I wanted to mention that I am giving away 3 turbotax business copies free this month. All you have to do is subscribe to my RSS or Email Feed to the left, and EMAIL me the secret word at the bottom of the feed. I will change the word on Sunday 1/11 and 1/18, so you have up to 3 entries to win. And I’ll be drawing the winner 1/25/09. Cheers.

In the New York Times a few months ago there was an article about the book Working Longer, Retire Later by Alicia Munnell and Steven Sass. I thought it looked interesting so I decided to review it. As usual I have a copy of the book to giveaway. So leave a comment at the end of the post and I’ll be drawing a lucky winner 1-14-09 at 10 pm and announcing it next week’s book review. But onto the book.

Chapter 1: Introduction

This book is to discuss why people have to work longer. What has happened is a shrinking in the retirement income system, while an increase in longevity of the average person. Previously people were covered by pensions but not anymore. In figure 1-2 it showed that 62% of workers were covered by pensions in 1983, 42% in 1992, but in 2004 only 19%! This dramatic and rapid shift towards personal responsibility will require many people to work longer and save more responsibly.

The book discusses not only older people wanting to work longer but are they able to? And if they want to work, will employers hire older workers?

Chapter 2 – Will Older People be Healthy Enough to Work Longer?

In the 1960s the median retirement age was 66, today it’s 63. Thus the authors suggest that we raise the retirement age back up to 66. This would help the lack of savings, pensions, and lower the years in retirement. But can people work those extra 3 years?

There is evidence that people who work are healthier. Why? Maybe because health reports are “self-reported” thus people who are happier at their jobs feel healthier just mentally. Also there are studies showing that people are living an average of 5 years longer than in 1960s, thus the potential for working longer is there and still enjoying an “average” 12 year retirement.

Also a new trend emerging is how much healthier the older generation is. But why? There are many factors, an improved lifestyle. Knowledge on how to better care for themselves leads to better health in later life. Fewer physically demanding jobs, less manual labor and more white collar work. Better medical treatments such as medications for high blood pressure cholesterol, etc. Previously people had no idea how to manage their bodies and health and now we start as soon as possibe controlling our health. Less childhood diseases, we are healthier at the beginning stages of our lives without smallpox, polio, measles, syphilis, malaria, etc. The basic premise being that we know more about our health and what to do to stay healthy.

One potential problem is the growing disability of the younger generation. I think it’s mostly due to our obesity epidemic. But the question of our weight is something that needs to be addressed separately.

Chapter 3 – Will Older Men Want to Work Longer?

The book segregated by gender if older people want work because there are different trends for the genders. The chapter starts out by talking about the long term decline in labor rates for men over 65 from 76% in 1880 to 43% in 1940, finally 18% in 1990. What caused this decline was the availability of Social Security benefits, employer pensions, incentives for those under 65 to retire from companies, and mandatory retirement prior to 1970s..

However, this trend began to reverse in the mid 1990s. Why? Well it’s easily pinpointed to the decrease of Social Security benefits and employer provided pensions. Thus people have less income in retirement. Also the nature of jobs having changed from physical to mental have allowed older workers to stay involved. Finally, something I hadn’t considered is that women are working longer and are on average 2 years younger than their spouses. Thus men are starting to work longer because studies show men and women like to retire together.

The book is unsure if men will work longer. The biggest impediment is the early retirement withdrawal age of Social Security being 62. However, that may soon change and will likely influence how long people work. Also the chapter touched on that many older people might leave “career” jobs for work less demanding, which still will help with their retirement income.

Chapter 4 – Will Older Women Want to Work Longer?

In the 20th century a new trend started where women began to enter the workforce at a rapid pace. Between 1950 and 1970 the number of married women workingwent from 25% to 50%. And from 1970 to the present most were employed and had careers. The labor supply grew exponentially with this new trend.

However, an interesting trend in this participation in the workforce, is that while women work it’s typically part-time or more sporadically than men. They spend less years working full time, thus typically women earn less than men. This means that women get less return for their work than men. Also interesting is that women work in different occupations and sectors of the economy than men, and these jobs often allow women to work longer than men. Example, more than half of all women are employed in industries of sales, office, or service occupations. These jobs are less physically demanding and allow for older workers to stay employed.

This actually was shown to be necessary. Why? Because women earn less, are more likely to work part-time, and less likely to save for retirement from their earnings, it make retiring harder. Thus to make up for it, women must work longer or else be more likely to face poverty in old age. This is because the previous pension retirement system gave the most money to workers who contiously worked full time for the same employer. Whereas women are more likely to jump jobs based on flexibility and pay because they work sporadically or part-time.

However there is a large benefit to women with the changing pension system. They are no longer penalized for not working longevity wise with a 401k plan versus a pension. Also if their spouse dies, they will inherit the 401k from their spouse rather than the pension ending. But like men, with the decreasing lack of pensions, couples and people in general must save more for retirement. Thus working longer and delaying retirement for women is not only looking more likely but more financially beneficial.

Chapter 5 – Will employers want to employ older workers?

I think this is a very important question in the decision for people to work longer. The chapter starts out by discussing the effects of aging on productivity and abilities of older workers. While the productivity drops significantly with age, there are other contributing factors older workers can contribute to the workplace argues the book. The problem isn’t the contributions, it’s the salary. Older workers make significantly larger salaries than younger workers who are more productive.

However the authors argue there will be a market for older workers that wasn’t present before. The authors suggest that people will downshift from high powered, high stress jobs to lower paying, less stresful service jobs. The truth is there will be a labor shortage as the baby boomers retire. Thus the need for some of the lesser jobs need to be filled, and the authors suggest older workers looking for part-time, low key jobs can fill these positions and shore up their retirement savings.

Chapter 6 – What can be done?

The truth is that Americans need to work two to four years longer than they do currently in order to retire with a reasonable level of security. The average retirement age of 63 for men will have to be pushed back to the late 60s. This is not an unreasonable demand, seeing as how in 1960 most men retired at 66. However this need to work longer appears to be dovetailing with the desire to stay employed. That many older people are choosing to stay employed because they want to.

The authors suggest that people take stock in their retirement position. If they are well prepared for retirement than no worries. If they have little savings, then it’s time to reconsidering a non-traditional retirement path. Also the authors suggest that older workers consider working not for monetary compensation, but rather things like health insurance because the needs of the elderly healthcare by far exceed medicare.

The authors suggest the government can encourage people to work longer by increasing the age requirement of social security. This will also shore up the social security funds by allowing it to pay out less. This will be the biggest incentive to encouraging people to work longer.

This book really cannot be done justice in a regular review. There are many interesting graphs and table showing the trends of workers, income, pensions, and retirement plans which I cannot describe in detail. It is sort of more a historical look back on our retirement system than a book about planning for retirement. But I like historical fiction.