Thursday, June 14, 2012

Reality Six: There Will Be Choices.

Social Security Reform: Surprise! People do what they want/need to do

The hubris of the government seems to drive them to imagine that they, and only they, have to make decisions for people.  People respond, “You can’t make me.”  It’s true of retirement planning and retirement age.  Unless flexibility is accommodated and encouraged, it will show up in other places that have major social implications.  The flexibility has to extend to both employees and employers.
To illustrate using research discussed in a previous posting, first data from Life Spans, Health Care Costs and Rethinking Retirement” in the April 2012 AAII JOURNAL.  It reported that the Merrill Lynch survey found that, if respondents knew they would live to be 100, they would redefine traditional retirement. “Nearly four in 10 would continue to work at least part-time in retirement….  It goes on to note that,  “More than 50% of respondents who had yet to retire planned on either cycling between work and leisure or working in a job they enjoy more (part- or full-time). Just 14% of respondents over the age 50 said they would retire once they hit a certain age.”

The findings of the Merrill Lynch survey on plans are consistent with the MetLife data reported byBankRate.  That data reported on what people are actually doing.  It found that among those 65 and over, 55% hadn’t retired and an additional 14% who “retire” were working part time or seasonally.  Based on this survey, 69% of respondents are demanding choice regardless of the government’s attempt to ignore their need/desire for options.

As noted in a previous posting, even using the Labor Department’s ridged definition of labor force participation, 31.5 % of Americans aged 65-69 were still in the workforce in 2010.  It isn’t hard to explain the differences between the Labor Department data and the MetLife survey, and the differences highlight the difficulty the government has when people make choices. 
Three factors go a long way to explain the differences.  First, the Labor Department probably doesn’t count a lot of the people as “in the labor force” if they are “retired” but chose to work part time or seasonally.    Second, as is discussed every time unemployment rates are quoted, discouraged workers (those out of work but who have chosen to stop actively looking for a job) aren’t counted as in the labor force.  Third, the surveys tend to focus on people who are planning to retire.  They want retirement to be a choice.  It’s likely that people who plan retirement (as opposed to those who “just do it”) are more likely to work longer.  There’s also a fourth possibility.  The government may be pushing some older workers into a life of crime working “off the books.”  The fourth possibility seems minor, but it certainly happens.
The exact extent people are choosing flexibility is less important than the fact that more than half of older Americans are indicating that the government’s obsession with choosing a retirement age is a disservice.  The older Americans’ behavior reveals a determination to make their own choice. 

The surveys reveal an additional piece of information: why people make the choices they do.  For that the Bankrate report on the MetLife survey is revealing.  The chart below is quoted in its entirety.
The report states: “The chart below explains people's reasons for the decision they made to retire early or late. It doesn't reflect the biggest reason people cited for retiring no matter when they did it -- 36 percent said they'd reached retirement age, and they wanted to quit. Another 18 percent said they hung up their work boots for health reasons. Only 6 percent said they'd lost their jobs and couldn't find another. Fewer than 2 percent are job hunting.”  Again only 36% are letting someone else dictate their retirement age.  The fewer than 2% looking for work confirms the importance of the second explanation for the Labor Departments under-reporting the phenomena.

What jumps out from the chart is the involuntary nature of retiring ahead of plan.  Health and job loss make up 53% of those who left work earlier than planned.  By contrast, staying employed was voluntary: for job satisfaction or economic benefit.  The wording is interesting: “need.”  Substitute the word “want” and it gives a different picture. One can legitimately wonder whether the word choice reflects the writer’s assumption.  Many people of all ages need/want to work because the need/want the salary or benefits because they need/want to save more.

It is unfortunate that the “other” categories are as large as they are, but, none the less, the chart tells a story.  Adjusting the retirement age in Social Security and imposing tax penalties on those who chose to work don’t address the need for flexibility. 
People will make choices.  Social Security needs to embrace the fact that people want to make their own choices.  Rather than try to force life-changing choices, the government needs to enable people to choose and encourage choices that benefit older Americans and society in general.

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