On the other hand, people seem to be retiring earlier and earlier. Many of my cohorts are planning on retiring in their fifties. Others, who've had financial strains such as divorce or a failed company, are lamenting that they might, worst case, actually have to work into their 60s. On current trends, I can see the expected retirement age creeping down to 50.
On the third hand (I must be an octopus), we seem to be taking longer to enter the work force, mostly for good reason. It can take ten years or longer to get a Ph.D. in some fields. We seem to need ever more lawyers and managers with MBAs. Healthcare is becoming an ever larger percentage of our GDP and it takes forever to become a doctor. At the present rate, the average age of entering the work force might be as high as 25.
I've just painted a picture where, on average, people enter the work force at 25, leave at 50, and live to 100. This implies (making the somewhat erroneous assumption of a flat age distribution) that there will be one worker for every four people.
This scenario, regardless of how it is financed, is a far, far less well off scenario than one where 3 out of 4 people work, which would be the case if everybody in the picture above worked till they died. It doesn't matter if everyone saves huge percentages of their income in order to prepare for their retirement years. In that case, there would be a large number of dollars chasing the few goods and services that can be produced by the one out of four people working. It doesn't matter if the government somehow extracts huge taxes out of the workers to pay for the retirees (and children). The total pie to be consumed would be much smaller than it would be if we all work for a larger percentage of our lives.
Thus, when pundits pontificate about fixing social security and other retirement entitlements, I can't even start to take it seriously unless it provides an incentive for people to work longer. A society in which people are retired for 20 or 50 years of their adult life is a poor society complete with a great deal of intergenerational resentment. It's simply unworkable in my opinion. And that's without even taking into account that as I've been watching people retire, I've noticed that they seem to go down hill much faster after retirement. I think that retirement is unhealthy for most people.
That's why a new book (or more accurately the description of said new book since it hasn't been released yet) by Charles Murray, the at least partially evil genius (in my opinion) author of the Bell Curve, caught my eye. In "In Our Hands", Murray proposes tossing social security (and the other entitlement benefits such as medicare) out the window and replacing them with a $10,000 stipend to every adult over 21:
Assuming that the questions really do have answers that aren't too evil, the single solution that "the Plan" offers that I think is absolutely critical is that it eliminates the concept of a retirement age, or a specific point at which retirement benefits begin. It would enable people to decide when to retire based on the proposed stipend and its current value in the market.
The one I have devised--I call it simply "the Plan" for want of a catchier label--makes a $10,000 annual grant to all American citizens who are not incarcerated, beginning at age 21, of which $3,000 a year must be used for health care. Everyone gets a monthly check, deposited electronically to a bank account. If we implemented the Plan tomorrow, it would cost about $355 billion more than the current system. The projected costs of the Plan cross the projected costs of the current system in 2011. By 2020, the Plan would cost about half a trillion dollars less per year than conservative projections of the cost of the current system. By 2028, that difference would be a trillion dollars per year.
Many questions must be asked of a system that substitutes a direct cash grant for the current welfare state. Work disincentives, the comparative risks of market-based solutions versus government guarantees, transition costs, tradeoffs in health coverage, implications for the tax system, and effects on people too young to qualify for the grant, all require attention in deciding whether the Plan is feasible and desirable. I think all of the questions have answers, but they are not one-liners; I lay them out in my book.
This would provide an automatic feedback mechanism. If too many people decided to retire too early, the goods and services that $10,000 could buy would drop and this would encourage people to keep working. This self regulating mechanism would reduce the likelihood of situations where there are too many people who aren't working. In other words, it's a solution that could work for the long haul, and it can continuously adapt as technology and society changes.