The possibility of a reversal in the trend toward early retirement cannot be ignored. As compared to today's older population, workers who reach old age in the future will undoubtedly have higher educational achievement and can be expected to have better health status; a higher proportion will be non-production workers. We question whether there is presently sound ground for believing that they will want to accept patterns of early retirement or even retirement at the ritualistic figure of 65. In other words, work and retirement patterns that have characterized the past few decades will not automatically be extended into the future.

Furthermore, the social and economic costs of increased numbers of persons in their sixties who are no longer in the labor force, may lead to a search for alternatives to their retirement. Population projections for the near future indicate that the age group 65 and older will remain a more or less constant fraction of the age group 20 through 64—the so-called "working age" group. It is often concluded from these projections that the economic costs of supporting the nonworking population will not be increased solely by a rising proportion of older people in the total population. With early retirement, the ratio is changed and the conclusion must be re-examined.

The pension policies of government and private industry clearly influence the retirement decisions of workers. Increased attention must therefore be directed to the social and economic implications of such policies and to the search for other solutions.

Early retirement on permanently reduced pension benefits is not the only solution to the problem of a rising number of unemployed older workers. In fact, there is increasing recognition that this is at best a palliative rather than a cure.

The resulting retirement income may be seriously inadequate a step backward in the War on Poverty. The cost of supporting the nonworking population rises and there is a loss in real output resulting from the reduction in the labor force. By institutionalizing a lower age for initial eligibility for retirement benefits, the average age for retirement may be pushed lower and employment opportunities for older workers adversely affected.

Other solutions that more directly attack the basic problem merit serious consideration. These include: (1) improvement in public and private disability coverage and provisions; (2) institution of extended unemployment compensation benefits for older workers; and (3) job retraining-together with a vigorous labor market sustained by appropriate monetary-fiscal policy.

The developing recognition of the need to plan for retirement serves to accentuate the increasing uncertainty about what one is planning FOR.

Our Nation's aged population is growing older. But no one now middle-aged can predict how long he will live in retirement, even without any medical breakthroughs that could greatly extend life;

nor can a husband predict how long his widow will outlive him or what medical care needs for chronic and long-term illness he may need to finance out-of-pocket instead of through the governmental program that now concentrates on protection against short-term illness in old age; or what value his savings will have or at what rate it will be safe to use them up.

The individual's attempts to provide for his own old age are further complicated by the fact that there is no clear public policy as to the minimum income, if any, that society intends for all its members, including the aged. Nor is there any indication of the extent to which non working groups are to share in the fruits of economic growth.

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PART FIVE

POTENTIALS FOR IMPROVING THE ECONOMIC

SITUATION OF THE AGED

In the light of recent trends, what changes might occur that would improve the economic situation of persons who reach old age in the future? What are the possible solutions to the low-income problem of today's aged? Let's raise several possibilities and examine them.

PERSONAL SAVINGS

First, given the expectation of sustained prosperity, there could be significant changes in personal savings. The retiree of the future will have had more working years in which income can be expected to exceed consumption requirements.

The questions are: How much of this excess will go into savings? How much purchasing power will these savings have decades hence when the worker retires? What are the potentials of proposals for converting savings into income which can be spread over the retirement period? How can voluntary savings be encouraged?

If past performance is a guide, private savings cannot be expected to contribute significantly to raising the level of income in old age. The earnings levels leave only a small excess of income over consumption expenditures for most families during worklife.

In the absence of longitudinal studies, the data in table 15 contribute to an understanding of the potential excess or deficit of family expenditures in relation to the income of different age groups in various occupational categories. The findings for 1961-62 (shown in Chart K) may be summarized as follows:

Annual incomes exceed expenditures of the self-employed and professional workers' families for most of the age cohorts, leaving sources of savings at practically all stages of worklife. Semi-skilled workers, whose expenditures are below income for families in the middle and later years, also have a small margin for saving. For clerical and skilled workers, expenditures are barely balanced by income over the worklife, with the years of slight deficits roughly matched by years of small savings. In the case of unskilled workers, no balance of income with expenditure is achieved except by the 55-64 age group.

TABLE 15.—Excess or Deficit of Average Annual Money Income (after Taxes) over Average Annual Expenditures, by Age and Occupation, 1960–61

Source: Derived from data in BLS "Consumer Expenditures and Income", supp. 2, pt. A to Report 237-238, pp. 30-61 and BLS Report No. 237-238, pp. 30-34.

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With an outlook for sustained economic growth, how realistic is it to expect today's workers voluntarily to forego consumption in order to save for the years ahead when these savings would maintain only a fraction of the worklife consumption level?

The following model illustrates the difficulties of setting aside savings out of current earnings to provide a given level of consumption in retirement.

The model, developed by Juanita M. Kreps and John O. Blackburn, Duke University, is described in detail in their statement prepared for a hearing of the Senate Special Committee on Aging ("Long-Range Program and Research Needs in Aging and Related Fields," Hearings before the Special Committee on Aging, U.S. Senate, Washington, D.C., Dec. 5 and 6, 1967, Part 1, Survey, pp. 59-60).

It assumes that income earners save systematically for their own retirement by setting aside that fraction of income necessary to provide a retirement level of consumption equal to the level of that year. The worker's income is rising at a rate of M per year. Upon retirement, he takes his savings (plus interest) and buys an annuity providing whatever annual income can be purchased for the remainder of his life.

But since the retiree's savings were accumulated during an earlier period when earnings were lower than those of the present generation of workers, he will begin his retirement consumption at only a fraction of the worker's level. Only if M is zero would he start at 100 percent of the worker's level (table 16a).

Furthermore, he will have a fixed payment per year during retirement, while persons in the labor force continue to enjoy rising incomes at rate M per year (table 16b).

TABLE 16(a).-Consumption Expenditures of New Retirees as a Proportion of Consumption Expenditures of Workers, at Various Rates of Income Growth

TABLE 16(b).—Retirees' Consumption after 5, 10, 15, and 20 Years of Retirement as a Proportion of Workers' Consumption (Income Growth Rates of 0.02 and 0.03) Retirees' consumption (percent of workers' consumption)

Source: "Long-Range Program and Research Needs in Aging and Related Fields," hearings before the U.8. Senate Special Committee on Aging, pt. I, Survey, December 1967, p. 60. Testimony of Juanita M. Kreps and John O. Blackburn.

Thus, under these assumptions, an annual rate of saving aimed at providing retirement consumption equal to one hundred percent of current consumption during worklife would in fact provide only a fraction-perhaps one-half to two-thirds of consumption during worklife, and this proportion only at the beginning of the retirement period. During the course of the retirement years, the retiree's level of consumption falls further still, perhaps to as little as one-fourth of that enjoyed by persons still at work.

Even if the retiree of the future has accumulated significantly higher assets, it is likely that a large part of these assets will be in the form of homeownership. It is also probable that-like today's retiree-he will be reluctant to draw on these assets because of uncertainties about the future.

It is to be expected that assets will be drawn upon in retirement; the basic purpose of accumulating assets during the working years is to have a supplementary source of income in old age. The problem confronting the retiree, however, is essentially this: at what rate is it safe to convert assets into income to ensure their lasting through his own lifetime and the lifetime of his widow?

The solution to the problem of planned use of assets would seem to revolve around these questions:

Is homeownership more of a burden than an asset for older people, in view of rising property taxes and costs of home maintenance? What are the effects on older people-financially and psychologically-of proposals for planned conversion of assets into income over the remaining lifetime?

What are the potentials of proposals for setting up banks or other institutional mechanisms for converting assets to income? Would older people participate? Are the proposals feasible financially?

Constant Purchasing Power Bonds merit serious consideration as a potential method of increasing voluntary retirement savings.

From time to time, proposals have been made for the issuance of Government bonds that would keep their "real" value that would increase the amount of principal payments according to change in the cost of living index. The proposals are sometimes suggested as a method of encouraging savings by the individual, and sometimes as an investment device for private pension plans and health and welfare funds.

Proponents give these reasons for issuance of government bonds with a guaranteed purchasing power:

A constant purchasing power bond would have an important social function in allowing savers to protect themselves against the risk of inflation and in this respect would be an especially attractive form in which to hold long-term savings for old age.

At present, there is no low-risk inflation hedge available to the public. Individual savers, pension funds and other investors can obtain a measure of protection against inflation by buying equities, but these investments are subject to other risks which many savers especially savers who are unsophisticated and have only limited amounts to save-may not wish to assume.

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