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September 17, 2010

Why "Modernizing the Retirement Age" won't work

Many politicians who are attempting to address the entitlement problem facing America believe that one component of the solutions is to raise the retirement age to 70-72.  The basis for this seems logical...people are living longer and therefore should work longer, too, right?

But the reality is something else entirely.  The fatal flaw with the plan is the assumption that retirees actually have a choice in determining when they retire.

One of the common themes I noticed when the recession hit was how many of the people who were laid off were over the age of 50.  In "normal" times, employers can't discriminate by targeting older employees for layoffs.  But in tough economic times it becomes virtually impossible to assert age discrimination as the reason for why you were laid off.  There is just too much evidence that age was not the "primary" reason for the layoff.

The resulting reality is that a gap now exists between the time a person is forced to retire and the time they can begin collecting social security benefits.  Many of the people who would prefer to wait to begin collecting social security are now forced by economic circumstances to to elect to begin receiving their benefits early, simply out of necessity.  And while they wait to qualify they have to rely on unemployment benefits, live on whatever savings they do have, take whatever job they can find, become a burden on their children, or starve.

Transferring the real cost of retirement from the social security category to the unemployment benefit category doesn't make the problem go away.

And Paul Ryan also fails to understand that when older people fail to retire it also clogs the system.  Middle-aged people can't move up, nor can recent college grads find jobs.

The hard truth is this:  The only resource we have too much of is human beings.  We can play zero-sum number games all day long but this basic fact won't change.  Now that the system of hyper-leveraging to pay for everything we can't afford otherwise is rapidly collapsing around us, we have a very limited window of opportunity to take responsibility for our own lives and make ourselves solvent, relevant, and indispensable in a rapidly emerging globally competitive environment.

Attached is a very good article in today's WSJ that talks about the extent of our entitlement problem...