Baby boomers will change retirement

Current congressional debate over the budget deficit, taxes, entitlements and unemployment is largely driven by baby boomers. A baby boomer is a person born during the post-World War II period, from 1946 to 1964. During these years, a disproportionately large number of babies were born, presumably because of soldiers being reunited with their wives and girlfriends after the war.

According to the website History.com, more babies were born in 1946 than ever before: 3.4 million, 20 percent more than in 1945. In 1947, another 3.8 million babies were born; 3.9 million were born in 1952; and more than 4 million were born every year from 1954 until 1964, when the boom finally tapered off. By then, there were 76.4 million baby boomers in the United States. They made up almost 40 percent of the nation’s population.

The first of the baby boomers hit full retirement age, defined by the Social Security Administration as age 66 for their age group, in 2012. Most are expected to collect Social Security for 18 to 20 years beyond their 66th birthday, which means the group will draw Social Security benefits until about 2050.

Politicians want the government to reduce spending yet pay the same retirement standard for boomers as their forebears received. Kenneth S. Baer and Jeffrey B. Liebman, in an article in The New York Times online titled “The Baby Boomer Bump,” stated that politicians are proposing government spending caps as solutions, which ignores the fact that “you cannot repeal the aging of the baby boomers.” Just as boomers place a burden on Social Security, Baer and Liebman say, “they are also driving increases in disability payments as more knees give way and backs give out.”

When the Social Security Act was passed in 1935, average life expectancy was 61.7 years. The act was meant to ensure that an elderly person who lived beyond average life expectancy would have financial security in the case of a lost job or disability, according to the history of the Social Security Act on the Social Security Administration’s website, www.ssa.gov. The act was not intended to provide a planned retirement.

Today, despite the fact that seniors are living much longer than they did in the 1930s, most of the public considers the Social Security system a “sacred cow” that should not be touched by budget cuts. But if the boomers, having been born over a period of 18 years, then collect benefits for an average of 18 years per person, the Social Security system will go bankrupt. Something must change.

What many Americans don’t realize is that the age at which they may begin collecting full retirement benefits already has changed, but perhaps not fast enough. The Social Security website states that the “full retirement age” had been 65 for many years. Because of reforms enacted in 1983, for those born in 1938 or later, that age gradually increases until it reaches 67 for people born after 1959 (see chart).

In “How Changes in Social Security Affect Recent Retirement Trends,” a paper published by the National Bureau of Economic Research, co-authors Alan Gustman and Thomas Steinmeier find that “changes in Social Security rules have changed the shape of retirement.” In fact, Gustman and Steinmeier say, “One of the main reasons for enacting the 1983 Social Security reforms in the United States was to increase the labor force participation rate of older workers.”

The government cited better health and longer life expectancy when enacting the 1983 Social Security reforms. There is a life expectancy calculator on the Social Security website. The average adult who is age 60 today can expect to live to about age 85, according to this calculator. It is clear the government wants to be in the business of keeping Americans working longer.

Some boomers work past full retirement age either because their pension plan at work was frozen and turned into a 401(k) or because they are supporting younger, possibly unemployed family members. Boomers may delay retirement because they just can’t make ends meet in this economy on what they would get from Social Security, and some of them stay in the workforce because they enjoy their work.

One of the oldest generations still living, called traditionalists or veterans, those born from 1922 to 1945, are facing the same challenges as the baby boomers, according to an article titled “Managing Varied Generations in the Workplace,” posted on Investopedia’s website, www.investopedia.com. Managing generations in the workforce can be hard, whether in the office or in families.

Boomers make headlines because they are a bigger group. Boomers are followed by Generation X, or Gen X, which includes those born from 1965 to 1980. Gen X is followed by Gen Y, those born from 1981 to 2000.

According to Emily Brandon, in an article for US News online , boomers have seen their pensions frozen and turned into 401(k)s. In addition, multigenerational households are becoming more commonplace.

According to the Pew Research Center, households with two adult generations or a grandparent and at least one other generation are increasing in numbers. Boomers who haven’t saved for retirement will likely change careers and work a different or part-time job well into their later years.

But this policy of keeping older Americans at work later in life may not pay off for younger Americans. Unemployment statistics are clear. In general, the least educated are the least employed. Younger workers fresh out of high school or even college find it hard to get employment. Gen Y unemployment statistics might have something to do with the fact that their grandparents are still employed instead of retired.

In January , David Morgan of Reuters wrote about increasing the retirement age in an article titled “US business executives call for raising retirement age to 70.”

“The Business Roundtable, which represents more than 200 chief executives from some of the United States’ largest companies, recommended that Congress raise the retirement age to 70, among other changes,” Morgan wrote. “This strategy for ‘modernizing and protecting our social safety net’ would save $300 billion in Medicare spending over the next 10 years, make Social Security solvent for 75 years and help foster stronger economic growth, the group estimated.”

The problem is that setting the retirement age at 70 does not ensure that people will be physically able to work that long. Jeffrey M. Jones of the Gallup Poll, in an article titled “Expected Retirement Age in US up to 67,” says that the average nonretired American expects to retire at about age 67. Perhaps some people have looked at the Social Security Administration’s website and taken a clue.

Jones offers another telling statistic: Gallup reports that the age at which people expect to retire is not the age they actually retire. This is not a surprise. Gallup finds the actual retirement age has crept up from 57 in 1991 to 60 in 2004, and has generally held there since.

The results appeared in Gallup’s annual Economy and Personal Finance survey, conducted April 9 . Overall, 26 percent of nonretirees expect to retire before age 65, with 27 percent expecting to retire at age 65 and 39 percent after age 65. The percentage that expect to retire after age 65 is up from 21 percent in 2002 and 12 percent in 1995.

As government considers the problem, politicians might take note that Gen Y, the generation after Gen X, is bigger than the baby boomers. According to 2010 Census data published by the Society for Human Resource Management , although boomers were 40 percent of the population when they were born, the percentages are now as follows: veterans/World War II generation, 13 percent; baby boomers, 26.4 percent; Generation X, 19.8 percent; and Generation Y, 27.7 percent. Social Security may get a breather with Gen X, but it will need to be even stronger if Gen Y is to collect full benefits.

In the meantime, since changes to the Social Security system don’t take effect for years after they are announced, individuals should plan for themselves. Here are some suggestions from the Labor Department and Dr. Mehmet Oz, who has a syndicated newspaper column and TV show.

n Start saving, keep saving and stick to your goals.

n Learn about your expected retirement needs. Will your home be paid off? Is it possible to share a living space with your children? Will you need to help with grandchildren?

n Contribute to your employer’s retirement savings plan, usually a 401(k). Put in whatever you can.

n Eat a healthy diet, get enough sleep, exercise and get medical checkups.

n Learn about your employer’s pension plan. How many years until you are vested? What happens if you change jobs?

n Consider basic investment principles. Know how your pension plan is invested. Put your savings in different types of investments. This way you can minimize risk.

n If you have a medical condition, work with your doctor. Ask if there is anything you can do with your diet that will help as well.

n Don’t touch your retirement savings.

n Find out about your Social Security benefits. Benefits are on average about 40 percent of what you earned before retirement. Visit www.ssa.gov or call 800-772-1213.

n Consider an advance directive, a living will and/or a financial will.

n Ask questions. Ask your employer, your union, your bank, your financial adviser, your doctor and perhaps your lawyer.

Many baby boomers saw their pensions frozen and turned into 401(k) programs. Some of them are supporting younger generations. They will live longer than previous generations and will likely be the generation that redefines retirement.

If so, they will be the example Gen Y will either follow or bemoan. Let’s hope they do it well.