The Retirement Conundrum

In a typically thoughtful Economist column, “Buttonwood” asks whether nations should address their budget crises by increasing the state retirement age.

Lately, those who want to reform entitlement spending in America have suggested that we increase the eligibility age for Medicare and even increase the age at which someone can receive Social Security benefits.

And then we need consider the pensions that state and local governments pay out to their employees. The extent of the payouts to public employee pensions is an important part of the problem.

All told, it’s a difficult and complicated issue. Buttonwood, however, seems to care most about fairness. Are the poor hurt disproportionately when we increase the retirement age? If so, is it fair to do so?

He reasons that since the rich live longer on average than the poor, extending the retirement age will give the poor less time to enjoy their leisure.

Buttonwood does not consider that too much leisure might not be such a good thing. He does not even consider whether, perhaps, leisure is not the meaning of life.

And he does not consider the obvious corollary. If we are seeking fairness and if increasing the retirement age would be unfair to the poor, why would we not, in the interest of the same fairness, lower the age at which an individual could receive retirement benefits?

As soon as you scratch the surface, you, like Buttonwood, will discover that the question is extremely complicated.

Ought we to have the same retirement age for people whose occupations involve entirely different levels of stress?

A coal miner’s job imposes considerably more physical and psychological stress than does that of a government bureaucrat.

Why would we not try to solve the fairness problem by improving the quality of life of the poor so that they might enjoy their retirement as much as the wealthy.

One way to do so, Buttonwood suggests, would be providing access to better health care. He does not say how we would pay for all of the readily available free health care.

He also notes that the wealthy tend to have healthier lifestyles. They tend to smoke less, to exercise more and to eat more nutritious foods. He suggests that this might be a function of cultural factors, but does not propose how to level the wage and wealth gap.

Since longevity depends more on a healthy lifestyle than the availability of better health care ought we to punish the rich by making them work more because they are in better health? And ought we to punish them for using proportionately fewer health services?

Thee are just the first complications shrouding the retirement issue.

Unfortunately, Buttonwood has omitted reference to one salient fact. Research has suggested retirement is bad for your health.

A 2006 report from the National Bureau of Economic Research argued:

Results indicate that complete retirement leads to a 5-16 percent increase in difficulties associated with mobility and daily activities, a 5-6 percent increase in illness conditions, and 6-9 percent decline in mental health, over an average post-retirement period of six years. 

In a more recent report Swiss researcher Stefani Behncke explained:

Delaying the retirement age, though, might have consequences for the health of the elderly. Retirement is accompanied by many basic life changes: time availability, income streams, social networks, social status and so on. Lifestyle changes are likely to affect the retiree's state of health.

Behncke makes an exceptional effort to take into account all of the variables that would contradict her conclusion.  

She recognizes that leisure is not necessarily the best for one's well-being. For example, retirees might suffer from social isolation and feelings of uselessness.

Undoubtedly, the feeling of uselessness afflicts the poor more than the rich. When a wealthy individual retires, he will often take on the job of managing his personal assets. It might not be a full time job, but it will certainly involve work, focus and purpose.

And yet, she summarizes an earlier report, suggesting that retirement is not necessarily a boon:

Using British data, they found that men who retire due to other reasons than ill health and who were apparently healthy at baseline had an 86% increase in mortality compared to men who remained continuously employed. In particular, they had a significant increase in both cardiovascular mortality and cancer mortality.

Having factored in all of the relevant variables, Behncke concludes:

We find that retirement increases the risk of being diagnosed with a chronic condition. In particular, it raises the risk of severe cardiovascular diseases such as heart attacks, strokes or angina. We also find that it increases the risk of being diagnosed with cancer, but we cannot disentangle whether the likelihood of diagnosis or the actual incidence has increased. We do not  find any significant effects for diagnosis of psychiatric problems, but are aware that psychiatric conditions often remain undiagnosed. These results are fairly robust with regard to different specifications….

Under the assumption that onset and diagnosis of a disease rather coincide, our findings suggest that, on average, retirement has detrimental health effects. Furthermore, there is evidence for a substantial effect heterogeneity: retirement does not harm every retiree, and - if it does - it provokes different conditions.

Unfortunately, Buttonwood has ignored this information. He seems to be looking at the world in terms of a class conflict between rich and poor. He seems to want to eliminate many of the advantages that accrue to those who become wealthier.

And he seems to be prey to the illusion that the reward for wealth is idleness and that it needs to be shared.