Monday, January 13, 2014

Rethinking retirement - part 1

Is retirement a concept whose time has come and gone?

Prior to the twentieth century, few people retired. Lives were shorter, people had less money, and pension schemes were non-existent. The affluent few could, and sometimes did, pursue a life of leisure from maturity onwards. Everybody else engaged in productive labor (generally unpaid for women) until death. The unemployed – whether unemployed because of ill health, disability, disinterest, or another reason – depended, after exhausting any meager savings that they might have had, upon their family's generosity or community charity to stay alive.

In the twentieth century, improved nutrition and medical care first in developed nations and then elsewhere has resulted in people living longer. Concurrently, agricultural and industrial technological advances created unprecedented wealth. The idea of a brief season of leisure (aka retirement) following a lifetime of hard work appealed had broad popular appeal. An additional benefit of workers retiring was to make room for the next generation of workers. Another benefit of retirement was that it allowed workers who, because of physical or mental limitations caused by health problems or age, were no longer as productive as in their prime to exit the workforce gracefully without facing abject poverty or life as a dependent, many times unwanted, of family members.

In the United States, the federal Social Security program, established in 1935, represented a radical break with the past. New Deal Democrats and their political allies believed that citizens, after a lifetime of productive labor, should enjoy economic security in their last few years without needing to work. Corporations and other enterprises similarly established pension schemes to aid in attracting and retaining good workers. Sold as an investment plan (i.e., benefits paid in will fund benefits that the payee subsequently receives), Social Security has in fact always been a wealth transfer scheme in which current workers fund the benefits of current retirees. This approach benefitted the elderly in 1935 and uses inflation-adjusted dollars received from workers to pay inflation-adjusted benefits.

The idea of retirement as a right and benefit to which workers are entitled spread quickly, becoming deeply embedded in popular thought and cultural norms. Great increases in economic productivity, workforce size (especially from women joining it), and wealth fueled higher expectations for retirement. Corporate and government pension schemes, many times integrated into labor agreements, legitimized and reinforced those ideas and expectations.

Then things changed. Longer life spans – a good thing – meant that most people would work a smaller percentage of their adult years and spend a larger number of years retired. Healthcare improvements meant that people lived longer often with diminished abilities but also skyrocketing costs. Economic growth slowed and the size of the workforce plateaued. A growing number of businesses and governments discovered that they had promised more in retirement benefits than they could possibly pay.

Despite unending encouragement for people to save for retirement, saving never gained sufficient traction; too many people spent what they earned, saving little or nothing for the future, further limiting the economy's capacity to grow. The collapse of the housing bubble popped a widespread illusion of wealth, leaving many homeowners owing more than their house was worth in the current market.

By the early part of the twenty-first century, the prospect of retirement appeared to be an increasingly unrealistic possibility for expanding numbers of Americans, even persons solidly situated in the middle-class, the very group among whom the dream of retirement had held the most allure. Economic inequality is creating a chasm, difficult if not impossible for most to bridge, between the affluent 20% and everybody else.

Today, years into a torpid economic recovery following the Great Recession of 2007-2008, unemployment remains frustratingly high. Numerous individuals, unable to find work, have exited the workforce when they really would prefer to continue working. Social Security is financially troubled, although fixes are known and not that painful (cf. Ethical Musings Expand Social Security?). Members of the middle and lower classes – the 80% – are postponing or cancelling their expectations of being able to retire. The goal of economic survival in old age is rapidly displacing hopes of comfort and leisure.

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