Outlook for Baby Boomers Reaching Retirement Age

April 14, 2006 - How will the job market be affected by the wave of baby boomers reaching retirement age? One good piece of advice for most of them: "(1) Lower your spending in anticipation of retirement, and then (2) don't retire."

This is the topic of an article in the Washington Post today, "Working To Fix Our Fiscal Woes, by C. Eugene Steuerle, of the Urban Institute-Brookings Tax Policy Center. The main concern he addresses is that

[W]orries about ... imbalances in Social Security's bankbook [is] largely a work-related fiscal woe, as the number of workers supporting each retiree falls by an estimated one-third over the next 30 years. ... [A] postwar boom in the U.S. labor force is just now ending. Since around 1950, the percentage of adults who worked rose almost every year except in recessions. But now the great swell of working boomers is starting to retire, and most of the gain in female labor force participation is over. If Americans keep retiring at the same ages they do today, the share of adults who are working will fall markedly. The effect on the economy will be roughly equivalent to increasing the unemployment rate by 3/10 of 1 percent every year for 20 years straight starting in 2008. That means a lower rate of growth for workers, goods, services, and government revenues.

Steuerle spells out the fiscal implications of Americans working an average of five years more than they do today, say from 62 to 67 years old.

Since a typical 62-year-old couple today is likely to have at least one spouse who lives another 25 years, most couples need to line up resources for 30 years or more to play it safe. In short, the most important financial decision facing most people in their 60s is when to retire. ... Working longer helps the nation, too. Additional time on the job increases national income, while boosting the revenues needed to float government programs, including those serving the elderly. ... Workers on average would have an annual income 55 percent higher if they retired for five fewer years, saved some of their additional earnings, and delayed receipt of Social Security benefits.

Along the way, the problems with the funding of Social Security would, he says, be largely solved.

[L]ook out about four decades, when fiscal and Social Security problems are projected to be the most severe. ... Five more years of work would generate more in additional taxes to the government (including Social Security and income taxes) than the amount of the shortfall. That same five years would produce enough additional Social Security taxes alone to cover half of the shortfall, if benefits were kept constant.

With personal and national interests pointing toward working longer - is American business ready for the implications of this? What will it mean to have a workforce that stays on the job another five years?

This column is one of a series. Every other weekday it edits a column is submitted by ten prominent think tanks on a rotating basis (each think tank chooses its authors and topics) - American Enterprise Institute Brookings Institution Cato Institute Center for American Progress Center for Strategic and International Studies Council on Foreign Relations Heritage Foundation New America Foundation RAND Corporation Urban Institute.