Encore Entrepreneurs to the Rescue
Posted Wednesday, July 9th, 2014| Comments (5)
Social Security at 62 but Fairly Healthy
Solopreneurship and the End of “Retirement”
I think we can all agree: the later years of life—those decades formerly known as “retirement”—are changing rapidly… and radically. The Baby Boom gifted 21st-century America with a graying population: there are 78 million Baby Boomers, the first of whom turned 65 in 2011. Today, we’re turning 65 at a rate of about 10,000 a day, and 65+-year-olds make up about 13% of the U.S. Population.
Meanwhile, traditional pensions are dwindling and Social Security is in trouble. The recession and painfully slow recovery mean that retirement savings are in short supply, while many near-retirees have also lost home equity or a job. And because the population is growing older so quickly, programs for the elderly are expected to consume an ever-larger percentage of federal dollars (the projected statistics for 2015 put federal spending for the elderly at nearly half the federal budget).
Pretty bleak, huh?
But then there’s the upside! Americans are living longer, healthier lives than ever before. My friend Bill Zinke of the Center for Productive Longevity calls it the “longevity bonus”: “The gift of the 20th century to the 21st,” he says, “was 30 extra years of life!” Quality of life is important to us, and we’re learning more and more about how to get healthy, stay healthy, and make our later years better than ever.
So where does that leave us? A huge chunk of the population is approaching (or surpassing) “retirement age,” but retirement—in the traditional sense—seems out of reach … and the economic situation means that we really can’t afford to have people just sitting around. But even though all people want is JOBS, a staggering 78.5% of businesses never hire employees. These businesses are one-person ventures. Meanwhile, however, even if there were jobs, getting one would be another thing entirely: rampant ageism in the workforce has left a disproportionately high percentage of workers aged 50 and older unemployed for the long-term, draining their savings and forced to rely on government services.
Oh, and don’t forget! We have three extra decades of health to enjoy our retirement … or lack thereof.
It seems like a frustrating bundle of insolvable puzzles and Catch 22s, doesn’t it?
The good new is that it doesn’t have to be. Introducing one of the most interesting trends in the business world: encore entrepreneurship.
- Someone who is 50+ and excited about their “next act”
- Part of the fastest-growing segment of the American workforce
The U.S. Small Business Administration has a whole campaign directed specifically at encores, and for good reason: among working Baby Boomers, more than five million run their own businesses or are otherwise self-employed.
Encore entrepreneurship solves a number of problems in one fell swoop: staying productive is a great way to stay healthy, and running a business (especially if it centers around something you love doing) is a great way to stay productive for those of us who can’t afford to spend our entire “next act” volunteering or pursuing a hobby. Furthermore, encore entrepreneurs can keep working without having to get all worked up about the JOBS issue … and that “keep working” bit is just what our economy needs right now (not to mention our wallets!)
In short, the encore trend is paving the way for an increasingly vibrant economy full of healthy people (and saving the government money on social services and elder care costs!)
Welcome to the Age of the Solopreneur.
Solopreneurs are entrepreneurs who work alone. They might be writers, coaches, consultants, or artists. They might be massage therapists or CPAs. They are outsourcing the help they need, treating their time as the precious commodity it is, and using their passion and talents to make a living (and a good one—successful solo businesses can make $100,000 or more a year). Whether they call themselves “freelancers,” “home-based businesses,” or “self-employed,” they are predicted to make up 50% of the labor force by the year 2020.
And yet everyone—from the highest-ranked politicians in the federal government to local Small Business Development Centers—is obsessed with the same old questions: Why aren’t there any jobs? How can we get more of them?
You see, I believe we’re measuring the wrong thing: we’re wasting our time talking about JOBS. What we need to be measuring is work. Given the huge percentage of solo ventures out there, we need to figure out how to teach solos to be successful, and stop agonizing about the lack of good old 9-5 JOB-jobs. My decades of working with small businesses have made me realize that traditional business wisdom, which focuses on the “pyramid model” of hiring employees, is simply not applicable to solo ventures. Solos need to BE the business and DO the work they love—not hire other people to do it for them. I’ve developed some tools to help solos on their path to financial success, and I’m convinced it’s possible for everyone.
But what brings this all full circle is that I’m convinced that it’s especially possible for Boomers and seniors. As we’ve already discussed, we’re seeing more and more encore entrepreneurs, and solopreneurship is the easiest way for encores to be in business because of its flexibility. So if the idea of starting a business makes you want to run the other way, hang on a second! The internet and all of the e-tools we have available have made solo businesses scalable; geography no longer matters. You can sell your product or service anywhere, anytime.
In addition, many encores already have the basic requirement, the very first principle for successful solopreneurship: they have a lifetime of learning in one particular area, meaning that they have a focused passion for a deep and narrow niche. Bill Zinke of the Center for Productive Longevity calls it “Double ESP”: Boomers and seniors have Experience, Expertise, Seasoned judgment, and Productivity. Doesn’t that sound like a recipe for a successful business?
Now, I don’t want to paint too rosy a picture: solopreneurship has it’s own unique set of challenges. But that, after all, is why I wrote my book, Better, Smarter, Richer: 7 Business Principles for Encore, Creative, and Solo Entrepreneurs … and started my own solo-encore venture! I would love to hear your entrepreneurial stories and help make your next act better, smarter, and richer—drop me a line or visit me on the web!
Posted Tuesday, June 24th, 2014| Comment (1)
Three Steps to Survive a Healthpocalypse
Are people who claim their Social Security retirement benefits when they’re 62 too sick or impaired to work?
Fast forward three years, to when these early claimers turn 65. They’re about as healthy as those who decided to wait until age 65 to start receiving their Social Security retirement benefits, according to preliminary findings from a study using Medicare spending data as a proxy for health. The early claimers are also far healthier than people who left the labor force early to go on federal disability.
Some 8,500 older Americans were in the study’s sample, and they fell into four different groups: those who claimed a reduced Social Security pension soon after turning 62; those who claimed a larger pension at 65; those who were awarded a Social Security disability benefit before turning 62; and those who applied for disability but were denied and then claimed their retirement benefit after age 62.
The researchers, from the University of Michigan and Johns Hopkins University, examined Medicare claims from 1991 through 2008 for the four groups during the year following their 65th birthdays. They found no evidence of persistent health problems that would have kept the 62-year-olds from continuing to work for a few more years.
Controlling for race, sex, education and other factors that have a bearing on health, the $287 annual difference in Medicare claims between people who started receiving retirement benefits at 62 and at 65 was not significant. Similarly, the healthcare spending of people who received disability benefits and those who were rejected was virtually the same.
But there was a large gap between the group who claimed a retirement benefit at 62 and the group on disability: Medicare claims for disability recipients were $4,400 more annually than the claims for early pensioners.
It’s important to note that this analysis doesn’t capture any differences in healthcare spending that may’ve occurred prior to age 65. That’s the age of Medicare eligibility for everyone in the sample except those who qualified for Medicare sometime prior to turning 62, because they were receiving Social Security disability benefits.
When the researchers repeated the analysis using Medicare claims at age 70, however, the story was the same: poor health seems to play a fairly small role in the decision about when to claim Social Security retirement benefits.
Full disclosure: The research cited in this post was funded by a grant from the U.S. Social Security Administration (SSA) through the Retirement Research Consortium. The opinions and conclusions expressed are solely those of the blog’s author and do not represent the opinions or policy of SSA or any agency of the federal government.
Posted Wednesday, June 11th, 2014| Comments (2)
It’s Time for Some Bold Strokes to Support Older Employees
How to take cover when the sky is falling
Is anyone else feeling overwhelmed? The popular news media is full of apocalyptic scenarios that have the two of us feeling pretty exhausted. Everywhere we look the world seems to be teetering on the edge of a cliff—the economy, the environment, even honeybees. Our areas of expertise—medicine and public health—are no exception. For instance, workers managing one or more chronic diseases will be more and more common as the workforce ages and as a younger, less healthy generation joins the workforce. But instead of adding to the general anxiety by recounting doomsday statistics about the rising costs of medical care or the high rates of obesity and diabetes, we have suggestions that may bring some relief. Here are some practical things that employers can do to promote the health and wellness of their aging workers. These three steps will help keep your organization’s sky from falling.
Step 1: Promote preventive screening tests that have been proven to be a good idea.
The Affordable Care Act of 2009 requires that all private insurance policies pay for (at no additional cost to the patient) a list of recommended services, including certain screening tests and vaccines. Employers can promote the use of these services by simple and inexpensive means such as posters, electronic communication, and worksite wellness meetings. Employers can help older workers (and younger workers) know how their preventive service schedules change as everyone ages at work. When you can, offer and promote tests on site.
Step 2: Commit to chronic disease management programs, either by developing them within the company or hiring a third party to run them.
The quickest way to realize cost savings from worksite wellness activities is by helping employees with existing chronic diseases to keep their conditions in check through disease management programs. A study by the RAND Corporation found that Pepsico experienced a return on investment of $3.80 from its disease management programs, compared to a $0.50 return on its lifestyle management programs that focused on physical activity and diet among all employees, regardless of health status. The majority of the cost savings from Pepsico’s disease management programs came from a 30-percent reduction in hospital admissions. Notably, RAND clearly stated that organizational commitment is important for a program’s success. Simply having a program on the books is not enough to realize financial benefits. Employers and employees need to be engaged in order to maximize program effectiveness and minimize the potential for discrimination. The most common chronic conditions among workers 55 and over are arthritis, hypertension (that is, high blood pressure), heart disease, and diabetes.
Step 3: Introduce universal design solutions that work for everyone.
The total cost attributable to arthritis in the United States was estimated to be $128 billion as of 2003 (the most recent year for which figures are available). Nearly half of the workforce age 55 and over has some form of arthritis. We’ve written about universal design in general terms before, but there is no better example of universal design for arthritis than the OXO Good Grips brand of kitchen tools. Sam Farber invented the first OXO tool when he noticed that his wife (who had mild osteoarthritis) was having difficulty peeling apples for a tart. His designs proved to be immensely popular among people with and without arthritis. This is the essence of universal design–maximizing the number of people who use a product, place, or service with a design that works well for as many people as possible. A company that doesn’t have a human factors engineer or ergonomist on staff can hire one as a consultant to identify workplace barriers and solutions. In the meantime, a company can start with simple steps, like replacing door knobs with door handles. In addition to the physical environment, organizational policies can be universally designed. Workplace flexibility works for older workers with elderly parents, as well as employees who have young children.
While these three steps may not prevent a healthpocalypse, they may ensure that you and your employees are among the last ones standing.
Posted Wednesday, May 28th, 2014| Comments (3)
The Logics of Change
Research and anecdotal evidence find that workplaces often are not welcoming or friendly to older workers, and may be condescending if not actively hostile to them. Employers may be unwilling, unable or simply clueless about the well-established needs of older employees.
Meanwhile, mounds of research also have solidly established that older employees bring a wealth of experience to their jobs. They can be an organization’s most stable and loyal employees, are very trustworthy, great mentors, enjoy work more than younger cohorts and can be every bit as productive as workers in younger generations. If—and it’s a big one—if they are intelligently managed and supported by employers.
Now, hold this thought for a moment and consider a bit of irrefutable demographic information. The United States is running short of workers. Yes, lots of older Baby Boomers are extending their working lives, leading to alarmist stories that they are taking work from younger jobseekers and stalling efforts to begin and establish career paths. But the bigger picture here is that millions and millions of other Boomers are retiring, and their numbers will not be replaced over time by younger and smaller generations. Short of a large and totally unlikely flood of new immigrants into the U.S., many employers will have increasing trouble finding enough new employees, let alone qualified ones.
The happy solution, of course, would be for employers to close this manpower gap by embracing their older workers, retaining the ones who want to stay and putting out the welcome mat for new employees who are in their 60s and even 70s. They would get a great reception from older people who either want to keep working because they enjoy it, or need to keep working because their retirement portraits look like Dorian Gray.
There is a lot that education could do to produce better matches for older employees and workplaces. Often, reading about employer concerns regarding older workers seems like a story written in a foreign language compared with the narrative about how valuable a resource older employees can be.
Even so, the main spoiler to a happy ending to this story is—simply but profoundly—money. Older employees often represent higher expenses to employers. They may make higher salaries than comparably skilled younger persons. Their healthcare costs are higher. In many work settings, they are more likely to become injured and their rehabilitations are longer and costlier. Older employees may receive less training for skills maintenance and upgrading because they are viewed as sunset workers for whom such spending would be a bad investment.
What to do?
More studies and mindfulness strategies are nice thoughts but do we really need more research here? Experience suggests that employers with sizable older workforces will develop effective ways to handle them. The key is to encourage them to develop such workforces. And the best way to do that is to make it worth their while financially.
The biggest levers that exist to effect large-scale behavioral changes among employers are retirement and healthcare costs. These are big employer expenses.
If there’s any good news here it’s that they also are enormous public expenses. Social Security and Medicare have huge price tags that are only going to rise as Boomers get older. Less visible, perhaps, are the sizable hits to the U.S. Treasury from the breaks for tax-deferred retirement accounts and the tax deductibility of employer healthcare premiums.
Obamacare already has caused big attitudinal changes toward employer healthcare funding and, of equal importance, the notion that employers even are the best places to offer healthcare in the first place. It is not hard to see a future where employees go directly to a public or private healthcare exchange for their insurance.
As this likely evolution occurs, healthcare and retirement benefits are more and more likely to be viewed as coming from the same expense bucket. They will be managed as part of a single expense pool and employee costs will be looked at accordingly. Employers would pay “X” dollars for each employee’s benefits. And they shouldn’t care whether those dollars are spent in retirement security or healthcare. Nor where they are spent.
This is all by means of suggesting that changes could be made in Medicare and Social Security that would save employers enough money on the older members of their work forces to greatly reduce if not eliminate any added costs posed by them.
To name one example, why couldn’t Medicare be redesigned to accommodate older persons who are still working? Employers could shoulder some of these healthcare costs, although far less than they’d pay for a non-Medicare employer. Medicare would save money as well. Employees shouldn’t care whether their premiums go to a private insurer though a marketplace or to a private insurer participating in Medicare.
Further, older employers—and their employers—today continue to pay Social Security payroll taxes even if such taxes will add not a single penny to their eventual Social Security benefits. What about creating a payroll tax reduction or exemption for employees of a certain age? This might cost Uncle Sam some payroll tax dollars but wouldn’t the income tax benefit of keeping an older worker on the job more than make up for that hit?
Removing the reality and perception that older employees are a cost burden would lead to the retention and hiring of more aging Boomers. They would be better off and so, likely, would society.
Posted Wednesday, May 14th, 2014| Comments (0)
Downturns Fuel Bridge Jobs, Retirement
Many good reasons exist to promote age-responsive workplace policies, but different logics underpin the arguments advanced.
First, consider the logic of economic productivity. This rationale for age-responsive workplaces focuses on the risks of losing talented staff and makes the most of a multigenerational workforce. For example, an all-in or all-out retirement policy can lead some workers to exit their jobs sooner than their employers might desire, and hamper knowledge transfer between generations. Because such a policy can cause recruitment costs to escalate, productivity to fall, and profit to suffer, the option of bridge jobs looks like a better bet by comparison.
Second, the logic of social justice can be applied. This rationale focuses on the issue of inequity and how age or life-stage discriminatory practices create disadvantage. Applying this logic focuses on unfairness in the blunt use of age and parental status as markers of employability. Social injustice can result in the disillusionment and debasement of those who have been treated unfairly. It can also create entitlement for those advantaged by the status quo. The logic of social justice presents equity in workplace policies as an uphill battle of the weak against the strong, and its effectiveness is enhanced by social organization.
Third is the logic of collective interests. This rationale considers the health of society as a whole as the primary concern. Plato discussed this rationale in his treatise The Republic, showing that some types of unfairness or inequity can actually serve to create a more powerful society. For example, in the realm of retirement policy there may be very good reasons to encourage an older generation to exit the workforce in order to make room for the entry of a younger generation. Similarly, collective interests might also be served by policies that promote shorter work weeks and more vacation time as ways to reallocate work and reduce unemployment.
Weighing the arguments
If one is seeking to catalyze discretionary change within organizations, economic productivity is the logic that will have the greatest force. Can age responsiveness improve brand reputation? Will it facilitate recruitment and retention of the best workers? Will it enhance a company’s capacity to serve an age-diverse client or customer base? These are all relevant questions, which in turn beg for some type of cost-benefit analysis. The reality is that sometimes it makes economic sense for employers not to be age-responsive, and when that’s the case, those who fight for reform must fall back on the logics of social justice and collective interests.
The civil rights and gay rights movements reveal the remarkable sway that social justice arguments can have on workplace policy. How the Baby Boom generation will change the terms of employment for older workers is an open question. If its impact on the anti-Vietnam War movement, the sexual revolution, and popular culture are indicators, the effect is likely to be substantial but even so, it is not inevitable. Social justice may align with demands for nondiscretionary labor protections, but political will and political organization are necessary to back those demands up.
Owing to the individualistic orientation of American culture, the logic of collective interests might be more difficult to mobilize into action. However, remember that a shared spirit was a foundation of the commitment to World War II and underpinned many of the policies for returning soldiers (such as the GI Bill). The application of the logic of collective interests to age-responsive workplace policies requires considering not only what is best for older workers but also what is best for workers at all stages of life, as well as for those who are outside of the workforce. Ultimately, this question asks us to think about why age-responsive workplaces are important not only for securing the interests of older workers and their employers but also for the interests of a remarkably diverse society.
Stephen Sweet, Associate Professor of Sociology at Ithaca College, author of The Work-Family Interface (2014 Sage), and Research Fellow at the Sloan Center on Aging & Work
Posted Wednesday, April 30th, 2014| Comments (2)
The Ultimate Legacy Challenge for Boomers
Older workers may have every intention of deciding when they’ll retire, but economic conditions can undermine their well-laid plans.
A new study investigating whether macroeconomic events “leave workers with less control over their retirement timing” found that various transitions from career jobs into retirement sharply accelerated during periods when more Americans, including more older workers, were losing their jobs.
The researchers analyzed whether periods of rising unemployment over the past 50 years have affected three specific retirement transitions made by older workers: 1) from full-time work to “bridge jobs,” which pay less; 2) from bridge jobs to full retirement; and 3) from full-time work to full retirement.
These transitions were tracked based on changes in individuals’ employment earnings documented in U.S. Social Security Administration data from 1960 through 2010. An individual was considered to have shifted to a bridge job after he experienced at least a 50 percent decline in his earnings with an existing or new employer – the earnings floor on this group was $5,000 per year. When earnings fell below $5,000, the worker was considered fully retired.
The researchers said that they focused on white men between the ages of 55 and 75, because their labor force participation patterns were more stable during the period studied than those of women and minorities.
They found that a 1-percentage-point rise in the U.S. unemployment rate increased the number of men moving each year from full-time work to bridge jobs by 7 percent.
Rising unemployment also pushed more men into full retirement. A 1-percentage-point rise in the unemployment rate increased the number of men who retired – either from full-time work or from a bridge job – by 5 percent each.
When they investigated whether the retirement timing of high-income Americans might be less vulnerable to economic conditions, they found very little difference among various groups on the income ladder.
Even when individuals carefully prepare for their retirement, a downturn can quickly disrupt their plans.
Full disclosure: The research cited in this post was funded by a grant from the U.S. Social Security Administration (SSA) through the Retirement Research Consortium. The opinions and conclusions expressed are solely those of the blog’s author and do not represent the opinions or policy of SSA or any agency of the federal government.
Posted Wednesday, April 16th, 2014| Comments (4)
Why This Millennial Is Hanging With a Bunch of Boomers
Millennials are entering the workplace with a variety of negative stereotypes attached to their generation. “They are entitled.” They don’t want to work hard.” “They are disloyal.” “They require constant praise.” And on it goes.
That narrative—as inaccurate as it may be—makes it easy for Boomers to disengage. Such a choice, however, would be a lost opportunity for all generations in the workplace.
There are many reasons why Boomers should actively participate in the career development of Millennial employees. The following offers five of the more compelling:
Simple demographics should encourage Boomers to focus on the leadership development of Millennials. The intervening generation—the poorly named Gen X—is simply too small to fill the gap that will be left by the giant population of Boomers. Millennials, therefore, will be stepping into leadership roles sooner than predecessor generations were called upon to do so.
Millennials are willing to work hard, but they want to work smart. Their notions of when and where work can be done are vastly different from the face-time culture that Boomers’ nurtured. Boomers often misread the Millennials’ desire to use their prodigious technology skills to make work more efficient as a challenge to Boomer authority and work practices. This reaction inhibits helpful communications about ways to develop a more efficient workplace with more engaged employees.
The “entitlement” narrative has been part of the Millennials’ reputation since they started school—and it may be the biggest misperception of all. Millennials were raised by parents who studied child development experts so their offspring could be confident and secure. But when these children grew up and entered the workplace, that carefully nurtured self-confidence is viewed as entitlement. The questions Millennials were encouraged to ask as kids are now seen as a lack of respect for senior generations at work, and the desire for success that was imbued in them in their youth is interpreted as an unwillingness to “pay dues” as young adults. It is no wonder Millennials are confused when the adults in their lives at work respond so negatively to the self-respect that their Boomer parents helped foster at home. By pushing past this stereotype, Boomers can leverage the Millennials’ natural confidence in ways that promote their development at work.
Millennials want meaningful feedback, not empty praise. They earnestly seek to learn from new assignments, and recognize that an annual review is not an effective career development tool. Boomers who take time to offer feedback as work is performed are cultivating loyal employees—and fostering retention.
At some point, legacy matters. After decades of working hard, Boomers should be thinking about their own legacy. While there may be many accomplishments in which they can take pride, the gaping hole in most workplaces is the failure to adjust the model to the life circumstances of today’s families. Work-life integration and flexibility are not luxuries, they are workplace imperatives. Millennials will complete this undone work if they must, but do they really need to wait until the Boomers relinquish power to do so?
There are more similarities than differences in the characteristics of Boomers and Millennials. As driven, hard-working generations, opportunities abound to combine their collective energies to reform the workplace. It is the work that Boomers should have done years ago. By letting go of their defensive reactions, and seeing Millennials for who they really are, Boomers can add workplace reform to the list of social changes that have been the markers of their lives.
That should be the lasting legacy of the Boomers’ impact on the workplace. After all, they raised the Millennials – now it is time for Boomers to understand them at work and create an environment that nurtures the link between Millennials’ success and organizational sustainability.
Lauren Stiller Rikleen is the author of the recently released You Raised Us—Now Work With Us: Millennials, Career Success, and Building Strong Workplace Teams. She is the president of the Rikleen Institute for Strategic Leadership and the Executive-in-Residence at the Boston College Center for Work & Family in the Carroll School of Management.
Posted Wednesday, April 2nd, 2014| Comments (3)
Aging and Retirement: The Elephants in the Room
Sometimes, it’s tough to imagine a bright future for members of the Millennial generation. A new Pew Research study reveals that high levels of student loan debt and low levels of wealth and personal income are paving a rutted road for Millennials, roughly defined as those now in their teens through the low 30s. Yet they are still optimistic about the future and, according to The Millennial Impact Project report, want to make a meaningful difference. Happy hour conversations with friends at a steadily increasing crop of Millennial-attracting whiskey establishments echo this trend. (In full disclosure, I too am a Millennial.)
With this unsettling news, it may seem pollyannaish to describe a future in which we’re incredibly passionate about our jobs while simultaneously managing to leave a positive impact on our world. Maybe we should just worry about having a job, period. But can’t I work to save the world and eat my cake, too? That may very well be the case, and we can look to baby boomers and older adults for part of the answer.
A recent report by Boston College and Encore.org shows that honorees and nominees of the Purpose Prize, a program that celebrates the achievements of social entrepreneurs over the age of 60, describe their work as very close to an “ideal job.” These real-life trailblazers are defying the notion that innovation is the sole province of the young. They are working as changemakers in education, health care, social services, and the environment, among others, and report that their work is personally meaningful and an important part of who they are as individuals. Nearly 95 percent noted that if they had all the money they needed without working, they would still continue down the same path.
These notable social entrepreneurs are the most celebrated of a growing movement toward purpose in later life, but according to Encore.org’s research, they are just a few of the 9 million Americans ages 44 to 70 who are already in encore careers that combine personal meaning, social impact, and for many, continued income.
However, it’s not always easy to get to an encore. In fact, more than two in three (67 percent) of those already in encore careers experienced gaps in their personal income during the transition from their previous careers to their encores, and nearly four in five (79 percent) of those experienced a gap of six months or more. A majority relied on personal savings alone to make ends meet.
It’s no surprise, then, that the encore stage of life is often seen as an elite institution, available only to those who can afford to labor without pay and take the time to reflect on personal goals and passions.
We should think carefully about how to make encore careers available to all those who want to use their later years to improve their communities and the bigger world. How about planning for our encores early in our careers, just as we do (or should) for retirement? Policies should encourage this. We need to re-imagine key stages in our lives, too. Why, for example, do we feel the urge to cram all of our education into the first 25 years of our lives? Wouldn’t it be better—for our creativity, for our mental and emotional capacities, and for our economy—if we engaged our minds in learning throughout our lives, refreshing skills as we and the world evolve, to help others in need?
Already, programs are cropping up that make this vision a reality and help people move into socially-impactful work past midlife. But we need more than those pathways. We also need to change our thinking so that social contribution is the preferred complement (or replacement) to the tired vision of traditional retirement. That way, the encore stage of life will become a true cultural norm, available to anyone who wants in, for years to come. Including, by the way, me and many of my twenty- and thirty-something friends. Which is why this Millennial is spending his time working with a bunch of baby boomers, looking for ways to make it easier for current and future generations to live, and not just leave, their legacies.
Posted Wednesday, March 19th, 2014| Comments (9)
Self-employment: The Answer for an Aging Workforce and a Sluggish Economy?
There is a retirement crisis in the United States. Or is there?
Millions and millions and, for emphasis, even more millions of middle-aged Americans are moving closer to retirement these days. We don’t know exactly when all of them will retire or exactly what retirement will look like. Surveys find many people expect to keep working well past age 65. Yet Social Security shows a preponderance of claimants continue to file for retirement at age 62 or 63.
If we don’t know exactly what retirement looks like, we do know the financial condition of our aging nation filled with Baby Boomers—shaky at best. Even with the resounding comeback of the stock market since the Great Recession, and a slow but steady recovery in most housing markets around the country, retirements for many if not most will not be pretty.
Yet, even if this statement is true (and there are good reasons to challenge just about any absolute statement about retirement security), it’s hardly clear that it amounts to a crisis, or what we should do about it that we’re not already trying to do.
Private employers with 401(k)s and 403(b)s have taken a lot of heat in recent years for not doing more to help employees achieve better retirement outcomes. While employers have been struggling themselves to recover from the recession, they nevertheless have stepped up support for their plans (yes, often after pointed prodding), helped by better federal laws and innovative solutions provided by behavioral economists.
Retirement plans generally now offer better investment choices, lower fees, improved consumer disclosures and a range of participation rules that have raised employee contributions and participation. Retirement-plan balances are rising and projected outcomes portray satisfactory retirement solutions for the overwhelming percentage of plan participants.
The lack of tax-advantaged retirement accounts at smaller employers is widely cited as a major problem here. Roughly half of the nation’s private-sector employees do not even participate in a retirement plan and most of them work for smaller employers. President Obama and members of Congress have repeatedly proposed new retirement plans targeted to this population. There is also support for relaxing ostensibly pro-consumer safeguards for investment plans that have had the unintended consequence of making it harder for smaller employers to create and manage such plans.
We can argue about the pace and degree of change here. But it’s not as if anyone is turning a blind eye to the problem. And we should hardly be surprised that reallocating federal budget dollars to help improve retirement outcomes is not likely to happen these days. It is true that government budget deficits are declining. But they are still large, and government costs for helping our aging population—primarily through Social Security, Medicare and Medicaid—are set to soar in future decades.
Academic researchers have long identified Americans’ financial illiteracy as a primary cause of poor retirement planning and outcomes. And they have further urged schools and community colleges to greatly expand financial education courses. This is happening, albeit too slowly. But such efforts are more likely to help turn things around for future generations than for boomers whose financial realities for retirement already are largely determined.
Today’s reality, then, is that we have limited dollars and not much time to improve retirement outcomes, especially for people within 10 years of retirement. To move ahead, we must target our efforts where they will do the most good. To do this, we first have to recognize some unpleasant realities that have long been elephants in the room when it comes to retirement policy discussions.
Longevity gains are putting unforeseen pressures on retirement prospects. We are living longer, meaning we need to save more money for longer retirements, and we will have less to spend during retirement. Expecting employers or governments to “fix” this problem is naïve.
- Social Security is the only source of retirement income for half of all American seniors and even the dominant source for another 25 percent. If you really want to improve retirement prospects for most Americans, you can do so by boosting Social Security payouts. If you don’t want to increase government spending in the process, you will need to boost taxes on the top tier of wage-earners.
- Expecting any voluntary savings program to make a difference in the retirement prospects of lower-earning Americans is not realistic. They either don’t have or are unlikely to set aside extra funds, even with attractive tax incentives (which, of course, could add to federal deficits).
- Citing the decline of traditional pensions as the cause of our retirement crisis is a popular theme among 401(k) critics. But it’s not accurate. Even during the prime of traditional pensions, fewer than 30 percent of employees actually qualified for and received payouts. Pensions improved retirement prospects mostly for the same types of employees who are now being helped by 401(k) plans. The difference, of course, is that pensions were funded and invested by employers; they took all the risks. Today, employees take on all the risk.
- The notion that Social Security simply pays people back for what they put into the system in taxes is false. So is the prevalent attitude toward Social Security that “I paid for it; it’s mine.” The program’s progressive payout rules provide retirement benefits that replace much larger percentages of people’s incomes for people who don’t earn much money. For people who earn only 25 percent of the nation’s average wages, for example, Social Security benefits replace 77 percent of their income. People who earn the top amount of wages subject to payroll taxes qualify for benefits that replace only 28 percent of their incomes.
In reality, Social Security is a massive income redistribution program. You may think this is a good thing or a bad thing, but at least we should recognize the program for what it is. In terms of retirement, Social Security has evolved into the only game in town for most of us.
Among the top 50 percent, there is no retirement crisis for people aged 65 and older in the top quartile of income. They make enough money and also are big beneficiaries of tax breaks provided to holders of 401(k)s and IRAs. The next quartile is the sweet spot for retirement plans, and the evidence is clear that these savers are increasingly on track toward decent retirements.
Posted Wednesday, March 5th, 2014| Comments (4)
For some older Americans, the answer is maybe;
for most, the answer is no.
With diminished prospects for wage-and-salary work in recent years and projections of sluggish growth for at least the near term, as documented in the Congressional Budget Office’s February report on the economy, it’s natural to look for alternative forms of employment as a way for older Americans to cope with the current macroeconomic climate. Self-employment–either incorporated or unincorporated–seems like one potentially fruitful option.
Many older workers already transition into self-employment later in life. Research based on the Health and Retirement Study (HRS)—a large, nationally representative dataset of older Americans—reveals that more than one in ten career wage-and-salary workers transition into self-employment prior to exiting the labor force completely. Further, the number of career wage-and-salary workers transitioning into self-employment later in life is much higher than the number of self-employed workers transitioning into wage-and-salary jobs. It gets better. Career self-employed workers are much more likely than their wage-and-salary counterparts to remain working at later ages—a key objective for many policymakers considering ways to mitigate the financial strains of an aging population.
As a result of these two trends (net positive transitions into self-employment and the longer working lives of the self-employed), the fraction of older workers who are self-employed increases dramatically with age. Among a group of career workers aged 51 to 61 in 1992, for example, the percentage who were self-employed as a fraction of those still working rose monotonically between 1992 to 2010 from roughly 20 percent to 40 percent for men and from roughly 10 percent to 20 percent for women. Moreover, evidence suggests that the Great Recession has not discouraged these transitions into self-employment.
Self-employment and risk
These data suggest that self-employment is already an attractive option for a large segment of the older population. The big question is whether older Americans who are not self-employed should be encouraged to try it.
One reason for self-employment’s appeal in recent years is the outlook for older Americans who are among the long-term unemployed. The length of the average spell of unemployment for Americans who are 55 and older has gone down recently, but remains high, at 46 weeks. In comparison, the average unemployment spell for younger workers is approximately 34 weeks. For these long-term unemployed older Americans, could self-employment be the solution to the lack of opportunities in wage-and-salary employment?
Consider the positives first. Self-employment offers the scheduling flexibility that older Americans rank high on national surveys. A recent AARP study revealed that older Americans value such flexibility even more highly than pension benefits. Indeed, all else equal, self-employed older Americans work fewer hours than wage-and-salary older workers do, presumably by choice.
Older Americans may also be in a better position than younger ones to become self-employed, in part because they are more likely to have the financial resources necessary to overcome a formidable barrier: access to capital. They can overcome this barrier because they’ve had more time to accumulate personal savings and more time to establish good credit. Older workers also have the advantage of decades of work experience: intangible skills and knowledge upon which they can draw when facing the inevitable challenges of self-employment. In fact, research by the Kauffman Foundation finds that the survival rate of new businesses increases with the owner’s age.
While all of these incentives are valid, any evaluation of policies to encourage self-employment must consider the role of self-selection. Transitions into self-employment are not exogenously bestowed upon people; rather, they are the calculated decisions of risk-takers who have concluded that the expected benefits of self-employment outweigh the expected costs. Perhaps more important, people who reach the opposite conclusion—that the expected costs outweigh the expected benefits—choose not to become self-employed. Policymakers should be cognizant of the often unobservable qualities that drive older Americans to make the leap from wage-and-salary employment to self-employment, and of the unobservable qualities that prevent others from taking a chance.
The financial security of older Americans is another concern. According to the Employee Benefit Research Institute’s latest annual Retirement Confidence Survey, the typical older worker has less than $25,000 in nonhousing, nondefined-benefit pension wealth. Does it make sense for these workers to bet what little they’ve saved? Making that bet even more daunting is the uncertain payoff of employer-provided pensions. A 30-year transformation in the world of employer—provided pensions is now more or less complete, with defined-contribution plans such as 401(k)s dominating defined-benefit plans in the private sector. This shift leaves older Americans today much more exposed to market forces than prior cohorts were. The long-term outlook for Social Security currently shows a sizable deficit as well, leaving little room for some kind of program expansion that might cover retirement income shortfalls.
Back to our initial question: Is self-employment the answer for an aging workforce and a sluggish economy? Self-employment may be an attractive and viable option for some older workers, and the jobs, goods, and services these people create will help the economy. For most people, however, the benefits of risking their security don’t outweigh the potential losses, especially given that time is short for many older workers to acquire the assets they’ll need for their retirement, let alone to recover from a failed business venture.
Kevin Cahill will present a more in-depth view of self-employment transitions among older Americans at the Eastern Economics Association meetings in Boston on March 8th. The views expressed in this article are those of the authors and do not necessarily reflect the views of the U.S. Bureau of Labor Statistics, Analysis Group, or ECONorthwest.