Work, Retire, Repeat, by Teresa Ghilarducci (University of Chicago Press, 264 pp., $25)

Before she exited the Republican primary race, Nikki Haley advocated gradually increasing the retirement age to match the growth in life expectancy. Her political rivals swiftly criticized her proposal, but it enjoys widespread support among those looking to rein in soaring entitlement costs. A new book by economist Teresa Ghilarducci, Work, Retire, Repeat, offers reasons to seek an alternative path to reform.

Pay-as-you-go retirement systems such as Social Security or Medicare use taxes on current workers to pay benefits to retirees. Even if individuals on average fully pay for what they later get, such an arrangement will not be sustainable if declining birth rates and rising life expectancy reduce the ratio of workers to retirees. In 1960, there were five workers for each retiree. By 2000, the ratio had fallen to three-to-one. By 2040, there will be only two workers for each retiree. Raising the retirement age would both reduce the cost of benefits and increase payroll tax revenues to pay for them.

But Ghilarducci’s book argues against pushing back retirement. She suggests that, whereas policymaking elites view retirement as boring, low-paid workers typically can’t wait for relief from “heavy lifting, crushing work schedules, arbitrary changes in work duties, and the fear of being laid off.”

Ghilarducci acknowledges that employment can be a valuable source of meaning, personal identity, achievement, social interaction, and structure in people’s lives. But she disputes the claim that the correlation of retirement with declining mental health proves that it is bad for people.

She argues instead that retirement often occurs for reasons that make people unhappy. Among workers with incomes below the median, 52 percent are forced into retirement before they’re ready—either by failing health, loss of employment, or the reluctance of employers to hire aging workers. In contrast, only 10 percent among the richest decile of Americans are forced into retirement. She maintains that retirement improves health in old age for those with physically arduous or psychologically demanding jobs and suggests that menial employment can get in the way of more meaningful life activities.

Ghilarducci notes that many seniors have no retirement savings to supplement Social Security and contrasts the situation of the “happy, healthy 75-year-old pediatrician who chooses to work” with “the 75-year-old janitor with ailing joints who must work for money to survive.” Delaying the retirement of those with the lowest incomes, she argues, would yield little additional savings for old age. Furthermore, raising the full retirement age is equivalent to a Social Security benefit cut, which takes proportionately more from poorer retirees, who can expect to live the fewest additional years.

Ghilarducci laments the shift by employers from defined-benefit pension plans to 401(k)s. She suggests such tax-deferred savings arrangements appeal mostly to the affluent, while subjecting retirees to risks of mismanaging investments and misjudging longevity. She argues that the absence of annuitization leads people to retire later than they would prefer, to avoid outliving their savings or putting too much aside.

Instead, Ghilarducci proposes establishing a new system of mandatory personal accounts for individuals to purchase an approved set of defined-benefit pensions—funded by a three-percentage-point payroll tax hike, with additional public subsidies provided for low- and middle-income workers. She also endorses a further three-point increase of the payroll tax to restore the solvency of the current Social Security system.

Work, Retire, Repeat makes valuable points in assessing attempts to push back retirement for all Americans. It is less helpful as a guide to managing the costs and trade-offs of an aging society.

Ghilarducci points to a cross-national correlation between high spending on pensions with high spending on education and welfare benefits to claim that there “is no evidence ‘the old eat the young’.” But she ignores the burden of paying for expenditures, which falls mostly on workers. In reality, spending on pensions for the elderly dwarfs other welfare expenditures. Net of taxes, the more generous the benefits countries provide to their elderly members, the less aid they provide to poor non-retirees.

There is little popular appetite for a six percentage-point tax hike on American workers to expand funding for retirement, even if it were initially tied to a promise that individuals would have some control over the funds. Nor has the shift toward 401(k)s been as damaging as Ghilarducci suggests. Millennials already have more set aside for retirement than Generation X, and Gen X more than did the Baby Boomers.

Policy already excessively redistributes wealth from the young to the old. In 2019, though the median income of American households headed by adults over 75 was similar to those under 35 ($43,100 vs. $48,600), the median net worth of the former was much higher ($254,800 vs. $14,000). Retirees’ basic expenses are also much lower: unlike young adults, they generally do not bear the costs of raising children, commuting to work, or student loan debt—and the majority of seniors own their homes mortgage-free.

Due to the Supplemental Security Income program, poor seniors also possess a guaranteed income floor, which the working poor lack. The elderly do face higher medical costs, but Ghilarducci acknowledges that the subsidies and mandatory discounts on medical services enjoyed by Medicare beneficiaries often leave them better protected than many younger workers. She warns, implausibly, that “many high-income older workers earning $170,000 or more per year will retire into poverty because they lost their jobs and were pushed into an early, underfunded retirement.” In reality, the elderly who prove unable to provide for themselves are those who previously had the lowest incomes.

Rather than expanding public responsibility for ensuring a full retirement income for the middle class, policymakers should refocus Social Security on ensuring an income floor for the elderly poor, who Ghilarducci rightly suggests need the support most. The program is already the costliest item on the federal budget, and yet it leaves more elderly Americans in poverty than are found in nations with public-pension systems that cost half as much.

By allowing younger workers to opt for a lower payroll tax rate for the remainder of their careers, in return for a uniform safety-net benefit when they reach retirement, Social Security could be made more effective at preventing poverty while also being less of a burden on the young. Such a benefit structure would likely also motivate higher-earning workers to retire later than the poor—the arrangement for which Ghilarducci provides her strongest arguments.

Photo: Dilok Klaisataporn/iStock/Getty Images Plus


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