Miércoles 23 de Mayo de 2007, Ip nº 192

This Is Not Your Father's Retirement
Por Lydia Saad

Americans are redefining what retirement means for them, and the new definition includes part-time work. Much of this revolutionary change in attitudes is forced on baby boomers and Generation X by doubts about the future solvency of the Social Security Trust Fund. Also, according to Federal Reserve Board statistics, Americans are not saving nearly enough for their own retirements. But all this could come with a silver lining for the economy if retirees develop into a new class of productive workers.

According to Gallup's annual Personal Finance poll, conducted April 2-5, 2007, nearly three-quarters of nonretired Americans say they plan to rely on income from part-time work after they "retire," to help fund their golden years. This includes 21% who say part-time work will be a major income source for them, and another 52% who say it will be a minor source. By contrast, less than a quarter of current retirees rely on part-time work for their income today, including just 3% who say it is a major source.

Fiscal Outlook Shaky for Many Americans

Roughly three-quarters of Americans -- including those who are retired and those not yet retired -- say they have enough money to live comfortably at present. But nonretirees are far less positive about their financial futures. Barely half say they expect to have enough money to live comfortably when they do retire; 4 in 10 are doubtful they will have enough.

Looking Beyond Social Security

The reason for this gap in financial uncertainty between retirees and nonretirees seems clear. While most Americans, retired or not, expect to receive some Social Security benefit, more than half of current retirees say Social Security is a "major source" of income for them. As a result, Social Security is far and away their most important funding mechanism. By contrast, slightly more than one-quarter of nonretirees expect Social Security to be a major source of income in their own retirements.

A variety of financial options replace Social Security as either a major or minor source of potential retirement income for them. Most commonly mentioned are retirement savings accounts (such as a 401(k), IRA, or Keogh plan), other savings, home equity, and part-time work.

Seventy-nine percent of current retirees say they own their own home, but -- in contrast with pre-retirees -- only 45% plan to rely on the equity they have earned to fund their retirement to any degree. The potential of that untapped wealth going to their heirs could partly explain why a fairly large segment of nonretirees (36%) are counting on inheritance money to help see themselves through.

Full Retirement Also Delayed

According to the self-reported retirement age of the retirees surveyed, the average age at which current retirees stopped working is 60. Nearly 70% of current retires retired before turning 65, while only 27% retired at 65 or older. By contrast, the average age at which the nation's pre-retirees expect to retire is 64. A full majority (57%) of nonretirees say they will retire at 65 or older.

Certainly, some of these differences reflect changes in Social Security laws that have delayed the age at which Americans are eligible to start receiving full benefits, phasing this in from 65 to 67. But they may also reflect changes in societal norms about working longer, or the financial needs of retirees.

A 2006 report by the Urban Institute argues for further encouraging retirees to delay retirement as the best solution for addressing fiscal problems in the Social Security's system:

"When to retire is one of the most important choices most workers will make --significantly more important than whether to invest their 401(k)s in stocks or bonds. Working longer improves retirees' long-term security. For society, the additional work years can improve economic productivity, generate additional payroll and income tax revenue, and reduce the Social Security deficit. Future Social Security reforms should consider that workers do better when work is encouraged and worse when only benefit cuts are involved. ("Working For a Good Retirement," Oct. 26, 2006)"

The difference between retirees and pre-retirees part time work experiences or plans makes clear that today's workers are much more comfortable with the idea of working into their retirement years than their parents would have been. This could ease political resistance to future proposals to delay the normal retirement age even further, or to increase the penalty for early retirement.

However, while many Americans may be resigned to working in their retirement as a financial must, they don't necessarily embrace the idea. When working Americans are asked what they would prefer to do in their retirement, 49% say they would like to continue working; an equal proportion would like to stop working altogether. Notably, of those who want to keep working, only a small fraction say they would want to maintain a full-time job; most would prefer to work only part time.

  14/05/2007. Pew Research Center.