RONALD REAGAN won't be losing any sleep over whether his own retirement income will be sufficent, now that he has been elected president. But of all the issues with which he is about to wrestle, pension policy -- and how to solve the problems without breaking the bank -- is the one perfectly designed to make him wonder why he wanted the job in the first place.
A History of Retirement, by William Graebner, and The Graying of America, by James Jorgensen, describe the retirement conundrum in which we now find ourselves. Both books attempt to dispel the baffling cloud of actuarial and financial jargon that have for years left the retirement and pension debate in the hands of a few experts.
Graebner's A History of Retirement is a social and political study of the development of corporate and then governmental retirement programs in this country since the late 19th century. He describes a confluence of interest between industry -- which wanted a faster-working and younger work force to operate the heavy production machinery of the industrial revolution -- and that of the social reformers who were mainly concerned with reducing the potential for civil unrest among the unemployed young. Inducing or requiring older workers to retire served both purposes. Intriguingly, Graebner documents how little of the impetus for change appeared to be for the well-being of the elderly population. It is Graebner's thesis that retirement -- although "sold" as a benefit to the elderly -- is age discrimination.
Graebner traces the gensis of Civil Service Retirement, Social Security, and the peculiar part-private, part-federal Railroad Retirement Program; details an analysis of the failure of the old-age home movement, and describes the economic changes leading to the Age Discrimination in Employment Act.
Graebner's is a generally useful analysis of the interplay of forces leading to changes in policy. Unfortunately it is marred by the stridently "revisionist" jargon in which he clothes his discussion. He invest a lot of words in dispelling any vestige of the myth that mandatory retirement is designed to benefit the elderly. What is annoying about this formulation of the history of retirement policy is not that it is wrong (in fact in large part it is right), but that it is naive. The delicious daring with which he points out that forces other than enlightenment motivate changein government policy is a recurring irritation in the book. The quirk is more annoying than fatal, however, Graebner sorts through a great deal of information and makes it mangaeable. One finishes the book irritated but better informed.
Jorgensen's book, The Graying of America, is more readable, more angry, and less careful with detail. While Graebner is a political historian, Jorgensen is a an insurance underwriter and retirement planner. He examines private and public pension plan, individual retirement accounts, annuities, other investment stategies, and Social Security. The subtitle of the book, "Retirement and Why You Can't Afford It," telegraphs the message: he makes very real the power of inflation to destroy money, self confidence, and any sense of predictability about anyone's financial future. Jorgensen accomplishes this by whooping and hollering and riding through the book with his guns blazing. Unfortunatley, his discussion of specific programs is more colorful than precise.
The Social Security chapter is both inaccurate and out of date -- most of the aspects of the system he complains about have undergone major revision. Jorgensen's chapters on private plans and various individual savings and investments show why there is an increasing reliance on Social Security as the primary source of retirement security for the elderly: in times like this the price of keeping benefits up with inflation, over an increasingly lengthy period of retirement, is staggering. And private plans, through, "integration" with Social Security, can pay out nothing to retired employees whose benefit levels are equal or less than what their Social Security check would be. The higher the Social Security benefit levels, the more employees for whom the private retirement plans will not have to pay.
This policy has two unfortunate consequences. First, it makes Social Security the sole income source for many who earn lower-than-average wages. Social Security was not designed to assure an adequate living by itself, and for many in these circumstances it does not. Second, employers are encouraged to support benefit increases in a Social Security system that is not very steady actuarily; they do this because the increases "buy out" the private pension benefits that the employer would otherwise be paying.
The last few years have seen a rash of commissions and councils trying to make order out of the retirement chaos Jorgensen so vividly portrays. Interestingly, he proposes a solution also favored by the President's Council on Pension Policy: a universal mandatory private pension benefit in addition to Social Security. This additional amount would lift a very large amount of the elderly, now living on Social Security alone, above the poverty line. It makes analytical sense. It also suffers from a virtually incurable defect: absolutely awful political timing. The increased cost of such a proposal would be borne by business, employees themselves, or government. Can you imagine any one of them taking on this additional burden in the present economic climate? Nor can I.
There is another aspect of the retirement mess that is equally in need of fixing up, however, and which is clearly better aligned with political tides. That is the modernization of incentives for ordinary people to invest in their own futures. Much talk is now going on about inventing tax cuts that will encourage savings. With some thought it should be possible to encourage savings that wil help individuals assure their futures. Several years ago Harvard economist Richard Zeckhauser suggested that the federal investment in retirement might be in the form of federal matching savings that individuals make for their own retirement.
Individual Retirement Accounts (IRA), with deffered tax payments on the income, have been available for several years, but have been so hedged about with limitations that almost no one has taken advantage of them. The Zeckhauser play would move all the way to direct government subsidy -- possibly only for the low-income -- of the savings. Other less-radical liberalizations of the IRA make considerable sense.
The tension between supporting adequatley those citizens who are not working, on the one hand, and increasing the vigor and productivity of the economy, on the other, is a constant in an civilized society. The political mood of the country has swung back toward self-reliance; the ability of individuals to support themselves in retirement must be enhanced. Present policies -- such as the limits on interest paid to small savers and the very restricted availability of IRA's -- actively discourage such self-reliance. Changing these policies will not solve the problem of assuring retirement income to the elderly, nor will it ensure an adequate savings rate to induce economic growth. But it does make economic, political, and social sense.