very likely. I’ve never heard anybody mention having a pension.

  15. If we simply eliminate Social Security for millionaires, we could save SS for another 25-50 years
    Sure, as long as you impute to a pension.
    An equilibrium draw down of $1 mil is about $35k (that’s how much you can withdraw and remain an inflation-adjusted millionare indefinitely, on average), so anyone who had a defined benefit pension of >$35k (including benefits) would be too rich to receive SS, too, right?

  16. On the other hand, when my father-in-law retired from a low-level job at an electronics company with a small income, he had about $1 mil in various assets/retirement accounts (he also sold his house right before the housing crash). I’m asking my husband if he had a pension; I know he received SS and Medicare before he died. He also retired at age 75.
    I’m not sure if my in-laws were particularly unusual people in having good-sized retirement funds. They certainly did not live a lavish lifestyle.

  17. (that’s how much you can withdraw and remain an inflation-adjusted millionare indefinitely, on average)
    Given that a pension drops to zero when you die (or you and a spouse die), this isn’t exactly the right comparison. That is, you’d need an actuary table because you can spend some small portion of the principle each year.

  18. I think there were people who retired before the crashes (and the availability of pensions, too, depended on the same economics) who benefited from economic trends that we cannot necessarily count on in the future.
    I really liked this chart at the NY Times:
    http://www.nytimes.com/interactive/2011/01/02/business/20110102-metrics-graphic.html
    It shows (among other things) the best and worst 20 years in the stock market. The two best periods were 48-68 and 79-99. Folks who happen to time their investment/retirement periods in those years got a boon from their timing. And pensions, really are a different method of paying out those rewards, with different guarantees. We know the pensions are unsustainable if they are relying too heavily on the taxpayers making up the losses — all the taxpayers can really do is to smooth out the losses since taxpayer investment horizons can be even longer than 20 years.
    I think the time when working periods of 25-30 years could sustain reasonable lifetime earnings are an artifact of perfect timing (and lower life expectancies) and that it’s problematic to use past history, and anecdotal accounts of old-style pensions to predict future economics.

  19. My husband says my FIL didn’t have a pension. He had an IRA. I am assuming with employer matching, but my FIL isn’t around to ask. My MIL worked in school administration, so she had a NY state pension.
    My husband points out that both universities we work for have had pension plans, though they are moving away from those.

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