Let’s Agree on an Age to Retire
Current antidiscrimination law hurts businesses and both younger and older employees
We marvel at the continuing energy of octogenarians such as Warren Buffett, Ruth Bader Ginsburg and Clint Eastwood, but let’s face it: Few 80-year-olds are as good at their jobs as they were in their 50s.
In most workplaces, wages rise with seniority, but productivity does not. In the U.S., after many years of a declining retirement age, the average worker is now retiring later, which means that there are fewer jobs for young people.
.. Given the added fact that mandatory retirement and age discrimination are illegal, employers hesitate to hire middle-aged workers, who may stay on the job long after their pay has exceeded their productivity.
.. A relatively simple set of reforms could help American businesses and workers at the same time. These would include a
- relaxation of age-discrimination laws, so that contracts could require workers to retire at 65 or older, and
- a reduction in Social Security benefits for well-paid older employees who decide to keep working.
.. Retirees in the U.S. can maximize their Social Security benefits by retiring around the age of 68, but some workers are induced to retire earlier. Their employer or union makes it irresistible through a “defined-benefit” pension plan, which provides a set annual payout, usually based on the salary earned in their final years of employment. Virtually all such plans encourage timely retirement by requiring contributions from those who continue to work and reducing their benefits if they stay on the job past a certain age. By design, most workers find it economical to retire by 60.
.. In place of defined-benefit plans, the new standard has become individual retirement accounts or defined-contribution plans, in which the employer provides tax-favored contributions but bears no responsibility for investment returns.
.. These new retirement plans have taken away the ability of employers to influence the age at which workers retire.
.. One way forward would be to amend current law to allow employers and employees to agree on a retirement age at the start of a new job. The contract could specify that, after a certain age, the employee could be terminated without cause.
.. It would also subtly redirect age-discrimination law to help job applicants in their 50s and early 60s, because employers would know that these employees could not simply stay on the job forever.
.. One effective change in incentives would be to reduce Social Security benefits for any beneficiary with more than $75,000 a year in earned income. A worker entitled to full retirement benefits at 66 who continues in a relatively high-paying job might, for example, lose $5,000 in Social Security a year.
.. For higher earners, the penalties could be even steeper. After age 76, an employee who makes, say, $200,000 a year and chooses to continue working full time would stop receiving Social Security benefits altogether. The benefits would start up again only at retirement.