A popular myth is that because we live longer, we should work longer. But while Americans indeed enjoy longer life spans, a great many are not happy to be in the paid workforce. They are working not for the social or intellectual stimulation but out of plain economic need. They are working because America's pension system is collapsing -- and the more it collapses, the more older Americans will have to work.
Further, when financially independent retirees are not dependent on paid employment, it's good for the economy as well as for older people themselves. For one thing, secure retirement frees jobs for younger workers. For another, it helps maintain demand during economic downturns. And with both fathers and mothers of young children increasingly in the paid labor force, pensioners are a source of civic and volunteer energy for their communities.
Yet the prevailing wisdom is that old folks need to go back to work to ease the strain on retirement systems. Even some liberals are sympathetic to raising the retirement age. Under existing law, the age at which people can receive their full Social Security benefits gradually increases to 67 by 2012. Many proposals would increase it further, to age 70.
Two years ago, in response to outcries from senior citizens who were working or who needed to return to work, Congress changed the law to allow most people drawing Social Security to be in the paid labor force without sacrificing any Social Security benefits. Pre-existing policy reduced the Social Security check by $1 for every $2 of earned income, on the premise that retirement benefits should go to the retired. The change in policy is, in effect, a confession of policy failure. In today's economy, fewer and fewer Americans can afford to retire.
All of this is the reversal of a trend that began after World War II, at which time retirement was broadly institutionalized. What official policy has not yet done is already being achieved by the sagging stock market and by the erosion of private pensions. In February, after the high-tech meltdown but before the latest stock declines, The New York Times reported that 22 percent of workers in the 55-64 age group said they would have to work longer because of losses in their 401(k)s and other retirement accounts. The proportion planning to work longer rose to 25 percent for workers aged 65 and older. Indeed, earnings from work are the fastest-growing source of income to those who are ostensibly retired. This reality runs counter to the prevailing wisdom that the stock market has made 401(k)s the most important source of retirement and that Social Security was on the fritz.
In the last decade, Social Security emerged as the only reliable source of income for the elderly, while wage income emerged as the fastest-growing source. In 1984, 13 percent of income for the elderly came from earnings; the share rose to approximately 15 percent in the early 1990s, and, by 2000, $1 out of every $5 going to elderly households was derived from paid employment. At the same time, employer pensions and individual assets have become less important. The share of income to elderly households coming from these sources has fallen from more than 43 percent in the mid-1980s to 39 percent in 2000. Except for the top tiers, the largest source of income for the elderly continues to come from Social Security, and that percentage has stayed fairly constant, hovering around 40 percent.
Social Security, despite the efforts of its detractors, is becoming a more important source of income for households at the middle and bottom of the income-distribution bracket. University of California, San Diego economists Feora Friedberg and Anthony Webb show that the increase in 401(k)-type plans may be forcing people to work up to two years longer than they would have before.
The rise of employment among older men is fairly new. Between roughly 1950 and 1990, men secured steadily more leisure time during the last years of their working lives. Before 1980, men's labor-force-participation rates were falling faster their longevity was. In the 1960s, 1970s and 1980s, therefore, leisure time among older men was increasing. Recently, however, the rate of longevity improvement has slowed down while the movement of older people back into the labor force has increased.
In 1980, men who survived to age 65 were expected to live to age 79.1; by 1998, the expected age was 81, less than two years more. The rate of increased longevity is now about 1 percent per year. By contrast, in the 1970s, when heart surgery became widely available and Medicare started providing universal health care to those over 65, longevity was increasing by between 3 percent and 5 percent a year. In the 1970s, the rate at which older men worked for pay was falling by 15 percent per year on average. Today, the rate of participation in paid work by older Americans is increasing by about 1 percent per year. That means that longevity is no longer making up for the decline in leisure.
In other nations, however, the idea that older people deserve to retire is alive and well. In one study, which surveyed a sample of 16 nations, older men and women decreased their paid workloads in every country but the United States, Argentina and Sweden. It's a telling group: Argentina is an economic disaster; Sweden is a model welfare state with a deliberate policy of making part-time work available to seniors, so that older people have the option of integrating work and leisure; and the United States is a case of failed retirement policy -- except for Social Security (which is reliable but not adequate by itself). Another study showed that men over age 65 were also working more in South Korea and Denmark. These studies both show that older Americans' work efforts are among the world's highest.
If some older Americans choose to keep working, that is, of course, their personal option. America, uniquely, prohibits employers from practicing age discrimination. But what we gain in discrimination protection should not be diminished by insecure pensions. It is a failure of national policy when more and more of the elderly have to work out of sheer economic necessity. If we want retirement to be available to most Americans, as it was during the post-World War II boom, we need major policy changes so that all working Americans will have secure pension plans as complements to Social Security -- and to shore up Social Security as the anchor of the system.