The popular image of retirement is still shaped by the early decades following World War II.
The poverty rate among elderly Americans plunged, thanks to Social Security, Medicare and employer-sponsored pension plans. In that era, older workers from factory floors to postal routes said goodbye to their employers for the last time and moved to Sun Belt communities, learned to play golf, took advantage of early-bird specials and traveled widely. The development of modern retirement was a great social achievement of 20th-century America.
But it didn't last long. The underlying economics of retirement are changing once again. Many people are rightly worried about the fiscal soundness of the major institutions of retirement, such as Social Security, Medicare and state and local government pensions. These plans are now considered too costly to maintain without increased contributions and some sort of cutback in promised benefits. Private sector pensions are generally in better shape, but mainly because most employers moved away from traditional defined-benefit pension plans to 401(k)-type plans since the 1980s. Yet the flaws in 401(k) pensions are all too apparent, with many workers putting too little money into the plans and, for those that do save, ravaged portfolios after two recessions in less than a decade. The message of recent economic and financial history is that it will be very difficult for most people to set aside enough money to maintain their pre-retirement standard of living in old age.
There are no easy solutions to long-term retirement security, either politically or personally. But on the personal side of the equation, it's clear that one solution to reducing retirement insecurity is earning an income past the traditional retirement age and allowing savings to compound longer. Working longer won't be a hardship for many people because we're living longer, we're better educated and we're healthier. More than making ends meet, work is physically and mentally energizing. Of course, it's likely that you'll want to move on to a different employer, shift to part-time work, volunteer or embrace public service.
A new book by syndicated columnist Mark Miller is spot-on when it comes to thinking through the new retirement. In "The Hard Times Guide to Retirement Security: Practical Strategies for Money, Work and Living," Miller thoughtfully guides the reader through all the key questions and issues for creating long-term financial security. "The Great Recession has sent a wake-up call to older Americans," he writes.
Let's hope so. That said, the book isn't alarmist or despairing. Instead, it's practical, with a "let's-roll-up-the-sleeves" attitude. An aspect of the book I prized is his emphasis on the fact that the finances of retirement for a household are not the same thing as investing for retirement. There are many other important money components to consider, from Social Security to lifelong learning. About a third of the book deals with advice on just what it might mean to work in retirement. "It might sound like a contradiction in terms, but remember that we're looking for ways to achieve financial security over a retirement that could last 20 years or more," he writes. "Working for even a few additional years can pay a surprisingly large bonus."
Check it out.
Chris Farrell is economics editor for American Public Media's "Marketplace Money." Send questions to firstname.lastname@example.org.