FEATURE ARTICLE
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Older Workers and Elderly Workers
FEATURE ARTICLE |
Boomer Versus Buster Baby boomers will hit the traditional retirement age of 65 between 2010 and 2030. Most observers have assumed a mass exodus of boomers from the labor market. But should they? Though our traditional assumptions have not changed, the social, political, and economic landscape of America has. Those changes may have already rendered our traditional assumptions about work and retirement obsolete. The recent spotlight on Social Security and Medicare has focused considerable attention on the low personal savings rates among today's baby boomers. Low savings rates may require them to work well into their elderly years. For those reliant on employer-provided health care insurance, retirement benefit cut-back may necessitate a deferral of retirement in order to retain those benefits. For those who rely on Social Security for the bulk of their retirement income, Social Security system solvency may require raising the retirement benefit age to 70 or even higher. Additionally, many who reach retirement age continue to work not because of need but because of want. Today's older workers are generally more healthy, and many of today's jobs are less physically demanding than in the past. While the baby boom
phenomenon will eventually pass, there are questions about
its impact on the job market. The prospect of older-elderly
workers in the labor force will influence labor supply and
demand, wages and salaries, industries and occupations, and
more. These are just some of the many issues that
policymakers and administrators will have to address as baby
boomers steadily age and eventually decide whether or not
they want or can afford to retire.
BACK to Top A large population of non-retired older and elderly workers is seldom factored into existing labor force projections. The 1995 Washington State Long-Term Economic and Labor Force Forecast, co-published by the Office of Financial Management and Employment Security Department, recognizes a continuing demand for older workers, yet assumes that those same workers will mostly exit the labor force at the traditional retirement age of 65. Granted, that forecast only looks out to 2010, more noteworthy will be the projections to 2030; it is in this period where increased participation of older workers would represent a clear break with historical labor force patterns. These projections are of interest not only because of their implications for older and elderly workers, but also because of their implications for new entrants into the labor force. Some believe that the succeeding generation will be crowded out of the labor market by older-elderly workers; that the economy will suffer from an excess supply of labor, and that wages will fall. Others presume there will be a labor shortage in the future as baby boomers retire en mass and the baby busters prove too few in number to adequately replace them. Another perspective is that continued employment of older-elderly workers will have a calming effect on the future labor force; they will provide continuity within a labor force that would otherwise experience labor shortages. Older-elderly workers will
also have a significant impact on industries and occupations.
Many presumably will remain with the same employers and in
the same positions. To that extent, their impact would be
organizational; if in middle or upper level management
positions, they may "block" promotional
opportunities for younger coworkers. For older-elderly
workers who re-enter the labor force, their
impact may be more structural. Since older-elderly workers
often have diminished physical prowess, labor-intensive
industries would probably be least affected; services-
producing sectors would likely be the most attractive. Since
these sectors are projected to have some of the highest
job-growth, there is probably room to accommodate
older-elderly workers, though they will likely compete with
teenagers, low-income, low-skilled adults, and multiple
part-time job-holders for entry-level retail trade and
service positions. Alternately, some of that re-entry will
come from older-elderly workers who go back to school and
re-enter the labor force with new skills.
BACK to Top The U.S. population and work force are gradually aging-and they will continue to do so until the baby boom generation dissipates through natural attrition (see Figure 8) . The U.S. Bureau of the Census estimates that 62 million Americans-nearly one in every five Americans-will be 65 years of age and older by the year 2020 (see Figure 9) . It also estimates that the number of people age 50 to 65 will increase at more than twice the rate of overall U.S. population growth by the end of the century. In terms of the labor
market, older workers and elderly workers will number up to
78 million by the turn of the century. The number of older
workers and elderly workers will gradually assume a larger
work force share than new entrants-a pattern that has
historically been reversed. Workers 55 and older are the
fastest growing segment of the work force, and the median age
of the work force is projected to reach 40 by 2010. By
contrast, the number of new entrants into the work force is
expected to rise at less than 1 percent per year in the early
21st century. Employers will increasingly need older workers
given that the replacement work force will be inadequate to
fill the gaps that almost surely will appear.
BACK to Top Now that federal laws have eliminated most mandatory retirement ages, an individual's decision to retire is now based on health, adequacy of retirement income, financial status and retirement intentions of a spouse, peer-group pressure, need for workplace interaction and socialization, and family ties. One of the biggest misconceptions about the transition from work to retirement tends to revolve around the generational effect. The traditional view argues that individuals 85 years and older are high-risk in terms of physical and mental health, skills and ability. It further holds that those same individuals begin to see a gradual deterioration in their skills and abilities even earlier. Yet there is considerable evidence to suggest that generational risks have been greatly offset by continuing advances in medical and health care research and technology, and healthier diets and lifestyles. Because they continue to cling to the traditional teachings of the generational effect, many people not only underestimate their longevity, but also the positive quality of life that can accompany it. Barring unnatural death, it is estimated that the average American will live past age 70 if they are among today's retirees, and past age 80 if they are a baby boomer (see Figure 10) . This has tremendous implications not only on how long an individual may be capable of working, but also how much retirement savings they will need to carry them through the remainder of their (nonworking) lives. In an interesting dichotomy, while advances in health care and medical technology and occupational realignment of the economy have made it easier for older workers to continue working, the median retirement age has trended down from 67 to 63. The elimination of mandatory retirement has forced countless workers to render a decision that was once made for them-when to retire. Since the decision to retire has long been tied to financial ability, raising the full Social Security benefit age from 65 to 67 may influence that decision. Retirement is considered by many to be the most difficult life transition both emotionally and psychologically-perhaps even more difficult than marriage or parenthood-and those who are able to avoid or forestall it often are inclined to do so. Contrary to popular belief, older workers and retirees often want to continue working, but do not feel they are being given the opportunity. Older workers who want to continue working beyond the traditional retirement age do so for a variety of reasons; some simply because they enjoy it, others because their self-esteem is tied to their jobs. For many older workers, a life consisting of only leisure and recreation is not all it is cracked up to be; more desirable is a lifestyle that allows them to make meaningful contributions to society and have the flexibility to pursue leisure and recreation as needed. Increasingly more people want to continue working because it is an economic necessity. Plus there is the desire to live independently of children and other relatives. Because of demographic
trends, employers may have to retain or even recruit older
workers. This has implications both for workplace diversity
and management. Older workers often introduce different forms
of style and motivation than their younger coworkers. This
will be an interesting dynamic given that younger workers
will be supervising older workers more than ever before.
There will also be an increased emphasis on alternative
benefits; many older workers prefer sabbaticals, perks, and
time off rather than salary and other financial incentives.
BACK to Top While there are a number of individuals who can retire but choose not to, there are also a vast number of individuals who want to retire but cannot afford to. It is the latter group that has social scientists and policymakers concerned. Americans have typically depended on the "three-legged stool" of retirement income from Social Security, employer-provided pensions, and personal savings and investments. However, a recent raft of social, political, and economic changes has stripped Social Security and Medicare of their once undisputed "sacred cow" status. Sweeping economic changes spurred on by global competition and associated cost containment and capitalization pressures have induced more and more employers to abandon their defined benefit pension plans in favor of voluntary defined contribution plans. And, perhaps more than anything else, Americans in general, but Baby Boomers in particular, are simply saving too little. Some would argue that the
"three-legged stool" has deteriorated into a
"no-legged stump." Recent surveys back this up.
Results from those surveys reveal that 40 percent of all
American workers 51 to 61 years of age can expect no pensions
or income in retirement beyond Social Security (see Figure 11)
. Compounding that, approximately 20 percent have no
personal savings, investments, real estate or other assets,
and 14 percent carry no health insurance. Understanding how
this situation came to pass requires some knowledge of the
changes that have affected each component of the
"three-legged stool." Likewise, assessing whether
or not the situation will continue or worsen requires an
understanding of the changes that are occurring and which
might occur.
BACK to Top There has been a considerable body of literature pondering the future of the U.S. Social Security system. Depending on whom you want to believe, the system is either in imminent danger of collapse, secure in perpetuity, or somewhere between. Whatever the picture, there have been increasing demands for systematic reform. Implemented in the 1930s, the Social Security Act was based on the premise that individuals should not have to live in poverty in their twilight years. Funding and benefits were based on a simple premise: growing population, employment, and wages would allow each generation to give its predecessors a secure retirement and ensure that each would receive the same in return. However, if population, employment and wage growth stagnated or if the actuarially-based dispensation formula was disregarded, the delicately-balanced cycle could be thrown out of whack. In fact, all have come to bear, and most experts agree that the system could collapse in the future if left uncorrected. How Social Security reached such a dilemma is a matter of progress and politics. It has been overtaken, in part, by incredible advances in health care research and technology and healthier diets and lifestyles. Given an average life expectancy at the time Social Security was established in the 1930s, few retirees survived to collect Social Security benefits at 65. That alone helped keep the system solvent. In the 1990s, though, the average life expectancy is well over 65-and climbing. Today's retirees can draw benefits for up to 10 years-far longer than the system's founders ever imagined. Social Security has also been subject to benefit adjustments unrelated to the contributions of the recipients, including benefit increases during the economic booms of the 1960s and 1970s, and potentially over-stated cost-of-living adjustments. The flip side-and political sticking point-is that what are viewed by some as overly-generous benefits are considered hard-earned and well-deserved by many recipients. The Social Security Board of Trustees estimates that the trust fund for the Federal Old-Age and Survivors Insurance program (OASI) will be in a deficit situation by 2031(see Figure 12) . The OASI trust fund actually looks fairly good in the short turn. But when OASI is combined with Disability Insurance-becoming OASDI-the trust fund reflects a deficit in 2013. The term "deficit" does not mean the fund is insolvent. Annual interest income from the trust fund principal can be combined with current tax income to cover expenditures from 2014-19. And part of the trust fund principal can be combined with current tax income and annual interest income to cover expenditures from 2020-29. It is only after this period that insolvency would become a real threat, and that would arise only if no changes were made in the current system-an unlikely scenario. The bottom line is, the burden of keeping the system afloat in its current form would place a very heavy financial burden on future generations. Left unchanged, the workers of tomorrow could theoretically pay nearly all of their labor income in Social Security and Medicare taxes. This view is based on an anticipated shift of 3.4 workers to 1 retiree currently to 2 workers to 1 retiree in the future. Bob Myers, former chief actuary and deputy commissioner of the Social Security Administration, argues that the real ratio is currently 4 to 1 and will fall to 3 to 1 by 2025 which, he says, has already been taken into account by the Social Security Administration. It is interesting, perhaps
even ironic, that the current situation may shore up the
Social Security system by compelling more individuals to work
past the traditional retirement age to receive full benefits,
and by continuing to reap Social Security payroll
contributions from those who continue to work.
BACK to Top Employer-based defined contribution plans first became popular during World War II when companies, facing labor shortages and price controls, began offering such benefits as recruitment tools. Pensions became even more common after the war and flourished during the 1950s, 1960s and 1970s. Times have changed. Cost-cutting, productivity-driven employers of the 1990s are becoming much more financially conservative when it comes to offering such benefits. The percentage of workers in defined benefit pensions is falling (see Figure 13) . There were approximately 23 million U.S. workers participating in employer-based, defined-benefit pension plans in 1995-roughly 25 percent fewer than in 1980. The Committee for Economic
Development (CED) reported recently that the American pension
system is ill-prepared to meet the challenge of a growing
retiree population. CED argues that in the current economic
environment, the pressures to contain costs have resulted in
underfunded and, in some cases, liquidated private pension
systems. Individual and employer contributions to pensions
have also declined due to the rising cost and complexity of
regulatory compliance and lower ceilings on the amount of
pension funds eligible for tax deductions. Employers in
particular cite the Employee Retirement Income Security Act
of 1974 (ERISA) and its complex reporting requirements.
BACK to Top Are YOU Saving Enough? Think Again Americans do not save enough. The personal savings rate has fallen to a postwar low of anywhere from 4 to 5 percent of disposable income (see Figure 14) . This is down from 6.5 percent in the 1980s and 8.5 percent in the years prior to that. This is of concern because it is estimated that the average American has saved less than a third of what he or she will need to retire at the same quality of life. This also has potential implications for the national economy. Low savings means less capital available for business investments. In this environment, financial institutions must raise real interest rates to attract lending capital and in turn pass those costs on to businesses. Some argue that the concern over low personal savings rates among baby boomers is misplaced; that they are still relatively young and not yet in the high saving 45-64 year old age bracket. When they reach that range, some say, the savings rate should rise. Though possible, not all agree with that outlook. Critics argue that while demographic shifts might raise the rate from the current 4 percent to 5 percent to perhaps 6 percent, they will be hard pressed to hit the 8.5 percent of the past. A study prepared by Capital Research Associates found that the median net financial assets of U.S. households in 1993 was just $1,000 (see Figure 15) . Moreover, households run by those 55 to 64 years of age had accumulated less than $7,000. That is regarded as a terribly small "nest egg" for an age group so near retirement. It is clear that far too many Americans spend too much, save too little, and underestimate their longevity. While there are those who will retire in comfort and affluence, there remains a significant population who could end up in poverty or at subsistence levels, or be forced to work well into old age. Saving for Today. Baby boomers are generally a high-risk group in terms of retirement-related savings. Many boomers spent heavily and are now knee-deep in debt. Some are financially prepared for retirement, but their numbers are relatively few. Baby boomers have awakened from a credit and spending binge and must now face the reality of saving for retirement. A study by Kane, Parsons & Associates for Equitable Life Assurance Society showed that, during the first half of the 1980s, 17 percent of baby boomers focused on savings and 60 percent focused on heavy credit spending. By 1993, 65 percent focused on savings and only 9 percent on continued heavy spending. Most agreed that there was a big gap between where they are and where they would like to be in terms of retirement savings. Awareness, though, does not always translate into action; a study by the nonprofit research group Public Agenda found that 75 percent of Americans know they aren't saving enough for retirement, but only a very small minority plan to change their spending and saving habits. A recent Wall Street Journal story revealed similar attitudes among retirees. Many have accumulated adequate pension benefits, but upon retirement, cash out their benefits in a lump sum payment and embark on spending sprees. Employers prefer to use lump-sum payments to lower the administrative costs associated with retirement, thus placing the burden of financial planning on the retiree. But instead of investing or saving the money, some use it to cover pressing financial obligations or emergencies, and others treat the money as a windfall and blow it on consumer goods and services. Tax Disincentives. There has long been a tradeoff between savings and spending. High savings rates benefit future consumption at the cost of current consumption. Despite widespread fear of a savings shortage-and hence higher real interest rates and low economic growth-current tax policies favor consumption over savings. A number of policies have been proposed that favor saving. One idea is an expenditure tax-a tax levied only on the part of income that is spent, thus leaving accumulated savings tax exempt. Those who live frugally pay lower taxes. Thrift is rewarded at the expense of consumption. Some argue that an expenditure tax is regressive. And to a certain extent it is. The rich who save proportionately more than the poor would probably gain. However, the rich who draw primarily on inherited wealth would end up paying more. The biggest draw back would arise during the transition between tax systems; those penalized by saving their nest eggs from taxed income under the previous tax system are penalized again by getting taxed as they spend down those assets under the new system. Bequests and Inheritances. Some economists and researchers argue that one way to understand savings behavior is to look at the bequest motive; the desire to leave wealth to one's dependents. This challenges the more traditional life-cycle model which argues that people save during working years primarily in order to consume in retirement. Recent interest in the bequest motive has been peaked by a preliminary study released by Cornell University economists Robert Avery and Michael Rendall. According to their study, the greatest wealth transfer in U.S. history is supposedly underway as middle-aged boomers stand to inherit as much as $10.4 trillion (in 1989 dollars) in assets amassed by their parents. How fully the bequest motive translates from theory into practice is of keen interest not only to researchers, but also to a significant number of baby boomers who have little or no personal savings or pensions. The median inheritance is expected to be about $25,000-hardly enough to finance three decades of retirement. Most experts believe that there might not even be $25,000 to inherit. An increasingly common trend in the future will not only be small inheritances, but no inheritances. More and more seniors are depending on annuities-incomes that are paid out only as long as the individual survives. That translates into fewer assets to leave to heirs. Planned annuities offset the risk that one might outlive accumulated wealth. With that fear put to rest, seniors feel more comfortable and secure spending on themselves. For example, Boston University researcher Laurence Kotlikoff found that in the 1960s, the average 70 year old spent only two-thirds as much as the average 30 year old, but one-quarter more in 1990. More and more, parents are spending the inheritance. In addition, Americans are living longer, because of the increased availability of expensive health care. At around $60,000 a year and rising, nursing homes are a prime example. The most common asset transferred from parents to children used to be a house. But even that is in question these days due to the increased popularity of reverse mortgages. These enable elderly homeowners to receive cash for their homes on the condition that the mortgage lender assume ownership after the individuals pass away. Meanwhile, boomers who expected to finally inherit the four-bedroom, three-bath home they could not afford to buy themselves are likely to be disappointed. Stuck With Stocks. Financial columnists like Jane Bryant Quinn have recently raised some interesting questions about the value and liquidity of market stocks and also housing stocks as they transfer from one generation to another. Their point is this: most of the baby boomers' parents are currently paper-rich as opposed to cash-rich given that the bulk of their assets may exist in the form of stocks and houses. This generation, observers say, should be able to liquidate their holdings and homes with relatively solid returns because of the enormous market of baby boomers who will want to purchase their stocks and homes. Baby boomers may not be so
fortunate. Like their parents, many baby boomers are
paper-rich; they have invested in stocks and homes with at
least a partial goal of financing their retirement. The
long-term concern for boomers is whether there will be an
adequate market upon which to divest these assets. Unlike
their parents, multitudes of baby boomers will be trying to
unload stock and housing assets on a shrinking pool of
investors. A possible offset, though, might be investors in
Asia and Latin America seeking investments in the U.S.
BACK to Top Many older workers are discovering that they can and often want to work well into their senior years. They are also finding themselves confronted by stereotypes, discrimination, work force restructurings and reorganizations, and their own negligence and attitudes about upgrading or acquiring new skills. The workplace can be either welcoming or hostile depending on the receptiveness of employers and younger coworkers. But when things get hostile, they fight back. Due to their sheer numbers, their comfort in challenging the status quo, and political clout, they are changing the workplace environment and its rules. Ageism and Cultural Clichés. As a society, we have had an enduring love affair with youth, and view aging with fear, disdain, and reluctance. Our views of aging and the aged have engendered more than a fair share of negative stereotypes, including: (1) they cannot be trained in new processes or technology, (2) they are not as efficient or as productive as younger workers, (3) they get sick and are absent more often than younger workers, (4) they are not as committed or loyal to the organization as younger workers, and (5) they are inflexible about working full-time or overtime. Study after study has disproved each of these stereotypes. Older workers can indeed learn new processes and technologies, are no less efficient or productive, are less absent than younger workers, are less likely to leave for a new career, and are no more inflexible about full-time and overtime than any other worker. Yet the stereotypes persist. That older workers are dependable, can change, and can learn is often juxtaposed against current management practices. Just as corporations attempt to be race and gender blind, they must now seek to become age blind, too. But older workers must make changes, too. Many do not seek or bother to keep their skills upgraded; older workers must prove themselves capable of doing the job or even age discrimination laws will not protect them. Others accept the stereotypes about aging, assume they are too old to learn, and take themselves out of the running for reconfigured jobs or leave the labor force completely. If seniors want to keep working, they too must be willing and able to keep pace with changes in the workplace. Age Discrimination. The Age Discrimination in Employment Act (ADEA) of 1967 and the Older Workers' Benefit Program (OWBP) of 1990 eliminated mandatory retirement and allowed employees to work as long as they desired. While both laws prohibited age discrimination, they have not eliminated it. There is some cautious optimism that that may be changing. It is changing because the generation gap has truly hit the workplace. Thirty years ago, when the ADEA was enacted, the U.S. economy was expanding fast enough to create jobs for the huge cohort of baby boomers as they entered the work force. Today, however, the U.S. economy is rife with corporate downsizings resulting in forced early retirements and outright layoffs. This might have been viewed as just another in a series of structural changes that periodically sweep through the economy were it not for the fact that the dislocated workers were largely baby boomers who have started to fill the ranks of older workers. As a result, age discrimination has emerged as the workplace issue of the 90s. As older workers fight back, employers are increasingly feeling the burden of age bias suits and larger awards by juries in such cases. Thousands of age discrimination claims are filed every year. The number of filings was especially high in FY 1993 when 19,350 claims were filed (see Figure 16). It might be safe to say that age bias suits are becoming a fact of corporate life. Age discrimination is still difficult to prove. At present, employees win only 60 percent of such lawsuits. However, jury awards tend to be 175 percent to 300 percent higher than those for sex, race or disability discrimination, according to Jury Verdict Research, Inc. This is partly because the plaintiffs tend to be long-time, higher-paid employees suing for lost income. Upgrading Skills.
Because age or seniority is not itself a qualification
(compared to experience and ability), older workers need to
keep their skills up to date, especially when it comes to new
technology and equipment. This is where many older workers
and their companies are reluctant to invest time and effort
and money. A study by the Commonwealth Fund showed that
companies were much more likely to invest "lots of
money" to train younger workers (35 and under) as
opposed to older ones (51 and older).
BACK to Top An Ace in the Hole: Boomer Clout Because of their sheer number, baby boomers have been able to stake out a position of social, political, and economic influence. Regardless of how one feels about the boomers, one cannot discount, dismiss, or underestimate their political clout (see Figure 17). As the boomers steadily approach 50 as a group, what they want is to change traditional perceptions about aging-particularly as it is viewed in the work force. But, by the turn of the millennium, most boomers will have reached 55 years of age and will be classified by the Bureau of Labor Statistics as "older workers." However, the politically-potent boomers are intent on wielding their influence to shift the country's socio-cultural values from one that embraces youth and vitality to one that values age, wisdom, and experience. By the turn of the century,
the boomers will have peaked at roughly 78 million and,
through natural attrition, begin to dwindle. In 30-40 years,
the number of boomers will approach that of the baby
bust or birth dearth generation (those
born between 1965 and 1976). Currently, busters represent
only 17 percent of the country's population. In the longer
run, both the boomers and busters will eventually relinquish
share to the youngest generation of all, the baby
boomlet or echo boom generation (those
born since 1977) whose number stands at 60 million and are 25
percent of the country's population.
BACK to Top No generation is fixed in
time. Each is born, lives out its life, and passes on. The
boomers are clearly more than merely another demographic
trend or statistical blip. They represent the most
significant social, political and economic phenomenon to
shape the United States in the post-World War II era. Before
they pass on, they will have had a significant impact on
labor and other related issues. They will have given new
meaning to the term older worker, and changed
forever the way we regard and define retirement. They will
have exposed the long ignored and unchallenged practices of
ageism and age discrimination in the workplace and secured
statutes and regulations to combat them. And by their sheer
number, they will have forced changes in the previously
time-honored Social Security and defined-benefit pensions
systems. In 50 or so years, the phenomenon we called the Baby
Boom will very nearly be gone. Once they pass on, many
of the issues and concerns illustrated above will no longer
be as relevant. All, however, will be testaments to the
influence of demographics on the labor force, and of the
critical value and importance of foresight and planning in
moving to address future work force issues.
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