The Times reports today on an under-appreciated reality: the private retirement system has the affect of choking off employment growth because it delays retirement -- in fact, four in ten workers over 62 have delayed their retirement because of the recession. In other parts of the developed world, people are retiring as planned, because of relatively flush state and corporate pensions that await them. But here in the United States, financial security in old age rests increasingly on private savings, which have taken a beating in the last year. Prospective retirees are clinging to their jobs despite some cherished life plans.As a result, companies are not only reluctant to create new jobs, but have fewer job openings to fill from attrition. For the 14 million Americans looking for work — a number expected to rise in Friday’s jobs report for August — this lack of turnover has made a tough job market even tougher....“One unappreciated side effect of the 401(k) system is that it’s a sort of reverse automatic stabilizer,” says Teresa Ghilarducci, an economics professor at the New School.The article goes on to compare the American system to the European, which is based on state pension funds. There, people in their early sixties are able to retire with a much higher percentage of their old salary than in the U.S, while here, one-in-three people between ages 65 and 69 were still working. Part of that may be differing approaches to work-life culture in the U.S. and Europe -- I'm certainly excited about working until a very Rumsfeldian retirement in my early seventies -- but a large part has to do with economic realities: it's just much harder and less efficient for individuals to manage their retirement than pension funds, whether they are corporate or public -- see the large percentage of individuals who maintained risky investment portfolios even as they neared retirement ages. This has consequences beyond the individual, by dampening job availability. I'm not sure quite what the solution to this problem is, but it is clear that the strange patchwork retirement saving approaches that have sprung up since the collapse of the corporate pension system needs a rethinking. I'm not all for the massive state pension system of our Continental friends (though I suppose I could be convinced) but it seems that we're erring a little too much in the other direction here in the U.S. This will all come up whenever the government decides to address the minor problems in social security; Obama folks hint that it will come in the latter half of this term. I look forward to town hall protesters telling members of congress to "keep your government hands out of my social security, goldarnit!"
-- Tim Fernholz
