CHICAGO—It may seem a simple solution to the brewing U.S. retirement crisis: Get people to work until 70 before retiring and 85 percent will have the money they need for retirement.
They will save more during additional years in jobs and leave existing savings untouched while getting paychecks; plus they have fewer years in retirement to cover living expenses with their savings, noted Alicia Munnell, director of Center for Retirement Research at Boston College.
But despite the math that attracts economists and lawmakers worried about funding Social Security and Medicare, it turns out that it is not so easy.
James Poterba, an MIT economics professor, pointed to the problem at a Brookings Institution forum on the topic recently.
“Not everybody can work longer,” said Poterba, who is also president of the National Bureau of Economic Research. He contrasted workers in physically demanding or unpleasant jobs to economists in academic offices comfortably churning out studies on Social Security fixes.
While many professors cling to their jobs well into their 70s, research shows many people do not have that option.
The Urban Institute noted in a new study that about 10 percent of those over 50 had to leave their jobs because of health. But Urban Institute economist Richard W. Johnson, who studied work records of people over 50 in the federally funded Health and Retirement Study, said ageism is driving far more older workers away from their jobs, regardless of education, race, or gender.
Older workers also had trouble finding new jobs. Half had their income fall more than 42 percent, and only one in 10 ever earned as much as they had been making before losing their job. A third of those over 50 who lost jobs also had it happen again.
“Even now, when the labor market is tight, ageism is still there,” Johnson said.
Alternatives
While people may not make it to 70, economists recommended trying to work as long as possible. Stanford economist John Shoven has found that retiring at 66, instead of 62, can lift the standard of living by a third.One suggestion from Munnell to convince employers to keep older workers on the job longer: declare 70 the new full retirement age for Social Security instead of the 66-1/2 to 67 it is now.
Munnell explained that employers are sometimes afraid to hire people in their 50s because they fear that person will stay indefinitely to build up meager 401(k) savings. If the retirement age were 70, the employer would perhaps hire an older person, knowing the employee eventually would leave.
But raising the retirement age is a political hot potato, mostly because people in lower-income and physically demanding jobs would receive less money if they claimed Social Security earlier than 70. President Donald Trump has promised not to alter Social Security.
Another idea proposed by Stanford economics professor John Shoven and Robert Clark, a North Carolina State University economics professor, is to relieve employers and employees of paying payroll tax toward Social Security for workers over 62.
Currently, both employees and employers face a payroll tax of 6.2 percent of earnings up to $132,900. As more older people work, Shoven and Clark argue higher income tax receipts could offset Social Security’s lost revenue.
Yet, Steve Goss, the Chief Actuary of the Social Security Administration, does not think those savings would be passed along to workers in higher wages or to increase the labor supply of older people.
Also, if Social Security suffers a loss in revenue, younger workers might have to pay higher taxes, leaving them less able to save for their own retirement and perpetuating the cycle of the retirement readiness crisis.
