Over the past 50 years, our life expectancy has increased. So has our health, however many television advertisements to fix various maladies we have seen. So why is it that more of us retire earlier than we did in 1965?
It’s a simple question. But the answer is pregnant with complication.
The question jumped off the page from a single table in a 2005 issue of the Social Security Bulletin: “Coping With the Demographic Challenge: Fewer Children and Living Longer.” The article discussed a now familiar issue, the problems we will face as the number of retirees increases much faster than the number of workers.
The table showed the percentage of people taking their Social Security benefits at different ages. It revealed that people were expanding their retirement years in two directions. First, they gained about five years of life expectancy at age 65 over the period. Then, they decided to add still more years by retiring earlier.
Basic arithmetic tells us that if we are going to live longer, we might consider working longer because we are going to need more money. But that’s not what we are doing.
* In 1965, only 23 percent of workers took benefits at age 62. By 2004, the percentage had more than doubled to 57.5.
* Retiring later went in the other direction. In 1965, about 36 percent of all workers retired at age 66 or older. But by 2004, only 4.8 percent of workers were waiting to age 66 or older.
That’s quite a drop — a stunning 95.2 percent of all workers were taking Social Security benefits before age 66. More than half were taking benefits at the earliest age allowed, 62.
Yes, 2004 was 10 years ago. Things have changed. More recent figures in the Social Security Administration’s Annual Statistical Supplement for 2013 tell us that the trend has reversed somewhat. Small wonder, given our economy. Fewer people are taking benefits as early as possible. More people are taking them after full retirement age.
But most people are still taking their benefits early. This works to reduce their monthly retirement income. It most likely won’t increase their lifetime income, either. The decision doesn’t make financial sense.
So why are we still taking benefits early? Let’s try two explanations. One is from the world of Tra-la-la. The other is darker.
In the world of Tra-la-la, the explanation is simple. We are all so much wealthier today that we can afford to retire earlier than we could in 1965. So we do.
Right. This is a great notion if you don’t regard reality as an impediment. Real wealth and income, for most people, have been in decline. And the good old days of generous “5 and 5” staff-reduction pension deals from corporations are long gone. (The old “5 and 5” won’t ring a bell with younger readers. They don’t have pensions at all. But a typical Golden-Age-of-Pensions buyout deal offered to add five years of age and five years of experience to a corporate worker’s pension benefit calculation. This made it possible for many workers to retire in their mid- to late-50s.)
The darker explanation is to look back to the starting date, 1965. President Lyndon Johnson signed Medicare into law on July 30, 1965. Medicare was, and is, a great boon for those over 65. It has been less of a blessing for everyone else.
Medicare has been a major inflationary force in our economy. Medical inflation has outpaced other inflation for half a century. The side effect has been to put pressure on corporate benefits first, then on payrolls. The ultimate side effect was the off-loading of millions of older workers, long before full retirement age.
So most people aren’t taking Social Security benefits early because they are wealthy residents of Tra-la-la. They are taking benefits early because they don’t have a choice. They need the money.
Other evidence suggests a finer point. Those with less education have been more likely to continue claiming benefits early because the job market has been tougher on them. It hasn’t been easy on anyone, but more workers with higher levels of education have been able to find jobs.
In America, the land beyond Tra-la-la, most retirements have been involuntary.
SCOTT BURNS is a principal of the Plano, Texas-based investment firm AssetBuilder Inc., a registered investment adviser. His e-mail address is scott@scottburns.com
