The bad news is that most of us will need to work longer. The good news is that, if we do it right, most of us will want to.
Retiring at 65 or even 67 is just not realistic for most people’s finances — or the government’s. So both the public and politicians need to give up on the idea that each successive generation is entitled to a longer retirement than the last. Instead, the US needs to rethink not only the labor market but also the very conception of work. In the new economy, many Americans will work well into their 70s.
As the IMF’s latest World Economic Outlook makes clear, in the long term the US can expect slower growth and higher debt. The slower growth comes from a shrinking, aging work force and declining productivity. The higher debt comes from more spending commitments — in large part to help care for the older population.
Fortunately, there is an obvious solution staring us in the face: Almost everyone can work longer. This would increase growth by expanding the size of the labor force, potentially boost productivity, and lessen the financial strain from greater entitlement spending.
Working longer makes sense on a more individual level as well. One study estimates that delaying retirement by just six months is the equivalent of saving an additional 1 percentage point of your earnings for 30 years. Work can also improve the quality of people’s semi-retirement, because socialization and a sense of purpose have been found to be key factors encouraging healthy aging and quality of life.
And people are working longer. The share of people over 65 still in the labor force has increased over time, although it dipped below 20% during the pandemic. Ideally, it should be closer to 50%.
So if working longer has such clear benefits, why is it so unpopular — not only among French union members but also US presidential candidates? One argument against later retirement, as my colleague Matthew Yglesias has noted, is that many people, especially low earners, have physically demanding jobs and are simply unable to keep working past a certain age. These workers also tend to die younger, so increasing the normal retirement age amounts to a regressive benefit cut.
But it is nonsensical to argue that the retirement age should not be raised just because some people can’t retire later. A move to a service- and technology-dominated economy means more jobs than ever can be done into old age. And most people are living longer and healthier.
A better solution is to keep the early retirement age at 62 and allow people who need to retire then the option to claim disability to supplement their income so they can still retire early. Then increase the normal retirement age for everyone else, currently 65 to 67, by indexing it to life expectancy.
There would still be the problem of age discrimination, of course: Even if people are willing to work longer, it is harder to find work or stay employed. Older workers tend to cost more and are often presumed to have a harder time learning new skills.
But this problem can be overcome with a combination of policy and cultural changes. Andrew Scott, a professor at the London Business School, recently published a manifesto on healthy aging. He argues work is critical to making an aging society viable, and it can improve everyone’s quality of life. But it requires rethinking work and training and finding ways to use technology to enhance the productivity of older workers.
Work may look very different as we age. I encourage my parents (in their 70s and still working) to work less by phasing out, if possible, the aspects of work they find most aggravating. Both are self-employed, so they have that flexibility. But technology is now offering a similar option in many jobs. Older people tend to have higher rates of self-employment — much of which is assumed to be gig work, from driving an Uber to white-collar consulting.
In the future, retirement may not mean stopping work completely. Instead people will just work fewer hours with a more flexible arrangement, perhaps as consultants rather than employees. This can also help address age discrimination, because it would allow employers to hire elderly people without committing to a high regular salary or benefits. At any rate, if America’s current labor shortage continues, employers may have no choice but to get over their resistance to older workers.
Public policy can also make older labor more appealing. If the government subsidized Medicare Part B premiums for those over 65 who use Medicare but are still employed, for example, employers would not have to provide health care for people over 65 — making their overall compensation more competitive. Another possibility is offering tax incentives for hiring older workers, even on a part-time basis.
The larger question, though, is how long people will want or need to work. Now they retire in their 60s, but the new norm needs to be the 70s. Scott sees us living to 100 and staying vital for decades into our old age. That would be nice. But then the question becomes one not of personal preference, but of personal health. As one retirement expert recently said to me: 70 may be the new 50, but 80 is still 80.
A message from Advisor Perspectives and VettaFi: To learn more about this and other topics, check out our podcasts.
Bloomberg News provided this article. For more articles like this please visit
bloomberg.com.
Read more articles by Allison Schrager
