Evaluating the Case of The Early Retirement - Coursework Example

? [Insert Case] Evaluating the Case of Early Retirement [Insert Texas A&M Commerce In partial fulfillment of the requirements for [Insert Subject] [Name of Professor] [Date of Submission] Table of Contents Abstract………………………………………………………………………………………...3 Introduction…………………………………………………………………………………….4 Background…………………………………………………………………………………….5 The Allure of Early Retirement………………………………………………………………..7 Things to Consider……………………………………………………………………………..8 How Early Retirement Can Backfire…………………………………………………………..8 The Emotional and Mental Impact…………………………………………………………….9 Conclusion……………………………………………………………………………………11 References……………………………………………………………………………………12 Appendix A…………………………………………………………………………………..13 Abstract This paper seeks to delve deeper into the trend in the modern economy of high employee early retirement. While it may be very alluring for many to opt for this option, it may not necessarily be the best move for employees to consider. There are many factors that might prove to be very problematic for the early retirees. This paper also explains why majority of companies are offering early retirement options, but not for the well and benefit of their employees. Companies are forced to offer this option because of the ever fast changing technological advancements and they constantly need to train individuals, most preferably the younger ones, to take over these aspects. This matter then becomes something like teaching an old dog new tricks. Companies tend to decide to offer termination for their older employees rather than to sustain them and incur higher salary expenses. Technical advancements also tend to make jobs obsolete. Financial stability as well as the emotional and mental consequences must be considered before opting for early retirement. For one cannot enjoy the vast time that is availed by early retirement if one does not have the resources to make it worthwhile. Evaluating the Case of Early Retirement Introduction In the ever tolling rat race of the industrial world, with all the heavy and laborious challenges that man is faced just to earn a living, every man is looking forward to their retirement. Who would not want to just lay back, enjoy life, and do the things which were rendered impossible by the busy lives of working and toiling day after day for decades and decades. Sure, everyone wants the easy life, who doesn’t? After all, every man who has sweat blood and broke his back would ultimately need to reward himself and reap the benefits of his labor. Early retirement sounds so ideal, so surreal, and so gratifying. It means that you have achieved and managed to build your keep and have you living well-off for the rest of your life; the ultimate achievement for a good and fruitful career. But early retirement is not like as how fairy tales go. It is not as simple as living happily ever after. Financial stability does not necessary follow with early retirement. Sure, there will be that severance pay and/or whatever the companies will package and offer you as “gratitude” to your services to them, but once those are depleted comes the real problem. Pension is a viable option to compensate for the monthly salary which you will not be receiving anymore, but there are also other benefits which cannot be availed for early retirees. In this paper, not only will the advantages and the good life of early retirement will be tackled but also this paper will seek to delve into the cons and the disadvantages when retiring early. Yes, even when retiring one needs to be practical and decisive. It is the final step of the career, and thus it should not be taken ever so lightly. Background It had been observed that many workers have been retiring earlier well before they reach the formal age of retirement, which is 65 (Ahituv & Zeira, 2001). It is well noted that in 1996 the average labor force participation rate in OECD countries was 63.6 percent for men between the ages of 55 to 64, as compared to 93.1 percent for the ages of 25 to 54. It is a known fact that labor participation rates have drastically declined over the previous decades. Appendix A will showcase the trend in the 90s in terms of the labor force in terms of year and age. Others will argue that this is largely because of the technical progress experienced by the modern economy (Ahituv & Zeira), while others may say it is because of the generous retirement plans which prompted the workforce to avail of early retirement. Because of the technological advancements, older employees are then becoming more and more obsolete in the cogwheels of the whole company. It creates and paves way to new professions but then it also destroys the foundations of the older models of working dynamics. Thus this also resulted in the trend of early retirement in the decades which followed the technological boom. Companies then offer sumptuous retirement options for compensation because in reality technology is more cost-efficient rather than keeping the old workforce. Be it as whatever it may, the real repercussions of early retirement will be evaluated. The impacts of early retirement is not felt solely by the individual, rather it also affects the dynamics of the entire workforce of the industry. Large scale early retirement trends have been an issue dating back from the early 1970s (Kieran 2001) There are two types of training in the investment of human resources; one is the general training and the other is firm-specific (Montizaan et al., 2008). General training consists of increasing the productivity independent of how the company is performing, while firm-specific training is tailored for the sole purpose and benefit of aligning the employee into skills and knowledge which are critical to the junctures of the company and are therefore more valuable. Because of the dispensability of the general trained workers, they are sharing the cost burden with the company since they carry the risk of easily abandoning the company in order to serve other firms, unlike firm-specific trained ones wherein their knowledge and skills are only of value to the company and are therefore invested on more heavily and are compensated well above how their marginal product should be really be valued at. This is crucial in the understanding of how the trend is for early retirement. It is an important observation that firm-specific trained employees have higher early retirement rates than that of the general trained employees. Because firm-specific employees will have lesser options late in their career, with their skills obsolete on other fields and companies, they tend to look at early retirement more of an option more and more as the toll of repetitive work takes on them after decades of service. Firms are also willing to participate and provide pension coverage since it is also in the best of their interest to terminate and dispose older workers with firm-specific skills in order to provide an allowance for the unanticipated changes in the technical advancements wherein younger and less costly employees will then be trained again by the company, but this time in the much more updated fields needed by the firm. The pension plans also significantly affect the retirement, obviously because the higher the pension coverage the higher the life satisfaction is promised. And firm-specific employees receive the higher pension coverage compared to the general trained ones. There have been company options wherein one can retire as early as 50 provided that he has already served the company for at least 20 years (IMRF Early Retirement Incentive, 2011). The Allure of Early Retirement While there will be some handful of workers who will be dramatically attached to their work and would opt for lifetime service in the name of the company, most would dream of retiring early. The allure of finally having the luxury of time to be able to try on new hobbies, travel to places, and explore other possibilities and enjoy life would sure make anybody be dreamy of it. The best thing about early retirement is that the individual would still be relatively young enough to enjoy other aspects as compared to retiring in the old age of 60 or even 65 wherein one will be very most likely be limited by physical and health conditions. It is also a great escape from the busy life of working every day. This gives one more time to value and spend precious moments with his loved ones, his significant other, and even watch the children and be a witness as they grow up and even the grandchildren. This will also provide a much lesser stressful environment which could be very beneficial health wise in terms of longevity and age. Things to Consider The most important thing to consider would be the financial stability of an employee should he opt for an early retirement. What is an early retirement if one is still financially troubled and unable to fulfill and lie in leisure. There are several company policies that withhold maximum benefits from certain conditions of retirement. For one, an employee will have reduced benefits if the employee is less than 60 years old and has less than 35 years of service credit when retiring (IMRF Early Retirement Incentive, 2011). Therefore, it should become an imperative that one must really review and understand all the policies and clauses in retirement agreements because many will prove to be very cunning into luring an employee into accepting very promising pensions only to find out that certain provisions would render them financially unstable after accepting the retirement agreements. While federal law requires that the employer who is offering early retirement options to make their employees fully aware about such benefits and risks, one must not rely on such law alone. An employee might be blinded by such benefits and will then fail to see that he is unqualified to avail of such. How Early Retirement Can Backfire The biggest con for early retirement is that one will no longer be receiving a pay check. Unless there is a hefty severance and pension plan waiting for you upon retirement, early retirement would only prove to be very detrimental on the financial stability of you and your family. Health benefits will also be a considerable factor considering that the employer would cut their support on the payment of these incentives (unless if it is also included on the pension). The more glaring facts are that which come of availing certain benefits which are hindered by the age in early retirement. One cannot use their 401K or IRA money until the age of 59 and a half without penalty, and since retiring early usually means retiring on the age of 55, this will prove to be a big drawback to be considered. Also, the eligibility for Social Security cannot be availed until the age of 62, unless if one is incapacitated or disabled (Esteves, 2010). Retiring may also render on incapable of paying the other loans such as housing and college plans for their children. These plans might have already been deducted from ones general base pay and the pension might prove to be insufficient in order to augment the difference between the expenses that were once bridgeable by the pay check that the employee was once receiving constantly. The Emotional and Mental Impact Humans are creatures of habit, thus with the abrupt stoppage of activities in the lives of the retirees will also have effects not only physically but mentally and emotionally as well. The sense of identity and usefulness of an individual is tied up to ones sense of belongingness and association. Thus, when one is cut from the job and company where he was deemed important before retiring, one might suffer a life crisis in searching for his reason for being. Social connections will also be affected since most of his social interactions were then much involved in the company work environment. In a survey conducted, it was found out that 89 percent were living alone after retirement and the same percentage was also observed as having a lack of social interaction (Maes & Stammen, 2011). This statistic would lead to suggest people develop depressions during retirement because they “do not anticipate the disappearance of social networks and do not actively engage in maintaining previously existing social networks like those related to their previous jobs” (Maes & Stammen, 2011). This could vastly affect the level of contentment and happiness in their lives, which is very contrary as to how they envisioned retirement would be. Educational attainment would also not prove to be an advantage in evading such mental impacts because it was found out that people with jobs of higher importance to the company tend to suffer most of these symptoms and effects. It is important to note that financial stability is not the only factor that needs to be considered in the prospect of early retirement. The emotional stability is also, if not equally important, very important in assessing if one should take an early retirement or not. One should not be easily blinded in the offerings of large sums of pensions and benefits which will be only as shallow financially. Other retirees, in order to cope up with the adverse effects, involve themselves in community activities in order to serve the purpose of having importance in society. This addresses the concern of having social interaction and this would also reap very healthy rewards for the individual. Conclusion In conclusion, early retirement is not as easy as one might firstly perceive it to be. Although it is very alluring to have a very early exit on the strenuous work environment, if one is not careful, a more strenuous life would await him. Promises of living life and enjoying it in retirement will only be realized if early retirement is planned and considered thoroughly enough. One cannot enjoy the leisure of trying out new hobbies, enjoy travelling, and other fulfilling activities if one is financially constrained to do so. In considering an early retirement, it should be well evaluated that you will have well and good benefits and pension packages that will sustain and stabilize you financially. One must be wary of retirement traps wherein there are clauses which will render on to not maximize the retirement benefits especially in early retirement. Also, the emotional and mental consequences must be considered and planned ahead. It is not fulfilling to spend the rest of your life alone and isolated, full of regret and having no sense of self-worth. All in all, early retirement should be viewed as also a business strategy. If you see that you are financially capable to sustain yourself for the rest of your life, then it can be a very viable option. If not, one should not avail it for it will only be a burden and an eventual downfall to cap a hard earned career. References Ahituv, Avner & Joseph Zeira. (2001). Technical Progress and Early Retirement. Department of Economics, The Hebrew University of Jerusalem. Esteves, Isabelle. (2010). The Pros and Cons of Early retirement. Retrieved from http://www.helium.com/items/1913150-the-pros-and-cons-of-early-retirement. IMRF Early Retirement Incentive. (2011) Illinois Municipal Retirement Fund. York Road. Kieran, Patrick. (2001). Early Retirement Trends. Perspective on Labour and Income. September 2001 Vol. 2 No. 9. Maes, Marjan & Benjamin Stammen. (2011). The impact of early retirement on the subsequent physical and mental health of the retired. Hub Research Paper. MAART 2011. Montizan, Raymond et al. (2008). Training Background and Early Retirement. Discussion Paper no. 3504. Appendix A 1992 1994 1996 Age 55-60 Above 60 Age 55-60 Above 60 Age 55-60 Above 60 in the labor force working 70 48.7 72.1 49.1 73.9 49.7 unemployed 5.6 2.4 5 2.9 4.2 1.6 out of the labor force diabled 10.4 8.8 11.6 11.8 10.8 10.2 retired 13.8 39.8 11.2 35.9 11 38.5 other 0.2 0.1 0.1 0.3 0.1 0 Source: (Ahituv & Zeira, 2001) Read More