Current retirement policy is based upon Federal statutes and programs dated as early as 1935. These programs and the resulting supportive services affecting the elderly concentrate on improving health status, reducing proverty, and ending discrimination. Although the Federal government has been successful in furthering these goals, it has never established a comprehensive and unified retirement policy. As a result, policies regarding a single issue are sometimes inconsistent and contradictory across the separate pieces of legislation.
This Digest discusses changing economic and demographic conditions and the effects of retirement policies on older persons. It also suggests ways vocational educators can respond to older persons' educational and employment needs.
CHANGING DEMOGRAPHIC AND ECONOMIC CONDITIONS
Changing demographic and economic conditions, combined with a changing political climate, have resulted in reduced levels of support for many Federal programs. The programs for the aged have withstood cutbacks, but may be unable to maintain their support levels. The following facts emphasize the need to adapt the present retirement policy to meet the needs of young and old alike.
--Between now and the end of the century, the population aged 65 and over is expected to increase by 40 percent
--By the year 2030, 1 in every 5 Americans will be 65 or older
--By 2030, the ratio of workers to retired citizens will be three to one (the rate today is six to one)
--A smaller base of workers will be required to maintain and possibly increase the welfare level of a growing elderly population
--Over 30 percent of total Federal expenditures are spent on programs and support services for the elderly. This figure is expected to rise to 40 percent in the next century
WHAT EFFECTS HAVE RETIREMENT POLICIES HAD ON THE EMPLOYMENT PATTERNS OF OLDER PERSONS?
The Social Security Act of 1935 is the basis for retirement policy in the United States. Social Security currently constitutes more than 40 percent of all Government expenditures for social welfare. A number of Federal programs have evolved from the Social Security Act to provide income support, health care, housing, services required for daily living, and rights to employment for the elderly.
The 1978 Amendments to the Age Discrimination in Employment Act raised the minimum age at which most workers can be forced to retire from 65 to 70 in an attempt to retain older persons in the work force. The Amendments are expected to have little effect on the work effort of men aged 65 and older.
Early studies on the work behavior of older persons often cited health problems as reasons for the limited participation of the elderly in the work force. The emphasis on health, although significant in many cases, is now believed to be overstated.
The major criticism of present retirement policy is that it discourages labor force participation of older persons through incentives for early retirement and mandatory retirement regulations. These drawbacks are also present in private pension plans.
Incentives for Early Retirement
Although public policy gives the elderly the right to work, it provides the following incentives to leave the labor force at or before age 65 in order to vacate jobs for younger workers.
--Social Security allows beneficiaries to continue working without penalty only as long as earnings do not exceed specified limits. The limits are set at levels that are less than 40 percent of the earnings of a full-time worker earning the average wage
--Tax rates can rise to 96 percent for persons who continue to work full-time beyond the mandatory age of retirement and earn above the exempt amount
--Although Social Security provides actuarially reduced benefits to persons who retire early, it does not increase benefits a comparable amount for persons who delay retirement
--Tax provisions encourage the elderly to substitute nonemployment income for earnings by allowing the exemption of transfer income (Social Security and SSI) and property income (via the Retirement Income Tax Credits)
--Non-Federal employees (who comprise the greater part of the work force) are required to retire by the age of 70. (Mandatory retirement of Federal employees is prohibited at any age)
Several empirical research studies studying the relationship between work behavior and retirement policy found that Social Security has reduced the work effort of older persons. However, the degree of effect differs with the dependent variables used in the studies. These studies center on the effects of Social Security on the labor supply and most do not examine the area of private pensions. Those that do, have found that retirement is affected by the availability of pension plans.
Effect of Pension Plan Regulations on Work Behavior
There is evidence that pension plan regulations, similar to those of Social Security, tend to discourage work at older ages. Although the data needed to measure the overall effect of pensions on work behavior have not been collected, the following facts provide insight into current employment patterns:
--In 1980, nearly one-half of all men aged 63 were no longer in the labor force
--From 1950 to 1980, women aged 55 to 70 steadily increased their participation in the labor force
--Between 1950 and 1980, the difference in labor force participation rates for men and women aged 63, 65, 68, and 70 narrowed from 60.1, 55.4, 46.3, and 41.9 to 23.9, 14.4, 9.6, and 12.3 percent, respectively.
The data presented indicate that increases in work for women outside of the home and decreases in labor force participation for men have resulted in a convergence of the work effort of older men and women.
Based on recommendations by the National Commission on Social Security Reform, changes have been made in the Social Security System, including
--increasing the age of eligibility for unreduced retirement benefits from age 65 to 67 in the year 2000
--changing the annual earnings test in 1990 whereby $1.00 in benefits will be withheld for each $3.00 of earnings above the annual exempt amount for people 65 and over rather than $1.00 withheld for every $2.00 earned
--requiring Social Security coverage of employees of nonprofit organizations as of January 1, 1984
--providing Social Security coverage for Federal employees hired after December 31, 1983
All of the revisions are described in detail in the publication SOCIAL SECURITY STRENGTHENED: 1983 SOCIAL SECURITY AMENDMENTS, prepared by the U.S. Department of Health and Human Services.
HOW CAN VOCATIONAL EDUCATORS BE MORE RESPONSIVE TO THE EDUCATIONAL PLANNING AND EMPLOYMENT NEEDS OF OLDER PERSONS?
The number of people in the United States aged 65 and over is expected to increase from 25 million in 1981 to over 31 million during the next 10 years. There is a general belief that older people want to leave work; however, many would prefer to delay retirement or return to the work force after retirement due to such factors as increased longevity, better health, uncertain economic conditions, more interesting work opportunites, and increased use of alternative work patterns such as flextime and part-time employment.
Although adults and the unemployed are specifically mentioned in the Vocational Education Amendments of 1976, the needs of older persons to upgrade their job skills are not addressed. However, upgrading and retraining of the elderly can result in reduced Federal transfer payments, greater supply of trained older workers as the pool of younger workers diminishes, and increased opportunity for continued growth and change for the elderly throughout their life spans.
Vocational educators can encourage older persons to participate in the labor force by the following:
--cooperating with other disciplines to expand public awareness of the needs and abilities of the elderly
--examining the realities of recruiting elderly persons into vocational education programs
--obtaining training in order to design and implement effective vocational education programs
--examining their attitudes toward older people
--reviewing the potential of their programs to serve the elderly
--helping older persons remain productive after retirement
FOR MORE INFORMATION
Anderson, Kathryn H., ed. RETIREMENT POLICY: PLANNING FOR CHANGE. Information Series No. 242. Columbus, OH: The ERIC Clearinghouse on Adult, Career, and Vocational Education, The National Center for Research in Vocational Education, The Ohio State University, l982. ED 220 724.
U.S. Department of Health and Human Services. Social Security Administration. SOCIAL SECURITY STRENGTHENED. 1983 SOCIAL SECURITY AMENDMENTS. SSA Publication No. 05-10345. Washington, D.C.: SSA, 1983.