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Many older folks work to keep their benefits

Aging employees finding they can't afford to retire

For nearly a century, Americans were able to retire at ever-younger ages and in greater prosperity. But over the past few years, they have begun staying on the job later into life.

As companies cut pensions and retiree medical coverage, many aging employees doubt that they can afford to retire, several experts and workers say.

While tight labor markets are also keeping older people at work, other causes appear likely to outlast the current worker shortage. "We have entered a new era," said Joseph F. Quinn, an economist and a dean at Boston College.

Government data show that the percentage of people over 65 who still work has been rising since the mid-1990s. Last year, at 12.8 percent, it was higher than at any time since 1979.

Economists and specialists on aging cite forces that include changes in the Social Security system, a ban on most forced retirements and the economy's shift away from back-breaking jobs like those in mining and heavy manufacturing. There also have been advances in medicine, so that as more elder-friendly jobs in the service sector appear, more people are healthy enough to fill them.

To many workers approaching the end of their careers, however, the most important factor has been the erosion of pensions, health insurance and other retirement benefits they had expected.

"Lots and lots of people's expectations are being dashed," said Norman Stein, a law professor at the University of Alabama who specializes in pension issues. "Getting rid of a retirement incentive will, of course, have some impact on employees."

Jerry Michels, age 49, is a case in point. As a late-in-life father of a boy, Michels thought he had a good plan for balancing work and parenthood: In 2007, he would be 55 and eligible for early retirement. His company, then a market research division of Dun & Bradstreet, linked pensions to pay and seniority, and Michels, who had spent his career at the company, figured he would get about $52,000 a year. That would be more than enough to finance a cozy interlude of football games, driving lessons and heart-to-heart talks before young Matthew left for college.

But late last year, Michels realized that his pension plan had been revamped in 1996, when his division was spun off by its corporate parent. The stipend that he had been counting on was replaced by a smaller one under a new plan that built benefits more slowly.

Now Michels says he can't afford to retire at 55. Maybe not even at 65, if he wants to rebuild his new pension to the value of the one he lost. By then, Matthew will be gone. "It would have been a nice life," Michels said.

But Michels will not be wanting for company as he plugs on.

"The increase in participation rates translates into a million more people over 65 in the labor force than there were in 1985," said Sara E. Rix, senior policy adviser for the AARP.

Economists say that these workers' payments into the Social Security system will be largely offset by the higher benefits they will receive.

Companies have reduced their retiree benefits not only to save money but also to address labor shortages. Many of the pension conversions of the past decade have eliminated incentives for early retirement, as companies have seen a need to retain the 50-something workers that they might have wanted to remove from their payrolls a decade ago. Companies have also been snapping up older workers who have taken early-retirement bonuses from other employers.

A century ago, when the first major pension plan was created, for Union veterans of the Civil War, few people could afford to save for retirement. They feared outliving their ability to work.

"In many cases, they faced a life of impoverishment," said Murray Gendell, a former Georgetown University professor of demographics who continues to track the average retirement age in his own retirement.

But over the past century, rising incomes permitted more workers to save for old age. Fewer kept working. The advent of private pension plans and the growth of Social Security added momentum. In 1950, seven of every 10 65-year-old American men were working. By 1985, just three were.

"Gradually, the fear was replaced by an attitude that retirement was a reward for the work you have done for 35 or 40 years," said Gendell.

As vast numbers of baby boomers entered the work force in the mid-1960s, employers, spotting a mother lode of cheaper labor, offered early-retirement packages to the preceding generation to clear the way.

"Employers found older workers expensive and expendable, so they got rid of them," said Eric Lofgren, global director of the benefits consulting group at Watson Wyatt Worldwide, which has advised many large American companies on their pension plans and other benefits. So eagerly did companies buy out older workers, he said, that in the 1980s, "two-thirds of all retirements were through early-retirement windows."

Then something changed. The proportion of the elderly in the work force, which had been falling so steadily, leveled off in 1985. And in the latter half of the 1990s, it began edging up. Only one in 10 retirees today leaves as part of an early-retirement program, Lofgren said.

Quinn, of Boston College, noted that 1986 legislation prohibited most forms of mandatory retirement. About the same time, the Social Security Administration began to change rules that had reduced the benefits to workers who stayed on the job late in life.

"If you think about the carrot and the stick, the stick is gone," said Quinn.