Retirement in America - Essay Example

Retirement in America Introduction One of the most crucial and inevitable stages of human life has been old age which arrives at a later period of life with a number of subsequent issues for the elderly and retirement in America has a significant role in determining how people can enjoy their old age. In America, one can take advantage of the retirement planning opportunities and there are wide-ranging privileges extended to the aged which make life after retirement trouble-free. "The term 'retirement' generally connotes a complete and permanent withdrawal from paid labor and entering retirement is often thought as an abrupt change in the life of an elderly person." (Costa, 2000, p. 6). The point where an individual discontinues his employment completely, which is called retirement, makes one entitled for private or public pension benefits and the notion of retirement in America has changed over the years. In a historical survey of retirement in America, one comes to recognize that the notion of retirement assumed a great impact on America after World War II and it has undergone essential changes ever since. Unlike the earlier days, there is an emergent notion in America today that "retirement is the beginning of a new and busy chapter of life, a time for continued learning and development, skill building, forming new and purposeful relationships, and giving back to the community Moreover, retirement is 'a time to begin a new chapter' in life and that, just beyond traveling, volunteering is what older adults look forward to most during this new stage of their life" (Johnson, 2003, p. vi). Therefore, the notion of retirement in America has changed over the years and the well-being of individuals after retirement is considered as one of the major responsibilities of the state and the government. Significantly, in the contemporary life of the Americans, retirement in America can effectively offer one of the best periods of life through careful and sensible planning. In this paper, a reflective analysis of retirement in America is offered in order to determine how it has changed from the past, how it will change in the future, which all are the major organizations doing to retirement plans for their employees, and whether employees can retire in America at 62, 67, or will they need to be older etc. Retirement in America In the United States, retirement has been a topic of constant changes over the past several decades - including the consequent attitudes of the people towards retirement, the provisions by the law, Social Security issues, the age of retirement, and other crucial aspects concerning retirement. One of the major responsibilities of the social security programs in America has been to ensure that the individuals who have dedicated their service and potential to the growth of the society are offered the best security programs during their period of old age. Social security has traditionally combined the goals of earnings replacement and income maintenance and the American Social Security system has played a major role in financing retirement. "Despite much criticism, the American Social Security system works fairly well, but only if you consider Social Security payments a handy supplement to other sources of retirement income. Many people who were young when the Social Security system began in the 1930's placed too much reliance on it and were forced into difficult financial circumstances in their old age because of inflation. By the 1970's the government began a comprehensive program of tax incentives for various other retirement funds. Individual Retirement Accounts (IRA's), Keogh Plans, and 401(K) plans are some examples." (Financing Retirement, 2007). Therefore, the American Social Security system has contributed heavily to the great changes that have taken place in retirement in America and it is possible that further changes in retirement take place in the future. In America, the rise of retirement started more than a century ago, unlike the commonly conceived notion that it was with Medicare or the beginning of Social Security that retirement began in America. Unlike the 1880s, when the majority of men older than sixty-four toiled in the labor force, men older than sixty-four in the labor force today are in the minority. The most recent statistics confirm that that there is essential decrease in the participation rate of younger men, i.e. those aged fifty-five to sixty-four. An important factor in the present trend of retirement is that the age of retirement has fallen, whereas life expectancy has risen, which results in an increase in the average number of years spent in retirement. In the future, those aged twenty today can expect to spend up to a third of their lives in retirement, if the current trends in retirement continues. An understanding of the recent retirement trends in America confirms that the conception of retirement, that it is a complete and permanent withdrawal from paid labor, is best illustrated by the common experience of most men today. Significantly, about seventy-five percent of all retirement sequences today are transitions from a full-time job to being out of labor force, although there are certain people who switch over to part time work during the retirement period. According to Dora L Costa, "we cannot be certain that defining retirement as a departure from paid labor, regardless of the number of hours worked, captures the meaning that the term had in the past. In the past, men may have been more likely to phase work out of their lives slowly." (Costa, 2000, p. 7). Therefore, the concept of retirement in America, along with the various attitudes, policies, and provisions of retirement, has changed considerably over the years and there is a great chance for further changes in the concept of retirement in America during the years to come. Retirement age in the United States is determined by various factors and retirement age in the nation has changed over decades. Significantly, the normal retirement age for the unreduced benefits offered by the Social Security and Old Age Survivors Insurance (OASI) has historically been age 65,although there is an increase in this retirement age to 67 in the recent years. Thus, it is essential to comprehend that the retirement age has undergone great fluctuations over the several decades since the World War II. In an analysis of the factors that influence retirement, it becomes lucid that health and financial aspects are closely connected and the retirement age of the people is a major element determining the individual's life during the retirement period. Significantly, there are evidences to suggest that individuals of early retirement age have health issues which are not very serious. There are various factors that normally determine the retirement age of an individual including early retirement age. It is important to note that social security benefits and earnings test encourage workers to withdraw from the labor force. As the consequences of the current trend in early retirement are far-reaching, it is essential to look into the factors that contribute to early retirement and resolve the issue. The early retirement of individuals can affect the social security system as well as the functioning of the other measures that aim at the well-being of the aged people. In order to resolve the issues caused by early retirement and as a means to make use of the working potential of the aged, moving the normal retirement forward, i.e. later retirement, can be effective. "Retirement is also facilitated by the availability of actuarially reduced benefits before the age of sixty five. The trend toward early retirement has far-reaching consequences both for the welfare of the aged and for the costs of the social security system. In view of the increasing physical capacity of the aged to continue working, the growing proportion of elderly in population and the forecast rise in social security costs, an attractive option is to encourage later retirement by moving the normal retirement forward, perhaps to sixty-eight." (Munnell, 1977, p. 73). Therefore, the retirement age of the individuals in America has an essential influence on the social security system of the country and an understanding of the factors that contribute to early retirement is required. In an analysis of the factors of early retirement, it becomes lucid that retirement benefits were not paid to the workers until they reached sixty-five, until about 1956. From November 1956 for women and August 1961 for men, workers at sixty-two were offered permanently reduced benefits. It is essential to realize that there is a tremendous popularity for the early retirement option in the US. "After the introduction of the early retirement option, the drop in labor force participation for women between sixty-one and sixty two was 2.8 percentage points in 1960 and 4.3 in 1970 compared to less than 0.5 points in 1940 and 1950. After the option was extended to men in 1961, the drop in their participation rates between the ages of sixty-one and sixty-two was 6.5 points in 1970 compared to 1.4-2.1 points in earlier years." (Munnell, 1977, p. 74). Therefore, it is clear that the early retirement option in the US has acquired tremendous popularity in America over the years and this has influenced the changes that have taken place in retirement in America. Early retirement can bring about several essential issues for the aged and it is important to make sure that the interest of the old people is assessed. An understanding of the retirement age in relation to cost confirms that the arguments for lowering the minimum retirement age have valid points to make. In essence, the actuarial reduction in benefits given to workers before sixty-five makes sure that there is no increased benefit cost to the system. However, many of the least fortunate workers receive permanently lower benefits throughout their retirement due to the actuarial reduction. Therefore, the popularity of the early retirement has led to pressure for further liberalization by lowering the age requirement and eliminating the actuarial reduction, and these changes can result in an increase in the cost of the system. Although the argument for lowering the minimum retirement age gains strength from the lack of employment for workers just below sixty-five, a profound understanding of the system confirms that early retirement is not a wise option. "Early retirement is not always appropriate solution to the problem of unemployment among the aged. The solution must be related to the cause. If older workers are unemployed because they have been displayed by automation, early retirement may be the logical course, since retraining the aged may be impractical. However, if it is physical disability that prevents the aged from working, the appropriate way to provide for them is an extended disability program and not a retirement program that pats benefits to everyone." (Munnell, 1977, p. 74). Therefore, early retirement is not a solution to several of the social security issues and problems such as unemployment, and the retirement age should be fixed according to the demands of the system. There is a close relationship between income and retirement and it is commonly agreed that retirement requires income in the form of state-provided retirement benefits, private pensions, income from other family members, or assets. There are various essential factors which influence the retirement decision and health deterioration is an important reason. During the retirement age, earnings generally decline and retirement income is usually lower than the income while working. "By continuing to work, not only do men enjoy a higher income than they would if they retired, but they are also able to accumulate more savings or increase their entitlements to Social Security and private pension benefits. They can thus support higher retirement consumption at a later date - a date when there will be fewer remaining years of life over which support would have to be provided." (Costa, 2000, p. 33). Therefore, a later retirement from work can not only make one capable of getting Social Security assistance, but it will also provide them with a consistent income for a long active life. One of the most important changes with regard to retirement in America is seen in the management of the various benefit pension plans and there is a crucial disappearance of the traditionally defined benefit pension plans, which promised workers a specific monthly payment on retirement and were managed by employers. In the contemporary context of labor in America, more than 42 million workers currently take part in definite contribution retirement plans, principally 401(k) plans, and these benefit pension plans lay down the annual contributions to an employee's pension fund. "Today, millions of working Americans participate in the fastest-growing pool of retirement assets ever created, defined contribution retirement plans. These plans allow workers to save for retirement in accounts invested in corporate equities (stocks) and bonds. Contributions, interest, dividends and growth may compound tax free until distribution in retirement. The principal form of these accounts is 401(k) plans sponsored by firms for their employees." (Hamilton and Burns, 2001). It is essential to realize that these benefit pension plans have grown with such speed and popularity in recent years that they are displacing long-established benefit pension plans. Significantly, the defined contribution plans, which were introduced in the United States in 1978, share their assets exceeding $2 trillion today and the assets of 401(k) plans far overshadow the assets in Individual Retirement Accounts (IRAs) and Roth IRAs. Therefore, there have been several vital changes in the benefit pension plans in relation to retirement in America and people are more concerned about how to create more vigorous and secure retirement income through the free enterprise system. It is essential to undertake a profound analysis of the recent trends in financial and political consequences for the nation's retirement system. A retirement plan, which is a financial arrangement intended to substitute the income of the employee upon retirement, has a great value during the life after retirement and several entities such as employers, insurance companies, trade unions, and the government set up these plans. In order to realize the great role of the benefit pension plans, it is essential to analyze the history of retirement plans in the country and the United States is a country with a long history of pension plans. Significantly, the history of retirement plans in the United States date back to 1875 when the American Express Company set up the first employer-sponsored pension plans in the country. "As the history of retirement plans developed, the Revenue Act of 1926 allowed employer's contributions to the retirement plans to be tax deductible. This act made establishing retirement accounts for employees a valuable benefit for employers to offer employees. In 1935, Congress passed the Social Security Act, which today is a still a hot topic in the history of retirement plans As our economy evolves, the history of retirement plans is altered. One constant in the history of retirement plans is the benefit of using a retirement plan to plan for your retirement." (History of Retirement Plans, 2009). Therefore, there have been several important policies which contributed to the development of retirement plans in the United States and the Social Security Act, which was a great supplement to employer established retirement plans, illustrates these general policies. The 21st century notion of retirement which is widely recognized today has been the result of a long process of evolution and the Industrial Revolution played a major role in securing decent wages and a sense of security for the employees across the world and in America. As aforementioned, the American Express railroad company was the first to set up a private pension plan in America in 1875. Another major development during the Great Depression was the Social Security Act of 1935, which paid retired workers age 65 and older, and disabled people, a fixed amount each month for life. "In 1935, the program was funded by a 1% tax on both employers and employees on the first $3,000 of a worker's earnings. In January 2006, nearly 34 million Americans collected Social Security, with the average retired worker receiving approximately $1,000 per month. Today, the Social Security tax rate is 7.65% on employers and employees. ERISA in 1974 added an additional security blanket, protecting assets from misuse by fiduciaries and ensuring employees' rights to their pensions. It also allowed those not covered by pensions to open tax deducible IRAs. In 1981 401(k)s emerged, followed by Roth IRAs in 1997." (Murphy, 2006). Therefore, a historical survey of the 21st century notion of retirement confirms that it is the outcome of four hundred years of seeking financial security and several factors have contributed to this evolvement. All these developments in pension plans in America have created a better state for people to retire and the trends of current retirement will definitely bring about changes in the future. "Many Americans now look forward to retirement. Most enjoy the health and the income needed to pursue the good life At the beginning of the last century few men could afford to retire Rising incomes have enabled more men to withdraw from the labor force. Now income, health, and employment prospects are not the important determinants of the retirement decision they once were." (Costa, 2000, p. 188). Therefore, there have been essential changes in the notion of retirement through its history in the U.S. and the trends in the area confirm that there are definite changes yet to come. Conclusion A reflective analysis of retirement in America confirms that the concept of retirement in the nation has undergone essential changes which influence the life of the Americans during their retirement period. Retirement in America has not only changed considerably from the past, but, as the recent trends indicate, it will continue to change and assume new features in the future. In the contemporary America, people are more concerned about how to create more vigorous and secure retirement income through the free enterprise system during their employment period and various major organizations provide significant retirement plans for their employees. References Costa, Dora L. (2000). The Evolution of Retirement: An American Economic History, 1880-1990. University of Chicago Press. p. 6. "Financing Retirement." (2007). Life in the USA. Retrieved 17 November 2009, from http://www.lifeintheusa.com/aging/retirement.htm Hamilton, Brooks and Burns, Scott. (2001). "Reinventing Retirement Income inAmerica." No. 248. National Center for Policy Analysis. Retrieved 17 November 2009, from http://www.ncpa.org/pub/st248pg=2 "History of Retirement Plans." (2009). My-Golden Years. Retrieved 17 November 2009, from http://www.my-goldenyears.com/history-of-retirement-plans/history-of-retirement-plans.html Johnson, Christopher. (2003). The Strength of the Infrastructure of Volunteer Agencies and Its Capacity to Absorb "Baby Boomer" Volunteers. Baby Boomers and Retirement: Impact on Civic Engagement. p. vi. Retrieved 17 November 2009, from http://www.civicengagement.org/agingsociety/links/infrastructure.pdf Munnell, Alicia Haydock. (1977). The future of social security. Brookings Institution Press. p. 73. Murphy, Ryan G. (2006). The History of Retirement: 400 years of seeking financial security. Investment Advisor. Retrieved 17 November 2009, from http://www.investmentadvisor.com/Issues/2006/April%202006/Pages/The-History-of-Retirement.aspx Read More