January 19th, 2012
Econintersect: Peter Orzag says the conventional wisdom that older workers without retirement income will just keep on working is simply not realistic. Orzag, vice chairman of global banking of Citigroup and former director of the Obama administration OMB (Office of Management and Budget), says that won't happen for many because of one of two reasons: poor health and lack of job openings. The golden years are suddenly looking much more like years and much less like gold.
Follow up:Orzag points out that a significant problem for many now in their 60s is that they had planned on using the equity in their home as a significant part of their retirement funds. The bursting housing bubble has blown a big hole in that plan. The trend from the end of the twentieth century for ever earlier retirements was being reversed by 2008, even before the Great Recession and the steepest part of the housing bubble collapse occurred. In addition to losing home equity many also saw 401(k) plans decimated and some probably left the market just in time to miss the big rally that started in March of 2009.
In spite of the fact that data shows increasing employment rates for those above 60, and especially for those in their 70s, Orzag says that there will be many whose physical condition and deteriorating health will prevent them from working and, even with that, many who might otherwise work will not find employment available. And, after the number of people taking early Social Security benefits (at age 62) had been declining for a number of years, it has increased again with the Great Recession as people unable tio find work turned to that resource out of desperation.
Orzag says that creative use of Social Security will be needed to address the problems he foresees. From the Financial Adviser Magazine article:
That’s why Peter Diamond, a Nobel Prize-winning economist at the Massachusetts Institute of Technology, and I have proposed ways of insulating Social Security’s finances from the effects of rising life expectancy without increasing the age at which workers first become eligible for benefits.
Source: Financial Advisor Magazine (attributed to Bloomberg)