"Smart Retirement Decisions" to Reduce the Debt

The co-chairs have cracked the door for truly new -- and voluntary -- approaches that can boost the economy and cut the debt by helping people do what they want to do anyway -- make a contribution and improve their financial security.
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Receiving almost no attention in the uproar over the debt-reduction plan from the co-chairs of President Obama's fiscal commission is the final proposal: "Promote Smart Retirement Decisions."

Commission co-chairs Erskine Bowles and Alan Simpson are sketchy on the details, and they credit the proposal with exactly zero impact on Social Security's long-term finances. But by emphasizing voluntary measures to encourage people to work longer, the plank could be the start of a new approach to lifetime financial security and, indeed, of a new conception of aging itself.

Bowles and Simpson want to allow greater flexibility in how Social Security benefits are claimed, specifically by letting people claim half their Social Security benefits early and the rest later. That could make Social Security not only a retirement asset but a powerful tool for financing the transition to an encore career.

That the proposal was included at all indicates that Bowles and Simpson understand the potentially huge benefits for both individual financial security and the U.S. economy of voluntarily longer working lives. Indeed, the potential benefits of are so great they could reduce or eliminate the need for benefit cuts. More people choosing to work longer means a larger labor force, stronger economic growth and higher tax revenues, as more people continue to both produce and consume.

Increasing the actual age at which people retire from the workforce to 65 (from about 62 now) would increase eventual Social Security benefits and private pensions for individuals by an average of $7,500 per year, or around 16 percent, according to Andrew Biggs of the American Enterprise Institute. And it would boost the U.S. gross domestic product by 3-4 percent, adding billions to the economy and tax revenues.

One way to spur people to work longer, of course, is to raise Social Security's early eligibility age. But people, like horses, prefer carrots to sticks and a better way to achieve the same result may be to make longer work feel more like an aspiration and less like a punishment. Voluntary measures that encourage and enable people to sign up for a new stage of work, possibly in a different field, could be far more effective than benefit cuts and raised eligibility ages.

"Rather than force people to work longer, voluntary measures to increase work at older ages make sense for many older Americans, both for financial reasons and personal satisfaction," says Monique Morrissey, an economist at the Economic Policy Institute, who has opposed any increase in the mandated retirement age.

There is ample evidence that many people indeed want to work longer, though not necessarily in the same jobs. Encore careers can put people's experience to work on significant social challenges, in education, health care, social services, the environment and other areas. The major limiting factor, of course, is the availability of such jobs. A public-private encore career initiative could catalyze accessible and attractive new roles for patient navigators, adjunct teachers, job trainers, youth mentors and others to help reduce health care costs, increase graduation rates, cut energy use and meet other common goals.

The proposal from Bowles and Simpson to tweak Social Security to encourage delayed retirement appears to build on a suggestion from Eugene Steuerle, an economist at the Urban Institute. Steuerle proposes to clarify and streamline Social Security's current concoction of penalties, bonuses and other provisions to create a modern, understandable and fair annuity product that gives people more flexibility in using their benefits to meet their needs.

With flexible options similar to those already available in private income-planning products, individuals could, for example, draw down extra benefits during career transitions or for extraordinary expenses, topping them back up when earnings are higher.

In the short-term, the discussion of such "smart retirement decisions" is likely to get drowned out by the shouting over proposals for benefit cuts and tax hikes. But the co-chairs have cracked the door for truly new -- and voluntary -- approaches that can boost the economy and cut the debt by helping people do what they want to do anyway -- make a contribution and improve their financial security.

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