The above is the title of a new report by the Center for Strategic & International Studies, by Richard Jackson and Neil Howe, with assistance from Rebecca Strauss and Keisuke Nakashima. It is a powerful statement that instantly tells us to stop analyzing U.S. workforce and retirement issues in a vacuum, ignoring the rest of the world. It is very clear today that our activities are inextricably linked to the global economy. Understanding what the global developments are for aging and workforce issues is an imperative step in developing workforce policy for the U.S.

 With all of the headlines about the U.S. losing out to Europe today, it is hard to imagine that the situation will soon turn radically in the opposite direction. However, the demographics foretell a radically changing situation. Europe is headed for major problems as their population ages and declines far more than that of the U.S.. The report includes a chilling quote from historian Niall Ferguson, who  notes that there will be “the greatest sustained reduction in European population since the Black Death of the fourteenth century.”

Japan has even greater problems.   Their population is aging rapidly, and by 2050 will have a median age of 56.

With all of the current problems in America, it is hard to imagine that the U.S. is in much better shape than the rest of the ‘developed world.’ However, with the U.S. total fertility rate at replacement level (just under 2.1, a level that keeps the population from declining), this country will increase from 34 percent of the developed world’s population to 43 percent by 2050. The report details similar progress for the U.S. in GDP, relative to the rest of the developed world.

The stability of the U.S. population is clear in the fact that this country was the 3rd ranked country in the world in 1950, is in the same position today, and will also be third in 2050. Japan and the countries of Europe are dropping down the list. As an example, one of the most problematical is Italy, which was the 10th largest country in the world in 1950, dropped to 23rd in 2005, and will be 39th in 2050.

Very scary statistics for the developed world. The situation is scarier when the ‘youth bulges’ of troubled areas like Africa and the Middle East are considered. The report addresses the likelihood of great unrest in those areas, with major implications for neighboring developed countries.

The U.S. has to address a new, radically changed world where our population is far more aged than before. That must involve workers staying on the job until later ages.

That is not happening rapidly enough. Companies are worried about dealing with older workers, so most of them procrastinate about taking action. Older workers are hesitant to consider a new paradigm regarding work at older ages.  Government agencies jaw about the problem but don’t do enough (maybe the evidence that the Pension Protection Act is proving to be very effective will prompt government to take more action).

The U.S. has a major opportunity to lead the developed world, and to make contributions to the developing world. Developing the older workforce must become a top public policy priority. Soon.

The CSIS summary of findings can be found at this (link). To purchase the full book use this (link).

The Boston College Center for Retirement Research (link) (along with a partner  RRC at the U. of Michigan) is an outstanding source for great, in-depth studies of retirement issues. The Director of BCCRR, Alicia Munnell, frequently testifies before congress and is quoted in leading publications. She and Steven Sass have a just-published book on ‘Working Longer’ published by the Brookings Institution Press (link). 

This book should be on the bookshelf of anyone involved in the issues of working later in life and/or retirement. The 52 pages of notes and references at the end of the book alone represent a great resource for understanding the dynamics of those issues.

Many politicians and commentators talk about worries that Social Security will disappear in the future. Many politicians say that they are going to “save Social Security.” What they seldom address is the fact that Social Security has already been significantly eroded. Munnell and Sass do a great service by quantifying the fact that “the full retirement age is being increased from 65 to 67,”…” Medicare part B premiums are slated to increase sharply,” and “SS benefits will be taxed more….as the benefits are not indexed to inflation.” The net of these changes will “reduce the net replacement rate for the average worker who claims at age 65 from 39 percent (of pre-retirement income) in 2002 to 30 percent in 2030.” To compensate for just these factors “workers will need to extend their work lives by about four years.”

A very important part of the book addresses the even more difficult time that women will have.

The only issue that I have with the book is that there are many references to problems that employers and workers have with working later in life. However, they do not give enough focus to the Towers-Perrin study (link) that delineated the fact that older workers do not cost more. Their higher health costs are offset by less job switching, less absenteeism, etc. As Bill Novelli, CEO of AARP and the sponsor of this study, told me, “This is the seminal study regarding the value of older workers.”

The older workers could be even more valuable if, as Munnell and Sass point out, “Most older workers have sufficient mental agility to learn and adapt if given the necessary training, but few get trained and many fail to learn and adapt on their own.”

This is a major contribution. Read it!

The New York Times did a fantastic service regarding raising the awareness of the demographic crisis by having a front-page article in its Sunday NY Times Magazine focussing on Europe’s problem with reduced fertility. You will probably have to register, but the link is (http://www.nytimes.com/2008/06/29/magazine/29birth-t.html?_r=1&oref=slogin&ref=ma).

The author is very articulate in describing many of the reasons for the birth dirth in Europe, and especially the Eastern and Southern parts of Europe. However, he does not recognize that the trend to lower fertility has been going on for two centuries. Napoleon worried about it. So did Teddy Roosevelt. Allan Greenspan told Congress that this has been going on for “at least 150 years.”

We must recognize this new demographic reality. The only reasonable solution is to create a paradigm shift regarding the potential of older workers.

The University of Michigan Retirement Research Center just published a Policy Brief by Sylvester Schieber called ‘Beyond the Golden Age of Retirement (link). First of all you should be aware that Schieber is one of the great authorities on benefits. He was on the President’s Commission on Social Security, was a Vice President for Benefits at Watson Wyatt, and his book, ‘Private Pensions’ is probably the authoritative work on that subject. How many books make it to an Eighth Edition (or more - that was just my copy in 2005).

Schieber analyzes the cost to have a hypothetical worker (starting to work at 22, $30,000 per year, continuous employment and salary increases) receive retirement income (combination of private and government benefits) that is 75 percent of preretirement earnings. A top-line summary that does not do justice to his work is that the total cost of the ‘own retirement saving and health insurance’ for someone who wanted to retire at 65 in 2005 would be ‘approximately 14% of their pay’ and that would go to 23.6 percent in 2030. Add government programs to that and the cost goes from 31.3% of pay to 52.4 percent of pay in 2030.

You get the picture. It is going to be impossible to continue with a 19th century definition of when workers should expect to retire (thanks to Count von Bismarck). We need more efforts like those of Senators Kohl, Smith, and Conrad (mentioned here in the last post) so the many who want to stay on the job can do so, and hopefully, over time, bring the median age of retirement up to a more realistic level. 

Thanks to the National Council on Aging for alerting us to the fact that Senators Herb Kohl, Kent Conrad, and Gordon Smith are introducing legislation to help older workers stay on the job. While this legislation could help older workers, it is also critical for the nation, as the senators recognize the coming shortage of workers (link). The legislation appears to address a number of issues that discourage older workers from staying on the job, or phasing into retirement with reduced hours.

Most of you probably picked up this notice through the NCOA. However, if only a few are added to the awareness of this action, it is worthwhile. We all bemoan the inaction in DC. Here are some senators that really appear to have put forward a very positive series of recommendations. We all make an effort to support them!

Carol Orsborn, in The Boomer Blog (link), points to a potentially tragic trend in workers claiming Social Security at the earliest opportunity. She quotes a USA Today article (link) that points to the fact that “about half” of the earliest Boomers will file for Social Security at 62. In addition to “conventional wisdom” that this is a good idea, the article notes that many Boomers are claiming because they are afraid that the government will be reducing benefits. One individual assumed that “those cuts won’t affect people already receiving benefits.”

This could be disastrous for efforts to keep Boomers on the job. Social Security benefits are taxed, except for the lowest income level workers. To workers debating whether it is worth it to stay employed, if they have claimed Social Security early, seeing those tax dollars being taken out of each check could be the final straw in pushing them into retirement.

If such a trend becomes widespread among Boomers, their actions will only compound the entitlement crisis budget woes. As I have noted in earlier posts, the recent trend to later retirements was encouraging, because later retirements could help reduce the staggering deficits projected for Social Security and Medicare. The “bird in the hand” attitude pointed out by USA Today, could turn the trend, with disastrous consequences for GDP and government budgets.

USA Today does a great service by including interactive graphs from the American Academy of Actuaries. Rather than rely on (incorrect) conventional wisdom, workers should consider their health, and, while it is something many people have a very difficult time addressing, assess their likely life expectancy. For healthy people, taking Social Security early is an extremely bad bet. The cumulative loss in benefits reaches tens of thousands in your 80’s and hundreds of thousands in your 90’s, as is clear in the American Academy of Actuaries tables. As the article points out, “there’s a 58% chance that (for a couple) one of them will live to 90 and a 29% chance that one will reach 95.” If you, and even moreso you and your spouse, are healthy in your 60’s, why would you give away that money to the government?

A primary concern of those looking at impending old age is that of not having to be dependent. Social Security is an inflation-adjusted (most private pensions are not) monthly check that, if maximized by later claiming, can help provide at least a partial guard against dependency.

Finally, the risk of the government cutting the benefits for those already in their 60’s is very unlikely. Politicians going back to the Greenspan Commission in 1982 have stated a precedent that reducing benefits at a time when it is too late for individuals to do anything about it would be extremely unfair. Add that to the political clout of the senior citizens and cuts to those in their 60’s are just not likely to happen.

 USA Today has made it a policy to regularly deal with key issues on the important subjects of population aging, and this is one of their best. We regularly check those out, but thanks to BoomerBlog for the heads up on this one.

PlanSponsor reported (link) that a Federal Reserve Board of St. Louis study (link) concluded that “Boomer retirements could pull down the U.S. Standard of Living.” This has become an often-debated hypothesis, with the leading skeptic being Dr. Peter Capelli of Wharton. Dr. Capelli and others conclude that the shortage will be offset by retirees being pulled back into the workforce.

The Federal Reserve study details Labor Force Participation Rates by various age, sex, and ethnic breakdowns. For one thing, this is one of the better illustrations regarding the theme of this blog, the great increase in Labor Force Participation by women and minorities. However, the danger signs are evident among those groups, as the study illustrates how those trends have levelled off.

The study concludes that “the aging of the baby-boom generation”… “..is likely to lower aggregate participation rates for the next several decades.” They go on to say that “it may become increasingly difficult to maintain growth in our standard of living because there will be fewer workers generating goods, services, and income…”

These trends could be counteracted, of course, by government action to remove disincentives from work (like those affecting phased retirement, and defined contribution plans); and maybe even provide some significant incentives for older boomers to stay on the job. Let’s hope, and fight for, the actions that could precipitate extended work patterns. Let’s make Dr. Capelli’s forecast come true! 

Last week I listened in on a very intriguing teleconference featuring Ann Clurman, Senior Partner of Yankelovich Monitor. She was reporting on a survey that Yankelovich just completed, ‘10 Things About Boomer Women.’ There are many indicators in the survey that substantiate the expectations of many that this group is not going to just fade quietly into the sunset any time soon. Of course, I was particularly interested in aspects of the study that gave clues to the Boomer womens’ plans regarding employment in the future. The study did not disappoint.

Several studies have indicated that 65 - 70% of Boomers plan to work into their late 60’s or 70’s. This study put a different, and very interesting spin on that group. Yankelovich asked whether they would agree to the statement that “If I choose to, I will be physically and mentally capable of working into my 70s and 80s.” 68% of the Boomer women agreed with that statement. This positive attitude was reflected in another response, with 86% agreeing that “I believe life is a set of endless opportunities no matter what your age.”

Yankelovich calls this goal “Middle Age-lessness.” Ann Clurman pointed out that “Boomers see no reason why they should matter less in the future.” And they are going to work to keep physically and mentally sharp to stay on top of their game.

Information on the Yankelovich study can be obtained from Sara Delligatti at Yankelovich (sdelligatti@yankelovich.com).

Another survey, this one by Jobfox, uncovered some trends that could fit very well with the above. They note in Workforce Management (link) that “Companies are showing increased interest in retirees and stay-at-home moms to possibly fill glaring labor shortages.” With the Yankelovich survey already noting that 27% of Boomer women parents without children under 25 living at home “Have returned to work or work more hours since (their) last child left home,” up from 20% in 2006, employer need and worker desire could come together in a very positive way for Boomer women. 

Another Workforce Management article (link) was published in April, but is very relevant to the above. The article chronicles how Lehman Bros. recognized the need to ‘recruit and retain women for senior positions at the firm,’ and that bringing back women who had left the workforce required flexibility in hours and days worked. Lehman has made this a top priority, with direction and comment straight from the president.

Of course, these are highly skilled women, and they are in great demand. Those with less skills will probably discover reentry to be a more challenging objective. However, as more firms like Lehman lead the way, these ‘best practices’ will hopefully lead to more opportunities throughout the workforce. 

The U.S. has a major funding problem with its entitlement spending (Social Security and Medicare) programs. However,  the U.S. population is younger than that of Europe because the Fertility Rate is higher and Life Expectancy is (sadly) lower. Add to that the fact that European social programs are more generous than those of the U.S., and Europe has bigger problems than those of the U.S.

This has generally been ignored during the ascension of the Euro. However, Johathan R. Laing reports in Barron’s this week (link) that a new report by GaveKal, “an international investment-research boutique” notes that “rapidly aging populations in euroland figure to decimate working populations there and increase the governmental financial burden at a pace far faster than in the U.S.”

In addition to the U.S. having a younger population, the U.S. population works longer hours and later in life. The AARP ‘Profit From Experience’ report (link) included data showing that the U.S. workers stay on the job longer than all other G7 countries other than Japan.

Combine these facts with reports that indicate that Boomers want to stay on the job even longer, and the U.S. competitive advantage could grow even greater. What is needed is a continuing thrust to make sure that outdated policies and practices do not stand in the way of Boomers staying on the job when they would like to do so. For instance, EBRI reports (link) that 37% of workers retired earlier than they had planned. Health, disability, and caring for family members were part of the reason. However, downsizing and obsolete skills were a significant factor. Work incentives and retraining could probably bring a lot of these workers back to being productive for society.
 

From the 1950’s to the early 80’s there was a constant trend toward earlier retirement. However, in the mid 80’s that trend gradually started changing. At a recent AARP International Profit From Experience Conference, Jan Denys, the Manager Corporate Communication and Public Affairs and Labor Market Expert, Randstaad, Belgium, noted this change in many countries and he suggested that governments and employers should “surf the trend.”

In many countries the trend to later retirement is a function of governments having to make the official date of retirement an older age. This is badly needed, as retiree social programs are severely testing government financial capabilities. However, changing the retirement age is meeting with mixed results. It is amazing that Sarkozy was elected in France with a key plank in his platform being that the French needed to work more. Across the border in Germany, the recent increase of the retirement age to 67 is being challenged (The Economist on 10/11/07, reported that 80% of the German voters want to roll back the government effort to get the retirement age up to 67).

In the United States, The Congressional Research Service , on September 7, reported trends in labor force participation to Congress ( link). the low point for the percent of men and women 65 and over working hit their low points in 1985 (15.8% and 7.3%, respectively). For men 55 to 64 the low point of 66.0% was reached in 1995.

As the CRS report points out, there is no solid statistical analysis that provides solid reasons for this trend development. However, the author (Patrick Purcell) puts forth a hypothesis that one of the reasons is likely to be the significant switch in employer pensions from Defined Benefit to Defined Contribution (largely 401ks). The former is likely to penalize a worker for staying beyond a defined retirement age (differs by plan), while the latter provides more savings for retirement for those who stay on the job.

The author also notes that increasing use of ‘phased retirement’ could be a factor. This is tricky because, as the author points out, “No statutory definition of phased retirement exists.” Yet, several surveys report that what workers would like the most in order to stay on the job is flexibility in work schedules. Employers, on the other hand, are afraid of the statutory uncertainty of phased retirement programs. Therefore, the safest route is often to have employees retire, then apply for work as a consultant or contract worker.

The net is, it is very encouraging that more workers are staying on the job. The AARP surveys indicate that 70-80% of them want to. And that extra work is good for the employers and the economy as well. Employers and government should take advantage of this by ’surfing the trend!’