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June 5, 2012

Retire at 80?

In 1935, when the Social Security Act was passed, the average American lifespan was 61.7 years.

Today, it’s 81.7.

Suddenly, keeping the retirement age at 60 doesn’t make much sense. Or so says AIG Chairman Robert Benmosche, who favors increasing the retirement age to 80. An economy with a rapidly aging workforce can only survive, he argues, if it “keeps pensions and medical services affordable . . . [to] take the burden off the youth.” This means pruning the roster of costly retirees.

Now, coming from an executive whose firm was bailed out by U.S. taxpayers in 2010 and who is speaking from his “seaside villa in Croatia,” these comments might seem a bit, well, rich. A Wall Street fat cat like him would not feel the brunt of such retirement age hikes in the same way the average American would.

But, to get beyond the snark, Benmosche has a point: the retirement age needs to evolve. We are living longer, healthier lives than ever before, and this welcome development has had unwelcome consequences for the budgets of our social welfare programs. Baby Boomers are reaping the rewards of the benefits they voted into being, while prospects for young workers continue to flag. Very soon, the numbers won’t add up, and we will face a choice between reforming benefits and the retirement age or burying the country’s workforce under mountains of increased taxation.

These wars against the young and against arithmetic are undesirable and unsustainable. If European and American pensions and social security benefits are to continue, we will eventually have to link national retirement ages to expected longevity. This doesn’t mean we should do it all at once; reforms should be gradual and made with sensitivity to current and prospective retirees, who have planned their lives based on the old system.

But the reforms must be made. One way or another, change is coming.

Posted in Blue Social Model, Quick Takes
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  • thibaud

    Retire at 80? Sure! You go first, Messrs Benmosche and Mead.

    The way out entails a slight increase in the retirement age + means-testing of benefits + a huge push to get companies to hire, and find ways to maintain the productivity of, older employees.

    Re the latter, you can’t get around the fact that older people are much more expensive because of their healthcare needs. It is foolish and self-defeating for a society that wants to increase hiring to saddle employers with the burden of paying for their employees’ health insurance.

  • vanderleun

    I suspect that for most Americans to “get beyond the [Benmosche] snark” would take Hellfire missile from a Predator drone targeted on Benmosche’s commodious backside.

  • Heather

    Retiring at 80? Maybe except that most employers won’t want employees in their late 60′s and 70′s and we’ll get the complaints that the older people are holding onto jobs that would go to the young. There is no way to win at this.

    Since the majority of Baby Boomers are not yet retired and not yet “reaping the rewards”
    there is still time for change. Anyhow, most workers under 60 in the private sector do not have pensions so they’ll probably be working as long as they can anyway.

  • http://www.martinkramer.org Martin Kramer

    Stephen Cave gives us the needed perspective:

    “In recent times. life expectancy in the developed world has continued to increase at a rate of about two years every decade–i.e., those born in 1990 could expect to live two years longer than those born in 1980. But only one-quarter of this additional time is spent healthy. In other words, of those additional two years, eighteen months are spent in ill health or disability. We are living longer, but we can all expect to spend many of those extra years unable to wash or dress ourselves, unable to recognize loved ones, our senses fading and our strength gone. The brutal fact is that increasing survival rates from the deadly infections of the past means keeping people alive long enough to develop the much more lingering diseases of modernity…. It is not so much living longer as just dying slower.”

    Longer lives, yes. Healthier? That’s the problem–and where the big costs lie: not in pensions, but in health care for all those extra years.

  • thibaud

    re #2, ironic that the only time that Via Meadia even mentions the thieves and charlatans in the finance sector who cratered the world’s economy is to praise their ideas about … pensions.

    If, as Mead recently wrote, the job of “good media” is to distinguish between news and noise, when it comes to financial and economic matters, VM is failing his own test.

  • thibaud

    @#4 Martin Kramer – bingo. The pension crisis is epiphenomena.

    The issue of issues for the US is healthcare.

    What’s crushing American budgets isn’t greedy/lazy/reality-denying pensioners but the drag on economic growth that results from a convoluted healthcare non-system that allocates extraordinary resources to end of life treatments and to for-profit insurers’ administrative waste (and profit margins).

    Welcome, btw, Mr Kramer.

    Here’s hoping that more fact-based and insightful analysis such as yours finds its way into these comment boards.

  • http://inthisdimension.com alex scipio

    I’m confused. If we retire at 80, 15 years later than now, then we are preventing 15 years of employment of our kids by keeping our jobs longer.

    If we retire at 80, given the acceleration of technology and the inability of old dogs to learn new tricks, how, exactly, will we continue to progress into the Information Age with the bright, fresh, eager, newly-educated grads not finding work because WE are keeping our jobs 15 YEARS longer?

    I get that we are living longer, and understand how that has an impact upon retirements monies from whatever source.. but staying in the job market well past our cognitive prime .. well I can’t see how that is good for the country, the economy or the nation’s future.

  • Gitai

    Basic statistical error. The figures given are life expectancy at birth. Since infant mortality was much higher in 1935 than today, it looks like a stunning contrast. A better comparison is life expectancy at 25.

  • JKB

    30 years of unemployment living out of the trash? Well, maybe not that much but I know quite a few people, men especially, who lost their jobs in their early 50s and couldn’t get hired to save their life. Or they could just get by till they reached 65.

    Oddly, over 65 gets more hires since the healthcare costs don’t come with them.

    So the crowing about retiring at 80 is idiotic. Until:

    more jobs than young workers entering the workforce are created every year

    Some way to keep those who lose their jobs, well I guess it would be in midlife, 50s, can be found work

    And a lot of older people are healthier but not to the extent of keeping a full time job.

    A increasing range would be rated disabled if they had to find work.

    So let’s apply a little critical thinking and not seek to apply be edict what is implausible in reality. These things sound good but are the product of untrained minds or they would work out the requirements and consequences of their foolish thoughts over the whole of life experience before publishing them.

  • John Burke

    I hate it when people use misleading or irrelavant statistics and it’s really disappointing to see Mead doing so.

    The reason why life expectancy was 61.7 years in 1935 was that far more people died in infancy, succumbed to childhood illnesses in their early years, and were more vulnerable to fatal illnesses of middle age like stroke and heart attack. The relevant comparison would be to life expectancy in both years at age 60 or 65 or 70. We have added some years at the older end, to be sure, but the difference is by no means dramatic.

  • Jim.

    @alex scipio-

  • Jim.

    @alex scipio-

    The secret to youth employment is not firing older workers, but legal structures and an entreprenurial culture that allows and encourages younger workers to found their own companies.

    @thibaud-

    Whoever provides your paycheck, one way or another, provides your healthcare budget. There’s no way to get around that. Even blatant intergenerational theft runs up against that same reality.

    It blows me away that otherwise intelligent people believe so devoutly that government money (like, say, subsidized health care) is magic money that doesn’t have to come from somewhere.

  • Gerald

    This whole “sound bite” of the “war against the young” has moved from being trite to being offensive. I am 68 years old, and have not declared nor do I wish to declare war on the young. My life expectancy at age 66 when I as eligible for social security was to reach 82 years old – a span of 16 years. I can assure you that the amount of social security that I and my wife will receive in that time is far less than I paid, and 85% of that is taxable income. If there was a “war”, it was and is waged on those who pay for others, and I fail to see how that is limited to the young. In our current economy we spend large sums on pre-school care, primary and secondary education, and many other programs to benefit the young. Those are paid for by taxpayers, a significant number of whom are like me. If you wish to advocate elimination of social security, medicare, et al for people who have funded it in the past, then say so. I’m OK with that if you can tell me how at my age I can purchase health insurance. But please stop with the juvenile “war against the young” trope.

  • RSC

    thibaud @ 1: So if we don’t saddle employers with health care costs, whom do we saddle with them? Would that be taxpayers? Or do we just withhold end-of-life care? That won’t be too popular, either.

    Martin Kramer: I don’t know Stephen Cave, but it seems to me that a two year per decade increase is pretty significant over time. A ninety-year-old today would have experienced an increase in life-span of 18 years. Are we to believe that 75% of that gain is now spent in hospital? That contradicts most of what I’ve read.

    And, everybody, people who work don’t take jobs from somebody else. Working creates wealth which creates growth and more opportunities for employment. Did all those women who went to work in the 70s and 80s steal jobs from somebody else?

  • Kris

    alex@7: Heh. (That is the correct response, yes?)

  • John Burke

    To underscore my comment above, average US life expectancy for people who reach 65 years of age in 1940 was about 13 years. Now, it’s about 17 years — a significant but still modest increase of about four years but far less than the 20 years that Mead’s use of life expectancy at birth data misleadingly suggests.

    Social Security is under pressure due to the unusually large “baby boom” generation, not because of life expectancy. Even that pressure would be greatly relieved if we had not had the cut of two percent in the FICA tax, and a small increase in that tax along with continued curbing of “cost of living” benefits increases would make the system financially sound for many decades.

    Several commenters point out correctly that Medicare costs are much more problematic than Social Security. However, this does not mean that radical cuts in coverages that would limit access to care are necessary. Beneficiaries can and must pay more — through higher premiums for Part B, higher Part A deductibles and Part B copays that would have to be covered by more expensive but private Medigap policies, and a rollback of Obamacare’s added Part D donut hole coverage. Lower income Medicare beneficiaries are covered by Medicaid for gaps in care, and most other retirees can afford to pay more for the care they choose to obtain.

  • thibaud

    What’s the retirement age in Ghana, Mr Mead?

    Surely there are lessons from the Ghana Miracle that you can apply here, no?

  • Jacksonian Libertarian

    The Leftist Democrats have refused the Right’s attempts to fix Social Security for over 30 years now. What is needed is a system like Chili’s that involves personal and self directed retirement accounts, but the leftists refuse to consider any changes. Chili’s system is responsible for that nation’s superior economic performance since its inception over 30 years ago, because of the massive increase in capital available for growth.

    “There’s a reason it’s called Capitalism; it’s because Capital is what fuels it.” Jacksonian Libertarian

  • Corlyss

    All I can say is, “Good luck with that.”

  • Corlyss

    @ Gerald

    It’s not up to you. You and I have no control over the policy that seeks to buy our votes with promises of more entitlements forever, paid for out of current accounts.

    It’s the “current accounts” that make it a war on the young. If your payments into SS had been put in a lock box, you might have supported yourself in your retirement, but for sure we all would have enjoyed a lower standard of living because the money would not have been put back into the economy at the time. That was why even though originally drafted to be enforced savings accounts, the government quickly realized that the SS program was locking up significant amounts of money that was not recirculating to support the economy. They made the change within a year or two of the beginning of SS. It’s too late now to change. Just ask AARP.

  • thibaud

    @#14 – Riddle me this: which risk pool is going to offer the greatest dispersion of risk and lowest administrative cost?

    a) a risk pool of 1,000 company employees concentrated in a few locations within one state

    b) a risk pool of 100,000 company employees scattered across many states, all of which have different regulatory regimes

    c) a risk pool of 300,000,000+ citizens under one regulatory regime.

    You can do the math, can’t you?

    Btw, to repeat: the c) public _option_ wil co-exist with supplemental private insurance purchasable nationwide.

    Works well in that large, diverse, advanced federal republic that is Germany and can work well in ours – provided, of course, that our political elites summon the will to finally face down the for-profit health insurers and advance the national interest.

  • http://www.reticulator.com The Reticulator

    “War against arithmetic.” I steal that phrase.

  • justaguy

    While some comments are close to a reasonable mathematical analysis, none get an A. The baby boom is a cash flow issue caused by the current account basis, not an artifact of longer life. A system that takes funds from working age and pays out in retirement has changed by the increase in odds of living to 65 years and collecting. Three statistics explain some of the issues: 1) The life expectancy if one reached working age (18 in 1930′s and now mid-20′s)– how many people pay in and do not make it to retirement age (greater now than ion 1930′s); 2)The life expectancy on reaching age 65 — how many years of retired life drawing SS (almost the same); and lastly, 3) The average working period for those who live to age 65 and get benefits — do we work as long, longer or not?(We work considerable less!)