Page images
PDF
EPUB

I have another young man who is 24 years of age, who has been turned down for the service, who will go into private employment this year, at wages, incidentally, higher than those that I retired from.

But my question that I would like to address to the economists is this: How much should that young man have to plan for at the time of his retirement at age 65, some 41 years from now? On what basis could he make an estimate?

My basis 40 years ago was way, way below what was necessary at the time of retirement.

Mr. ORIOL. Do we have a volunteer?

Dr. Schulz?

Dr. SCHULZ. Well, the question you ask is an impossible question, and I think you know it.

It is a good point to make that the problem facing the younger person in planning for retirement is a very complex one, and I as an economist planning for my own retirement, have a very difficult time juggling all the variables. I have great sympathy when I think about the people without technical training in this area who have to worry about it.

I think the task force paper has tried in various parts to highlight some of these problems facing people in planning for their own retirement, and in my statement this morning I pointed out that I felt very strongly that the individual alone cannot really do an adequate job. This is why I feel that it is good to have something like a social security system which can react to such things as a depression of the 1930's, an inflation following World War II, changes in the rate of growth that we cannot foresee right now and other unforeseen circumstances. To have a public system which can react to these things provides individuals with a more secure basis to build upon for their future economic security.

I say it is a very difficult question. I don't think there is any one. answer as to what hypothetical level of pension income toward which I should be working.

PENSION FLEXIBILITY

I think we have to develop flexibility in pension institutions and our own personal planning to provide for some of the eventualities that will occur but cannot be completely anticipated.

Mr. BREWSTER. I would say he would be a very unusual man if he was worrying about retirement at age 24. When we get to the 50's and so forth, and when you can see the possibility and know you can count on social security and some other things, then you do a little more planning.

Dr. SHEPPARD. May a sociologist who minored in economics answer the question?

Mr. ORIOL. Go ahead.

Dr. SHEPPARD. My practical advice to your son is to tell him to continue in college, get a Ph. D., go to work for a university that has the TIAA-CREF, and along with social security he has basically his retirement problem solved.

It is the least risk approach I think to the problem.

In the meantime, I think we have a widespread social obligation to educate younger people about the fact that they are not going to re

main under 30, and it is high time we got unafraid of the younger generation and talked back.

Mr. HUTTON. He could become a Congressman.

Mr. BURK. I appreciate that comment, Dr. Sheppard. The only thing is, I have put this man through two degrees. I have another one coming along, besides the other three that I put through one degree, and the time has come that I can no longer finance him to get this necessary doctor's degree that you speak about.

Thank you.

SUMMARY STATEMENTS

Mr. ORIOL. Shall we now begin our down the line discussion of points that you think should be covered before this study is concluded? Let me also remind you that the final report by this committee should be very helpful in the preparations for the White House Conference on Aging in 1971.

Perhaps we could begin with Dr. Schulz.

DR. SCHULZ

Dr. SCHULZ. Three points: First, I just want to react to something I think I heard Mr. Miller say.

Mr. ORIOL. Mr. John Guy Miller?

Dr. SCHULZ. Yes, as to what our priorities should be. There are two questions, as posed by Dr. Kreps. One is the question of the current aged and their problems, and second is the question of the future aged. I want to say that I think that we can attack both of these problems simultaneously.

I can, as a taxpayer, be in favor of supporting the current aged population-realizing the times that they went through and the problems they have. At the same time I can be willing to forgo some current consumption from disposable income in expectation of higher retirement income in the future.

With regard to things that the committee should look into in the future, aside from those which have been highlighted in the task force paper, I would like to mention two.

First, I think that we should be more concerned about assessing the strengths and weaknesses of the highly innovative public pension plans in various other countries, particularly West Germany, Austria, Sweden, and Canada. I think we can learn a lot from their experiences.

I have surveyed the literature in English which describes these programs and evaluates them. I can report that there is little published information. We know the details of the various programs, how the laws read, and how they are set up, but we have very little evaluative information on the results of these new and, I think, in some cases very good pension programs.

Second, I think we lack sufficient information regarding the operations of the various private pension plans in the United States.

This committee can call in the Commissioner of Social Security to testify, as happened this morning, but it is much more difficult to call in the thousands of representatives of the various different types and varieties of private pension plans. It is not as easy to find out what is happening and what their goals are for the future, given the fact that private pension operations are highly decentralized.

It is one of the advantages of the private pension system, that it can take into account the great variety of presumably individual preferences of various industries and various types of workers. However, this advantage makes research in the area of private pension plans much more difficult. It is much more difficult to generalize about what is happening.

I think, however, we have to begin to gather a lot more information about the range of activities that are occurring. Just to cite one example of the kind of questions I think we should be asking, we talked today a lot about the variable annuity, the experience of CREF. Yet we really don't know, I think, how many private pension plans are operating in a manner similar to CREF. I think the number of them is very small.

One thing that should be considered is the possibility of more of these private pension plans taking the gains they are receiving from their pension fund investments in corporate stock and passing them on to the workers, as in the case with ĈREF. Instead of reducing the cost of private pension plans to the employers, which I think is now the most common practice, private pension benefits could be increased. Mr. ORIOL. Mr. Ĥutton.

MR. HUTTON

Mr. HUTTON. Two things occurred to me. I am struck by the general lack of knowledge about our social security system on the part of the worker, and I know that in private industry when there is an idea, such as a new insurance policy, private industry throws a terrific amount of money into getting that down informationwise to the public.

I think that, if our workers had more knowledge about what social security really does, and what it does cover, we might have many more people who are interested in the problem of retirement, and I would like to feel that Government could back up knowledge about this plan, our social insurance plan, even though, Mr. Miller, we might not all be able to describe it correctly.

The social insurance plan as such has been agreed by the laws of Congress. We have a Social Security Act. I think if this was publicized by the Government to the extent that private industry does for private insurance programs we would have a great deal of understanding of this system, which would help us to improve the system.

The second thing is, I am concerned about the fact that every time the country has a war, or the problems of financing some struggle anywhere else, the first people who suffer are the older people.

They always held out promises of helping them a little bit more, but then suddenly it gets tightened up whenever there is a real problem.

I think we should have a look at how many times they have had to retrench on social welfare programs, just because of problems of our military engagements around the world.

Finally, I don't think that the people of the United States are ready to retrench one bit from a good social welfare policy, but I am afraid that the politicians are terribly overanxious to stand pat, and it takes an awful lot to move them.

I wonder whether we might not talk about how we can, all of us who are involved in this thing, get our knowledge across, or get our

experiences across, to our lawmakers, who seem to be woefully behind the people when it comes to improvements in social welfare. Mr. ORIOL. Dr. Fichtner.

DR. FICHTNER

Dr. FICHTNER. I have 6 points. Some are a duplication of what Dr. Schulz mentioned.

One, I think we need a comprehensive survey and study of private pension plans.

I tried to find material on this subject from various private and public sources. All reported they had very little.

Second, we are particularly concerned at AARP with the deteriorating economic situation of older retirees, those who retired 10 or 15 or more years ago. We feel that in most private pension plans there has been very little recognition given to an adjustment upward in the benefits to these older retirees, but we do not have much factual information on that subject.

We do have information in NRTA on State teachers' retirement plans, many of which have upgraded benefits rather substantially on a percentage basis but since they began generally at a low base, the present benefits are not extraordinary.

The third point is that, as remarked, there is needed an institution like CREF for many smaller pension plans.

I organized two pension plans when I was in private industry. In Buffalo, each of our two large banks offered pooled pension plans for smaller employers; both were quite successful. Both invested funds substantially in common stocks, as does CREF, but here is the rub. The capital gains were used I think, for the most part, but not always, to reduce the employers' cost, rather than to extend benefits of the older retirees.

I think there is a possibility of encouraging employers to recognize the plight of older retirees from this particular source.

Mr. ORIOL. Do you see any way in which there could be a governmentally supported incentive for this sort of thing?

Dr. FICHTNER. I suggested this morning that the IRS, through its firm control over private pension plans, might insist for continued qualification that some recognition be given to adjusting the pension benefits of older retirees to correspond somewhat to the benefits that normally increase year by year to those being currently retired.

It is a rather complicated situation. I think some of the failure to adjust the benefits of older retirees may be due to inertia of the management, as well as to the financial considerations, possibly due in some cases to the necessity of getting general stockholder approval in some large corporations, a rather cumbersome process, as well as the annoyance of going to the IRS on an amendment to the plan. But whatever it may be, I think it deserves attention.

Fourth. I think this committee, and this will not be much of a task, could study the experience with bonds of constant purchasing power that are used in some other countries as well as Dr. Schulz mentioned, to explore their pension programs.

Such bonds should be an incentive to individual savings for old age.

I am convinced that many of our younger people are not saving for old age today because they see how savers have always lost purchasing power over the last generation in fixed investments such as bonds, savings and loan accounts, and that sort of thing.

In the fifth place there might be an investigation of the integration of mutual funds with pension planning; more and more mutual funds are being organized some of which are quite well managed. They have payout plans which are in the nature of pension benefits.

The mutual fund industry is becoming quite significant in this country. Total assets exceed $50 billion. Mutual funds can be very useful vehicles in providing benefits in old age.

Finally, I still think that the main thing is to educate Government authorities and the electorate on the vital economic and social importance of stable money, an honest dollar. If we had an honest dollar, and people had confidence in its future value, which I regret to say most do not have today, I believe it would stimulate thrift and savings, not only for old age, but for other purposes.

I cannot avoid the feeling that the present upsurge of inflation is impelled by a rush to get rid of depreciating dollars, and to buy land and homes and buildings; corporations are likewise so motivated to expand their capital investments even by borrowing at extraordinarily high rates, the highest in a century, because they feel that everything is going to cost more next year and in the years thereafter. Mr. ORIOL. Thank you. Mr. Schuchat.

MR. SCHUCHAT

Mr. SCHUCHAT. I would suggest that the committee might want to take a look not only at the possibilities inherent in constant purchasing power bonds, but at some of the possibilities in permitting older people to in effect capitalize their largest remaining asset, that is, their residence.

We know that two-thirds of the people over 65 own a home free of mortgage, and there should be some mechanism by which this asset can be translated into current income.

It should not be beyond the bounds of our ingenuity of financial acumen to solve this problem.

Second, I think that when we think about private pensions, we sometimes fall into the trap of thinking of the person who goes to work and stays with one employer throughout his career, although we know that this is exceedingly rare, and I think we have to think in terms of mechanisms that will cumulate these pension credits, and some efforts have been made.

The industrial union department started a plan for small employers. It is interesting in the discussions today of TIAA and CREF, that the most mobile occupational group in our society are schoolteachers, and every State and city has a pension system for its schoolteachers, none of which is interchangeable with the others.

For that matter, the Federal Government has been remiss. There are a number of fields where people move from local to State to Federal levels, back and forth, and pension credits are not transferable, except, to my knowledge, in the Department of Agriculture. There is

« PreviousContinue »