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By Guest Author Anne Allen, University of Missouri (MU)
As more Baby Boomers reach retirement age, state governments face the likelihood of higher workforce turnover.
For example, in the State of Missouri, more than 25 percent of all active state employees will be eligible to retire by 2016. Such large numbers of retirees threaten the continuity, membership and institutional histories of the state government workforce, according to Angela Curl, assistant professor in the University of Missouri School of Social Work. In a case study of the state of Missouri’s Deferred Retirement Option Provision (BackDROP), Curl concluded that states may need to restructure deferred retirement incentives to encourage more employees to remain on the job longer and minimize the disruption to government operations.
“Employers need to ask if their organizations are designed to promote turnover or promote retention,” Curl said. “States should recognize the benefits of promoting retention. Using delayed retirement incentives to encourage retention is important, particularly when dealing with older employees.”
Curl said that a good system of employee retention is inclusive, flexible and accounts for the wide range of circumstances that retirement-eligible employees may consider when deciding to defer retirement. These circumstances could include caregiving for older parents or having a spouse who is retired. In Missouri, BackDROP offers a one-time payment equaling 90 percent of what employees would have received in benefits for an additional five years of service as incentive to delay retirement.
The best predictors of whether state employees chose to delay retirement were: their levels of awareness of retirement options, job functions, and how old they were before they became eligible for deferring retirement. The more aware employees were of BackDROP, the more likely they were to defer retirement. Employees who became eligible for deferring retirement at an older age also were more likely to choose to work longer.
Curl’s study was designed to see if race, sex, level of education and marital status played a significant role in retirement-eligible employees’ decisions to defer retirement. The study of 296 Missouri state employees eligible for BackDROP revealed that these social demographics did not play significant roles in employees’ decision to work longer.
“Deferred retirement options like BackDROP may be effective at retaining skilled employees in positions that are difficult to fill,” Curl said. “Often, state employees retire and go on to second careers in the private sector.”
Curl’s research, “A case study of Missouri’s deferred retirement incentive for state employees,” will appear in the Journal of Aging and Social Policy. Kirsten Havig, who received her doctorate from MU, co-authored the paper and now works at the University of Oklahoma-Tulsa. The School of Social Work is part of the MU College of Human Environmental Sciences. Since the case study was completed, the state of Missouri discontinued BackDROP for new hires.
Curl says using delayed retirement incentives to encourage employee retention is important, particularly when dealing with older employees.
Structural changes in the United States are plainly at work; based in part on slower-moving demographic factors.
A 2012 study by economists at the Federal Reserve Bank of Chicago estimated that about one-quarter of the decline in labor-force participation since the start of the Great Recession can be traced to retirements. Other economists have attributed about half of the drop to the aging of Baby Boomers.
Baby Boomers can't be the whole story, though, since the participation rate has declined for younger workers too. This part of the drop is a function of various factors, including simple discouragement, poor work incentives created by public policies, inadequate schooling and training, and a greater propensity to seek disability insurance. Globalization and technological change have also reduced employment and wage growth for low-skilled workers--which raises questions about whether current policy is focused enough on helping workers to achieve the skills necessary to work productively and earn decent incomes.
To the extent that labor-force participation and job creation have a cyclical element, activist demand policies by the federal government may make sense. Different narratives of today's labor market point to different possible solutions.
A 2013 Gallup poll showed that 73% of boomers expect to remain in the workplace well beyond the time they'll be eligible to begin collecting Social Security (41% by choice and 32% by necessity).
Among entrepreneurs ages 20 to 64 who founded their first businesses in 2012, 23% were 55 or older, according to the Ewing Marion Kauffman Foundation, up from 14% in 1996.
"We've only really jumped into this area with focused attention over the last three years," says Jody Holtzman, a senior vice president for thought leadership at AARP. That's meant teaming up with the Kauffman Foundation to kick off a series of 10-week training workshops for individuals 50 and older. Holtzman says AARP's new focus on entrepreneurship is attracting younger retirees to the organization.
There were 4.4 million self-employed Americans 55 or older in 2010, according to Greg O'Neill, director of the National Academy on an Aging Society, but only 1/3 of those businesses are incorporated. Many older Americans are going into business for themselves as consultants, financial advisers or lawyers. Others are selling crafts or collectibles through online marketplaces.
One statistic that might help convince lawmakers that this is worthwhile: The average small business owner quits working at 72, more than four years later than the average salaried worker.
Question: What is your biggest concern when you look at how the generations are managing their finances?
Liz Davidson, CEO of Financial Finesse, answers questions regarding their 2013 Generational Research report:
The most immediate threat, from an economic perspective, is older Baby Boomers (age 55-64) being unprepared for retirement. You would think that recent stock market performance would make a big difference, and that post-recession employees would be back on track now, but it’s not that simple. A large nest egg in and of itself is not enough to successfully retire.
Success in retirement is not only about how much you accumulate, but how you manage the assets that you do accumulate so that they last a lifetime. Without proper planning, Boomers put their retirement security in jeopardy. Fifty-one percent of Baby Boomers aged 55-64 report they have NOT run a retirement plan projection, despite the fact that they are very close to retirement age and only 22 percent report having long-term care insurance in place, despite the fact that the average cost for nursing home care is more than $50,000 a year and climbing, according to AARP.
Q: What are the economic implications of this?
In some cases, older Boomers are retiring with insufficient assets because they haven’t figured out how much they need to save for a comfortable retirement and/or are at risk because they have no plan as to how to manage their assets in retirement. Both of these dynamics could cause them to become dependent on their families or the government at a time when both are under significant financial pressure.
On the other end of the spectrum, more employees are reporting they plan to delay retirement. According to the Employee Benefit Research Institute, 22 percent of employees expect they will need to delay their retirement, and 33 percent expect they won’t be able to retire until age 70 or older, or never at all. Based on our experience working with pre-retirees, we believe that a large percentage of these employees are planning to work longer than they would like to because they have not effectively planned for retirement and don’t know how to navigate this change from a financial perspective. In instances where employees delay retirement due to poor financial planning (as opposed to a genuine desire to continue working), the employer faces huge financial costs and the employee may be jeopardizing their physical and mental health.
Q: You say that Baby Boomers’ lack of retirement preparedness poses the most immediate threat. Does that mean this is the biggest threat?
No, not really. When you factor in everything that we know right now, Gen Xers face the biggest obstacles. They are behind other generations in key areas of financial planning, and are particularly behind when it comes to basic money management skills that drive the attainment of key financial goals. They also face the most obstacles in terms of financial pressures, often juggling the expense of raising minor children with the expense of taking care of elderly parents, all while having mortgages and car payments that weigh them down. Lastly, they are at a disadvantage to the other generations, having less time than Millennials to save for retirement and other long-term goals, and less expected benefits from employers and Social Security than Baby Boomers.
Q: What about the millennial generation? In a recent report on retirement preparedness, you call them the lost generation. How do you think they will fare financially?
Honestly, that depends on many factors. I believe they will suffer through higher taxes and higher inflation for much of their careers, and they will almost certainly receive less support from their companies and the government than older generations. They lag all other generations when it comes to retirement planning, with only 29 percent
having run a retirement projection, 37 percent having taken a risk tolerance assessment, and 29 percent saying they rebalance their investment accounts.
That said, Millennials are doing a relatively good job with respect to day-to-day money management (despite record levels of student debt and high unemployment). They came of age during the Great Recession, so they are aware of what it’s like to struggle financially and have a desire to avoid that fate.
They also have time, technology, and idealism on their side. We are actually seeing more Millennials starting their own financial education businesses, in many cases leveraging technology to automate positive financial behaviors. When it comes to social responsibility, they appear to be reminiscent of the Boomers in their sense of connectedness to the world, and they actively want to do what they can to make the world a better place. It is entirely possible that financial literacy could become a cause Millennials galvanize around and that this generation reinvents the way we think about and manage our finances, and ultimately redefines retirement.
About Financial Finesse:
Financial Finesse is an unbiased financial education company providing personalized and innovative financial education and counseling programs to over 600,000 employees at over 500 organizations. Financial Finesse partners with organizations to reach goals such as reducing fiduciary liability, increasing plan participation, decreasing employees’ financial stress, and increasing productivity through its unique approach to financial education. Financial Finesse does not sell products nor manage assets. For more information, visit www.financialfinesse.com.
While plenty of Baby Boomers have become affluent, the wealth disparity of many boomers is emblematic of a broad shift occurring around the country.
Many graying boomers are less secure financially and have a lower standard of living than their parents. The median net worth for U.S. households headed by people aged 55 to 64 was almost 8 percent lower, at $143,964, than those 75 and older in 2011, according to U.S. Census Bureau data.
That's left many ill-prepared to provide for themselves as they approach old age, even as they are likely to live longer than their parents. For the first time in generations, the next wave of retirees will probably be worse off than the current elderly.
Today, retirement savings of $120,000 is right at the median 401(k) balance for households headed by Baby Boomers, according to 2011 data from the Center for Retirement Research. That will provide just $4,800 a year to boomers when they turn 65, assuming they take out 4% annually, the top amount many financial planners say should be withdrawn to assure retirees don't run out of money during their lifetime.
37% of the elderly in the U.S. collect pensions, which provide some guaranteed income until they die. Fewer than 10% of boomers do, and that number is quickly shrinking.
Gary Maxworthy spent three decades in business until a personal tragedy prompted him to reexamine his priorities. He left the corporate world behind, set off to find his true calling, and in the process discovered both a new identity and the path to accomplishing his most important work fighting hunger.
In this telling, Maxworthy is an archetypal example of the reinvention mythology that seems omnipresent today, especially when it comes to those in the second half of life. Self-help columns are packed with reinvention tips. Financial services ads depict beaming boomers opening B&Bs and vineyards. More magazine, that bastion of midlife uplift for women over 40, even sponsored a series of reinvention conventions.
There’s no denying the heroic appeal of the reinvention narrative, especially to 50- and 60-somethings confronting uncharted territory and the imperative to forge ahead with a new chapter. And this notion surely beats the counter-narrative that says you’re washed up at some arbitrary age, your best work behind you with two choices: hanging on or the abyss.
Yet for all its can-do spirit, I’ve come to believe the reinvention fantasy — the whole romance with radical transformation unmoored from the past — is both unrealistic and misleading. I’ll even go further: I think it is pernicious, the enemy of actual midlife renewal.
For the vast majority of us, reinvention is not practical — or even desirable. On a very basic level, it’s too daunting. How many people have, Houdini-like, escaped the past, started from scratch, and forged a whole new identity and life? Sure, it happens — but not often, at least outside of Hollywood.
More troublesome is the underlying assumption that the past — in other words, our accumulated life experience — is baggage to be disregarded and discarded. Isn’t there something to be said for racking up decades of know-how and lessons, from failures as well as triumphs? Shouldn’t we aspire to build on that wisdom and understanding?
After years studying social innovators in the second half of life — individuals who have done their greatest work after 50 — I’m convinced the most powerful pattern that emerges from their stories can be described as reintegration, not reinvention. These successful late-blooming entrepreneurs weave together accumulated knowledge with creativity, while balancing continuity with change, in crafting a new idea that’s almost always deeply rooted in earlier chapters and activities.
That’s a clear lesson inherent in the work of the 430 winners and fellows of the Purpose Prize, an annual award for social entrepreneurs and innovators in the second half of life (sponsored by my organization, Encore.org). In 2007, Gary Maxworthy was one of them.
As a young man, Maxworthy heard JFK’s call to service and aspired to join the Peace Corps. But practicality intervened: He had a family to support, and put his early dreams on hold to work. And work he did, for 32 years in the for-profit food distribution business. Then his wife died of cancer. That tragedy forced him to reevaluate his life, particularly how he would spend the coming decades. Maxworthy then joined VISTA, the domestic sister organization of the Peace Corps, which in its wisdom placed Maxworthy in the San Francisco Food Bank.
The food bank, he quickly realized, was only set up to distribute canned and processed foods. Meanwhile, his years in the food business had taught him that an enormous amount of fresh food is discarded daily by growers throughout the state, simply because it is blemished. Drawing on his knowledge of how to distribute large quantities of food in ways that preserved freshness, he launched Farm to Family — which distributes nutritious food, that otherwise would have been thrown out, to food banks in California and elsewhere.
Maxworthy might have been able to do some good as an idealistic young Peace Corps volunteer, but after a significant body of midlife work, he was able to accomplish something truly remarkable, something at the intersection of experience and innovation — qualities long regarded as oxymoronic in nature. You could say Maxworthy put two and two together, except in this case common sense logic led to something larger: this year Farm to Family distributed over 100 million pounds of food.
I could recount a hundred other tales with essentially the same pattern, and fundamentally the same lessons — tales of reintegration that are not only more pragmatic than the reinvention fantasies but also, to my mind, far more heartening. They affirm the value of what we’ve learned from life and remind that the seeds of change — even very big change — are often already within us.
Why, then, has the reinvention myth proved so persistent, even as it serves us poorly? I think the answer lies deep in American character and history. Literary critic R. W. B. Lewis unearthed this cultural vein in his classic 1955 volume, The American Adam. From the earliest days of the republic, Lewis wrote, Americans were enthralled with the ideal that they could fashion a future liberated from the past. One magazine of the 19th century movement known as Young America wrote, for example, in 1839: “Our national birth was the beginning of a new history … which separates us from the past and connects us with the future only.”
D.H. Lawrence observed in 1923 that glorifying the new and jettisoning the old amounted to “the true myth of America.” In this narrative, Lawrence writes, America “starts old, old, wrinkled and writhing in an old skin. And there is a gradual sloughing of the old skin, towards a new youth.”
That perspective has not only influenced our view of youth, but of later life. The Golden Years retirement mythology was built around the dream of a second childhood, graying as playing. Retirement communities were age segregated not only to avoid school taxes, but somewhat paradoxically, to evade the idea of old age itself. If everyone was old, then no one was old.
To me that’s the most damaging part of the reinvention mythology: the preoccupation not only with rebirth, but with youth itself, even as it is slipping away. Today 70 is upheld as the new 50, 60 the new 40 or even 30, and 50 practically adolescence.
So as we head into the resolution season, let’s think less about reinvention and more about forging ahead in ways that draw on our accumulated knowledge — what former Alvin Ailey star Elizabeth Roxas-Dobrish describes as “all the things that life has put into you.”
And as the nation enters the year in which the youngest of the boomers will turn 50, and we take another sizable step into the graying century, let’s think about a new myth of America, one that breaks free from the notion of eternal youth, and that learns to appreciate the true value of experience.
Distinct and strengthening economic, lifestyle and societal determinants are building a creative foundation for the older population as it discovers new approaches to work and finds long-elusive contentment in the process.
You already know that older workers, seeing their retirement plans shattered, have to work beyond traditional retirement years. You also know that those same economic dynamics are forcing aging Boomers to entirely rethink retirement.
In 2014, we will see growing evidence of this Boomer Renaissance, accentuated by waves of self-guided entrepreneurism that alchemizes commerce, survival and self-actualization into a new world and self view.
The Winter Trends Journal will explore this compelling 2014 trend in depth.
Most non-retired Baby Boomers say they expect to work in some fashion after retirement. The vast majority of those who go back to work plan to launch a second career from the outset—and see any time off as a chance to regroup.
The paradigm of retirement has shifted. The old retirement pattern of a long career of hard work, followed by no work and freedom to pursue leisure activities, is no longer typical or even attractive.
As Baby Boomers enter their 60's, they begin to think about how to retire from their professions or occupations. The combination of longer anticipated lifespans, entrenched patterns of consumption, and other factors, such as losses in retirement account funding due to the economy, has led many boomers to consider post retirement as a "next phase" of life (work-wise and otherwise).
Getting ready to look within and re-discover who we are now, and then using that newly found data to fashion what we want to do, to see, to become will be the imprint of our unique "life signature."
Remember when you believed that you could change the world? Where are those dreams and aspirations of youth? You may feel you are now ready for a life makeover but are not sure what the changes should be.
The message is: Life is not a dress rehearsal. You can solve your problems using the mind you know you have. You can stop seeking answers outside yourself. You can look within.
This new book is the jump-start to propel boomers on the brink of retirement to start thinking of their retirement from this (whatever they've always wanted to do, but never dared to dream possible). The 50-60 age group will find this one-stop-shopping source the definitive compendium to chart the direction of their next and last best life phase. Boomers will engage in a process of self-discovery as they travel through a Five-Step Process designed to help them determine who they are, the values that define them, and how they want to spend this last great, rich phase of their life.
Today, boomers are redefining who they are in such roles as: dual professional marriages, late life parenthood, serial singlehood, parenting parents and/or grandchildren. Yet, boomers want to: look and act young, stay connected and creative, and work at least part-time after retirement. Their encore career is on the minds of many, if not most, retiring boomers.
Bottom Line: Retiring boomers are or plan to be energetic and vital, techno-savvy, entrepreneurial and globally aware. They have more to offer along with the desire and ability to offer it. And they have expectations of living for one or even two additional 15-year cycles beyond what was formerly common.