Every week seems to bring yet another report about how much trouble we will have setting aside enough money for retirements that are now projected to last for 20 or even 30 years for millions of Americans.
While retirement planning is naturally focused on older people, in many respects, the die is cast for Americans already in their late 50s or 60s. They can keep working longer, save more money and cut spending – and this surely will help. In many cases, their retirement outlooks are clear.
But restoring the promise of a long and comfortable retirement is increasingly a younger person's journey. People who are still decades away from retiring have enough time for even modest spending, savings and investment changes to result in enormous swings in their retirement prospects.
Last week, retirement experts and researchers met in Washington for the 15th annual Retirement Research Consortium. Sponsored by leading university retirement centers, the two-day meeting included the presentation of more than 20 research projects – supported with funding from the Social Security Administration – that looked at various aspects of retirement, including the financial, health and employment profiles of older Americans.
These issues were primarily cast as concerns for baby boomers and for policymakers in government, social service agencies and the private retirement industry. However, most of the topics are equally vital to the retirement futures of younger people. Retirement may seem a long way off for people in their 20s and 30s, but the requirements for successful retirements should be a present-day concern for younger and older people alike.
Based on research presented at the Retirement Research Consortium, here are seven ways retirement should be viewed as a young person's issue:
1. Social Security reform. There is perhaps no wider gap today than the perceptions about Social Security's future held by younger Americans and economic experts. Younger people believe the program will not be there for them when they retire. Experts overwhelmingly think it will remain a crucial component of the nation's retirement system, but that it does need attention to erase deficits and return the program to long-term financial sustainability. The last time the program was overhauled was in 1983.
Alice Rivlin, a former vice chairman of the Federal Reserve who sat on President Barack Obama's budget reform commission, previously pushed for Social Security reforms as part of a broader budget deal. But that didn't happen, and now she sees it as unlikely. "Everybody's exhausted," she said during a talk at the consortium meeting, explaining that Congress can't agree on a solution and federal debt has receded as an imminent crisis. She said she now favors the creation of a presidential commission, which was the approach taken with the 1983 changes.
Numerous changes to Social Security have already been extensively studied. Rivlin said a commission could adopt "a little of this, a little of that, and get the job done," but it should be done quickly. "Let's get it over with," she said. "My hope is, we just do it."
2. Psychology and framing. Social Security benefits can be received as early as age 62 or deferred until age 70. Each year benefits are delayed, they rise by 8 percent a year plus an annual cost-of-living adjustment. Citing substantial gains in longevity and longer retirements, most experts recommend that people defer benefits as long as they can to increase their retirement incomes. Yet this advice has not been widely followed, and many people continue to file for early benefits.
At the meeting, experts discussed how retirement decisions can be dramatically altered by the way information is presented. In a study about factors that determine when people claim benefits, Suzanne Shu, a University of California–Los Angeles researcher, asked people how long they thought they'd live. She found that when people were asked what age they expected to live to, their answers were 10 years higher than when they were asked what age they would die by. As a result, experts concluded that careful attention should be given to how Social Security claiming information is framed.
3. Debt. Most studies of retirement sufficiency look at post-retirement incomes and financial assets. Increasingly, however, people are amassing debt that carries over into their later years, and this trend highlights a need for different retirement models and advice. Barbara Butrica of the Urban Institute in Washington, D.C., documented the growing exposure of older Americans to debt problems and found that older adults with debt are more likely to continue working and less likely to receive Social Security benefits than their peers without debt. She said new research is needed to include the costs of servicing debt to augment traditional income-replacement models of retirement adequacy.
4. Longevity and inequality. People with education and financial resources are living longer, but less-educated and lower-income groups are not. According to research presented by Barry Bosworth of The Brookings Institution, this "differential mortality" is getting wider. These trends have enormous implications for changes to Social Security retirement ages and benefits. More broadly, they are a fundamental challenge to the nation's future quality of life, and younger generations need to push for leadership roles.
5. Unemployment and health. Losing a job at any age can be tough, but at older ages, the effects can literally shorten your life. Research presented by Phillip Levine of Wellesley College found that a worker who lost his job at age 58 could be expected to live three fewer years. Senior safety net programs – early claiming of Social Security at 62 and guaranteed health care under Medicare at 65 – apparently erase much, if not all, of this longevity impact. But more research is needed to pin down the health and longevity impact of recessions and job losses.
6. Age discrimination. The country has made great strides against racial and sexual discrimination, and younger generations are leading the way. However, age discrimination should be added to their list of concerns because their future careers may be affected by it. During the Great Recession, age discrimination laws were ineffective in helping older employees from losing their jobs, according to a paper presented by David Neumark of the University of California–Irvine. As Neumark stated, older people who became unemployed during the recession had more difficulty finding a job when the recession ended.
7. Annuities. Economists have long thought that rational individuals should select annuities to develop guaranteed streams of lifetime income. Well, they don't. And oodles of research has not developed answers or effective strategies to help people improve their decisions to generate retirement income. Behavioral research presented by Brigitte Madrian of Harvard University found that consumers like flexibility and control and thus resist locking up their funds in an annuity they feel provides neither. Consumers might respond more favorably to annuities that give them more choice and control. Olivia Mitchell, a financial literacy expert at the Wharton School of the University of Pennsylvania, noted that consumers need more effective education about longevity and inflation to make more informed choices about retirement options, including annuities.