Saturday, December 29, 2012

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.


Sam L. said...

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.

Is it retirement and a less active life, or is it....AGING?

Stuart Schneiderman said...

As far as I can tell, they compare people who have retired with people of the same age who have not retired.

DeNihilist said...

Canada has raised the retirement age for benifits to 67. Of course, this will start in I believe 14 years. According to some paleo-archeologists that I have read, over our 2 million year developement, we have been genetically defined to need strenous activities. If this little Christmas break can be used as a case sample, I would have to agree. My back is in spasms again, I feel lethargic, and my mind is dull.

Back to work - HOORAY!

Anonymous said...

My job (due to the idiots who run the place) has become a daily battle, with none of the former satisfaction. The tension of dealing with this is high. Hard to imagine how retirement could be worse for my health.

Dennis said...

One of the secrets to retirement is to not retire from life. Retirement is the time to accomplish all those goals that working made impossible. We are NOT defined by the jobs we did, but by the actions we take to become a person that tries to be the best one can be at life.
Wealth is a way not to worry about safety, security and survival needs. It is why those who are wealthy, by any means of accounting, find ways to give back.

Anonymous said...

What has always intrigued me about the concept of "fairness" in conversations like these is the limitation of its scope. Buttonwood is comparing the results based on socioeconomic levels within the same age cohort (I.e, a retiring lawyer at 67, vs. a retiring stonemason at the same age). That's fine, as that's what Buttonwood has chosen as his subject. And it does sound unfair on its face, as these people chose differ professions, yet are not receiving equal public pension assistance, ostensibly becaus of class distinctions. Fair enough. Noted.

Yet Buttonwood also neglects to mention the lawyer and stonemason's neglect, on a national/generational level, to reproduce themselves. Because of available and affordable contraception, they were able to have smaller families. This would be viewed as desirable in a number of ways, notwithstanding the cold, hard fact that expenses associated with the modern child are very high, particularly when upward mobility is wished (an almost universal American value). Yet these public pension systems have progressively become a giant Ponzi scheme, mostly due to our 67-year-old's choices not to have more children, and on a scale where we cannot possibly bring in enough young, skilled immigrants to equalize. Public pensions like Social Security used to have much larger payer-to-beneficiary ratios. These numbers continue to get worse and worse, and the impact of such systems on those (fewer) young people actively working to fund them becomes more and more burdensome. The political class creates smoke screens such as "means testing," which are not viable solutions for an even short-term fix. The tsunami of deficits to pay expected Baby Boomer beneficiaries is too large.

So who's talkin' fair? Again, with Buttonwood's age cohort comparison, we avoid the very real issue of public pension viability entirely. It's a distraction. Is it fair to demand that the disproportionately few young people (their numbers diminished for the reasons outlined above) to fund the retirement of the "elderly?" (Sorry folks, 67 ain't old anymore) I assert it is not fair in any demonstrable way. It is this way because that's the deal under a social contract that has been skewed because of advances that have come about since he system was introduced. Furthermore, the public employee pensions are drowning governments at all levels because they have lost all reference to sane compensation theory. Forget the police and fire fighters, explain to me why I have to listen to my 41-year-old classmates who are public school teachers go on about how they shortly will become eligible or buy-outs with 85% of their full salary as their pension value (for life) and full medical care (for life)? Please explain that to me. Meanwhile, I hear of many recent teacher certification graduates who cannot get jobs in this same school system because there are none to be had, and enrollment is beginning to ebb.

Again, I ask who's talkin' fair? I hear lots about sustainability regarding the Earth, but precious little about the sustainability of our government and public pension systems. Buttonwood misses this big picture item entirely. And one other thing... beyond the AARP's rhetoric, I find it very difficult to believe that the majority of public pensioners believe it's fair that their children are going to have their economic futures put in hock because of the insanity of his public pension Ponzi scheme. The true foundation of this public pension menace is not whether a lawyer and stonemason retiring today are being treated fairly, it's whether we have enough lawyers and stonemasons in the next 30 years to deal with the generational tsunami of beneficiaries!


Anonymous said...

One more thing on this point... We'd have to grow our way out of this conundrum, which the Obama Administration is doing everything within its power to make sure we cannot do. We are becoming Greece. A difference in benefits within an identical age cohort that Buttonwood is talking about matters little when there won't be a system to worry about. Bankruptcy solves and creates its own problems. After all, the Greeks can't inflate their way out of their mess because they're tied to the Euro. We can. How do you suspect hat will turn out? The issue is systemic, not one of minor policy diversions Buttonwood reflects upon.


Stuart Schneiderman said...

Thank you, Tip.

To add fuel to the fire, here's a link to a Mort Zuckerman column about how bad our financial situation really is:

Anonymous said...

Thanks for sharing, Stuart. Zuckerman's analysis is penetrating and concerns us all. Lets just hope there's some testicular fortitude somewhere to say what's so and make effective choices. Because right now, the band on the Titanic continues to play "Ragtime," and the passengers believe the signal flares are fireworks. We've gotta grow up and take our medicine. No one said you have to like it, and no one's going to besmirch you for flinching, but we've all gotta take it, so open up wide...