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Our only hope: retiring later
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It's this dynamic that dooms most current proposals to fix Social Security by raising savings rates and using private accounts to boost investment returns. Savings rates fall as populations age and it'll take huge incentives, far larger than anything imagined in current proposals, to push savings rates up in the Unites States against that demographic tide. In addition, with rising interest rates and falling productivity and lower rates of economic growth, investment returns are likely to be lower over the next few decades than they've been in the last 20 years.
The same McKinsey Global study that projects slower productivity growth also predicts slower growth in household financial wealth over the next 20 years. Growth in household financial wealth in Japan, Europe and the U.S. will drop to an annual 1.3% by 2024 from 4.5% a year now.
So if we can't get people to save more and we can't get higher returns on our Social Security savings, do we have any alternative to cutting benefits and raising Social Security taxes?
The answer
Yes, it's called work.
Now I know that work has been part of the so-called Social Security debate but it's usually been framed as a question of raising the retirement age so that people have to work longer before they collect.
But I think there's another way to look at work as the solution to the global retirement crisis.
Start by thinking about just about any healthy retired person you know. My dad, for example, took early retirement at 62 and was happy to get it. But, like most "retired" people, he didn't stop working. He went from his job as a maintenance electrician at a factory 15 miles away from home to a job as a maintenance handyman at a nursing home three blocks away. The hours were more flexible, the travel time was less and the working conditions were more pleasant.
After years at that job, he "retired" again and worked cutting grass and doing general yard work for what he called "the old people" in the neighborhood. The hours were even more flexible. He was his own boss. And he got to gab with the neighbors while he worked and to poke his nose into everything happening in the neighborhood. My dad is now 88 but it's only in the last few years that he's really stopped working, more than 20 years after he officially retired.
What we really want
In my experience my dad isn't especially unusual among the retired. Many of us don't retire because we want to stop working but because we think our jobs stink. We work for incompetent but egomaniacal bosses who take sadistic pleasure in enforcing corporate rules that stifle our creativity and independence while treating us like children or potential delinquents. Think I'm exaggerating? A recent survey by Harris Interactive found that 38% of people who work for large companies feel they're at dead-end jobs and 42% say they're coping with feelings of burnout. (Full disclosure: Any similarities between that description and my own boss are purely coincidental. And besides he's on leave)
So is it surprising that we dream, not of loafing in retirement, but of running our own work lives or working with just a few of our best colleagues? Of having control over our work lives and of being treated with respect?
Some countries have begun to experiment with keeping workers on the job longer, not by requiring them to wait another year or three before collecting benefits, but by changing the quality of work for older workers. For example, in Finland, where the baby boom hit even earlier and harder than in the U.S., workers over 58 can become "age masters." This entitles them to extra days off, free use of a fitness club and seminars on topics like managing stress. Those benefits are useful in helping older workers stay healthy, no small benefit to the Finnish economy and governmental budget.
But just as importantly, age masters are given more authority in the workplace, more responsibility to design work and more recognition for their skills, acquired in years on the job. It works. At one company, after four years, the average retirement age climbed to 63 from 59.
Only the beginning
This is a good start, but it's just a start. The focus in the Finnish program really is just a kinder and gentler version of policies that keep workers on the job after 60 or 65 by raising the age when retirement benefits kick in. Such programs attack the global retirement pension system crisis by decreasing the years that workers will draw benefits.
But what if, instead of a focus on limiting pension expenditures, a program was designed to go after the other economic problem of an aging world, falling productivity? The millions of retirees who become consultants or freelancers could be made more productive with low-cost business loans, training to update or redirect skills and expertise in marketing, advertising and bookkeeping. Retired workers could be linked with peers who can offer them support and advice for their new businesses. We could develop our own version of the Finnish age master program for workers who wanted to stay on with their employers.
Doing this with just a few million bucks here and a wave of the hand there won't make a dent in our problem. But if we instituted a crash program to raise productivity by 0.5% or 1% a year -- enough to bring productivity roughly back to where it was -- we could make a difference.
And maybe we could even to solve our Social Security crisis without resorting to benefit cuts or pipedreams. Think about it.
New developments on past columns
From Russia with love: $60 oil
Whoops. Royal Dutch/Shell announced July 14 that its huge Sakhalin-2 liquefied natural gas project off Russia's eastern coast was at least eight months and $10 billion over budget. The first delivery of LNG, scheduled for November 2007, is now projected for summer 2008. That's likely to set off a mad scramble among Asia customers, especially South Korea, that have been counting on the gas to meet demand in the tight Pacific market.
Editor's Note: A new Jubaks Journal is posted every Tuesday and Friday.
E-mail Jim Jubak at jjmail@microsoft.com.
At the time of publication, Jubak didn't own or control any shares mentioned in this column. He does not own short positions in any stock mentioned in this column.
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